When a taxpayer fails to comply with tax obligations, like failing to file their return on time or not paying what they owe, the IRS sends out a succession of notices. These notices are meant to remind taxpayers of their obligations while notifying them of penalties for noncompliance.
While not all IRS notices require immediate action, they all need close attention. They will usually include information about why you’re receiving the notice, the laws you didn’t comply with, what you need to do next, and your current balance. If you ignore these notices, your situation will only continue to escalate and become more expensive.
This guide walks through the types of notices you may get and what happens if you ignore them. When in doubt, talk to Wiggam Law about your options for dealing with the IRS.
Key Takeaways:
- Failing to respond to IRS notices can lead to increasing penalties and interest and severe consequences like asset seizure or wage garnishment.
- The IRS sends many types of notices, including notices about collection actions, audits, unfiled returns, etc.
- To determine how to respond, all notices should be reviewed carefully.
- Notices progress from reminders (CP14, CP501) to more serious threats like CP504 and Letter 1058, which warn of impending levies and legal action.
- Responding to notices early allows for options like payment plans, appeals, or penalty relief.
Types of IRS Notices and Consequences of Ignoring Them
The IRS sends out a host of notices that cover various purposes, from tax penalty charges to new tax assessments to upcoming actions like liens and levies. Here’s an overview of the types of notices you may see and what will happen when you ignore them:
IRS Collection Notices
Notices during the collection process are some of the most common. If you don’t pay your taxes on time, the IRS’ Automated Collection System (ACS) will begin sending out notices, including CP14, CP501, CP503, and CP504. Each notice becomes more urgent, and your penalties may continue to add up.
After these notices, the IRS sends a Final Intent to Levy notice, with your right to a hearing. If you don’t respond to that within 30 days, the IRS can move forward with:
- Asset seizure (levy): If you don’t pay what you owe immediately, the IRS can levy your property, including your home, financial accounts, and wages.
- Federal tax lien: If the IRS hasn’t already done so, it could file a federal tax lien to inform your other creditors of the government’s interest in your assets.
- Passport revocation: Another consequence of ignoring collection notices is the potential revocation of your passport or denial of a passport renewal.
Doing nothing when you receive IRS collection notices will only lead to more trouble. Respond right away, pay your debt when you can, or contact a tax professional who can help you pursue the right resolution option.
In reality, you can get away with ignoring the first few collection notices. But if you ignore the Final Intent to Levy notice, you will face severe collection actions like wage garnishment, bank account freezes, or asset seizure.
IRS Audit Notices
The IRS may audit your tax return in some cases. Letters 566 and 525, as well as some others, indicate that the IRS has selected your tax return for an audit or examination. These letters request specific documentation from you to confirm your information. Some audits are conducted solely through the mail via correspondence, and some are field audits, where an agent visits your place of business or home.
Consequences of not responding include:
- IRS audit without your input: If you ignore an audit notice, the IRS will move forward with the audit, and you will not have a chance to respond.
- Changes to your return: If you don’t respond to audits or requests for documentation, the IRS may make changes to your return on its own and propose a higher tax assessment.
- Deficiency notice: If the IRS wants to assess tax against you after an audit, they will send you a deficiency notice, and if you don’t respond to that, the tax assessment will become final in 90 days.
- Penalties: The IRS will charge you penalties if you don’t respond to audit determinations and tax gets assessed against you that you don’t pay.
- Collection actions: Ignoring a tax assessment after an audit can lead to collection actions. If you don’t pay, you will have to deal with more penalties, liens, and levies.
Audits can feel really stressful, but ignoring audit notices is not a good way to resolve the issue. Follow the instructions on your notice to move forward and stay in compliance.
Unfiled Tax Returns
A very common issue for taxpayers is an unfiled tax return. Tax law requires you to file an annual tax return by April 15 of the following year, in addition to quarterly tax filings if you are self-employed.
You may get an IRS Notice CP59 or CP63 in the mail about unfiled returns. They both indicate that the IRS hasn’t received a return from you, and CP63 says that the IRS is holding your refund because of unfiled returns.
Here’s what could happen next if you ignore unfiled tax return notices:
- Failure to file penalty: The IRS will charge this penalty when your return is late.
- Substitute for return (SFR): The IRS may file an SFR on your behalf if you do nothing, which is a tax return using the information they have. It will not include any credits or deductions, so you could end up paying more than if you filed yourself.
- Collection actions: If you owe taxes and don’t file, you’ll continue to accrue penalties and interest, and the IRS could eventually take more serious collection actions like liens and levies.
Never try to get out of filing your tax return. The IRS will continue to try to get you to file and charge you penalties, and you could miss out on tax breaks you qualify for.
IRS Payroll Tax Notices
If you’re an employer and required to make payroll tax deposits, you could receive a notice from the IRS, such as Notice CP236, CP276B, or CP220J, which notifies you that you missed a payment or didn’t make the full required payment.
If you ignore these notices and do nothing, you could face these consequences:
- Failure to deposit penalty: This penalty is 2% of the unpaid deposit if your deposit is five or fewer days late, 5% if it’s 6 to 15 days late, or 10% if it’s over 15 days late.
- Trust fund recovery penalty (TFRP): This penalty is a significant one, equal to the amount of tax you didn’t pay but should have. The IRS will investigate which individual was responsible for the mistake and charge them with the TFRP.
- Enforced collections: The IRS tends to be more aggressive with payroll taxes than with individual income taxes. If you don’t pay, the agency may enforce collections against you and seize assets that eventually force your business to shut down.
Anytime you get a notice in the mail about payroll tax deposits, don’t brush it off. You want to avoid further penalties if possible by acting quickly. You also want to protect your business. The IRS is often reluctant to set up payments or work with taxpayers who have repeated issues with payroll taxes.
Do All IRS Notices Require a Response?
The IRS also sends out informational notices, such as letters about the status of your refund or annual summaries of your balance. Often, these types of notices don’t require you to do anything or respond.
Here are a few strategies to help you differentiate between these notices and those you need to respond to:
- Read the notices carefully: Review every detail and look for instructions. Sometimes notices will indicate that you don’t need to do anything right now.
- Maintain good records: Even if you don’t have to respond to a notice, keep it for your records. You may need to refer back to the information provided in the future if there’s an issue or question.
- Watch for deadlines: If your notice includes a deadline, it probably needs your immediate attention.
- Verify the information: Compare your records to the notice, even if no deadline or response is required. Ensure the details are accurate and up to date.
- Ask a professional: When in doubt, ask a tax expert if your notice needs a response or not. They will be familiar with tax notices and what they mean for your standing with the IRS.
Any type of IRS notice needs your attention. Even if you don’t need to take immediate action, you still need to understand why you received the notice and verify that the information provided is accurate.
How the IRS Escalates Collection Actions
The IRS uses a set sequence of notices when trying to collect unpaid taxes. The first notice will likely be CP14, alerting you that you owe a balance and have been charged with a penalty. Notices CP501 and CP503 remind you of your unpaid balance but give you more time to act. CP504 is a more serious notice, letting you know the IRS will seize your assets if you don’t do anything. Then, the 30-day letter, often Letter 1058, gives you 30 days before the IRS can levy your property.
This process may take months, but you will continue to accrue penalties and interest throughout that period. It’s best to take care of the problem when you get the first notice.
Some IRS notices include collection due process information, including how to appeal a decision. You can dispute an amount or an IRS decision during the collections process if you don’t agree. Get help from a tax attorney if you think you want to move forward with filing an appeal.
Steps to Take If You Receive an IRS Notice
Next, let’s look at exactly what steps to take when you get an IRS notice so you don’t miss your chance to act quickly and resolve the problem:
- Open It Immediately – Don’t let anything from the IRS sit in your unopened mail pile. Open correspondence right away so you avoid risking a missed deadline.
- Identify the Type of Notice – Is your notice a collections, audit, unfiled return, or deposit notice? At the top of your notice, there is often a sentence or two where the IRS states exactly why you’re receiving the notice.
- Review the Balance and Penalties – Review the provided balance and breakdown of charges. This may include your original tax balance, penalties, and accrued interest. Check for accuracy and ensure penalties have been calculated properly. Notices will often include information about how the IRS calculates these charges.
- Check Deadlines – If you’re required to pay or to take some other action, look for the due date. This is how long you have to respond, whether you want to enter into a payment plan, request relief like an offer in compromise, or make a payment. The sooner you act, the better, so don’t wait until the last minute.
- Verify It’s Really the IRS – Unfortunately, tax scams are rampant. Scammers will often try to impersonate the IRS to get money or information from you. If you believe you’re currently in compliance with tax obligations and the notice came out of the blue, make sure it’s legitimate. Also, be aware that if you get a text, phone call, or email. The IRS generally doesn’t make initial contact with these methods and will instead send notices via the mail. If you want to verify it really came from the IRS, contact the IRS directly or ask a tax professional.
How Wiggam Law Helps with Tax Notices
Getting tax notices can make you feel like you’ve done something wrong. Sometimes they mean you’ve missed a deadline or owe more taxes, while sometimes they’re just informational notices.
Whatever the case, working with a tax attorney at Wiggam Law is a good idea to get your matter resolved. We help you assess the severity of your tax notice and advise you on next steps. We can also talk to the IRS on your behalf so you don’t have to worry about dealing with agents.
Our attorney will also help you understand your options for tax resolution, such as installment agreements, penalty abatement, offers in compromise, or currently not collectible status. These options can help you avoid tax liens and levies.
Schedule a consultation with Wiggam Law today to get started.
FAQs About Ignoring IRS Notices
What If You Ignore an IRS Notice?
The IRS will continue its collection actions, charge penalties and interest, and even seize your assets if you ignore notices about an unpaid balance or unfiled return. Some notices may be informational, but you should still read them carefully.
At What Point Will the IRS Come After You?
The IRS will assess penalties as soon as you are late. The agency may then start collection actions within a few weeks or months—sometimes, it can take longer to start the process.
If you don’t respond to initial notices, collection actions may escalate to filing a federal tax lien or issuing a tax levy to seize your assets. The IRS can assess tax up to three years after your return was filed (or the original due date if later) and can collect up to 10 years.
Do All IRS Notices Mean I Owe Money?
No, some IRS notices are informational. Others may ask you for additional documentation to support the claims on your tax return.
How Long Do I Have to Respond to an IRS Notice?
Deadlines vary based on the type of notice you receive. Some notices, like the 30-day letter, give you 30 days to respond before the IRS levies your property. Others may give you 60 or 90 days to respond. Pay close attention to what your notice says.
Can the IRS Garnish My Wages?
Yes, the IRS has the right to garnish your wages after you have failed to pay taxes or set up an arrangement to pay them off. The IRS must notify you of the intent to seize your assets before it does so, giving you additional time to respond.
