When you have to deal with the IRS, that can make you feel a little stressed out. If you have notices arriving in the mail, you need to know what they mean, especially collection actions.
What triggers IRS collection actions? This is the IRS’s way of enforcing payment of taxes owed. If you want to prevent unnecessary penalties or stress, here is why they happen and how to respond.
What Are IRS Collection Actions?
IRS collection actions happen as the IRS tries to recover unpaid taxes. These actions can include:
- Sending letters demanding payment
- Placing liens on property
- Garnishing wages
- Levies on bank accounts or other assets
However, before taking these steps, the IRS sends multiple notices. They give taxpayers a chance to pay, request a payment plan, or challenge the balance.
Collection actions are not automatic. They are triggered by certain behaviors or situations related to unpaid or unreported taxes.
What Are Triggers for These Actions?
There are several key reasons why the IRS will begin collection activities. These include:
Unpaid Taxes
The most common trigger is failing to pay taxes owed by the deadline. Sometimes, this includes underpayment on your tax return or failure to pay estimated taxes throughout the year. Even small balances can generate penalties and interest over time.
Ignoring IRS Notices
When the IRS sends a notice about unpaid taxes, you never want to fail to respond. That can only escalate the situation. These notices may include:
- Demands for payment
- Requests for additional information
- Warnings of potential enforcement action
Unfiled Tax Returns
If you do not file required tax returns, that can also trigger collection efforts. The IRS can estimate your tax liability based on available information. They can begin collection proceedings even without a filed return.
Discrepancies or Errors on Returns
If the IRS identifies a mismatch between your reported income, deductions, or credits and information received from employers, banks, or other third parties, it may adjust your return and demand payment. Once again, ignoring these discrepancies can lead to collection action.
Failure to Make Agreed Payments
If you have arranged a payment plan and miss scheduled payments, the IRS may take additional enforcement steps, including levies or liens.
How the IRS Notifies You
The IRS starts collection with written notices. These letters are formal. They will provide details about the tax owed, any penalties, and the next steps. Some of these notices include:
- CP14: Initial notice of balance due
- CP501 and CP503: Follow-up notices for unpaid taxes
- Final Notice of Intent to Levy (CP504): Warning that collection action is imminent
Receiving one of these letters does not mean you’re out of options. The IRS allows taxpayers to respond, dispute the balance, or request alternative arrangements.
Are There Options Before Collection Actions Escalate?
Even if you owe taxes, there are ways to address the situation and prevent aggressive collection actions. These include:
- Pay in full: When you settle the balance, that stops additional interest and penalties from accruing.
- Installment agreement: You can set up a payment plan if you cannot pay the full amount at once.
- Offer in compromise: In some cases, the IRS may accept less than the full balance owed if paying in full would create undue financial hardship.
- Appeal or dispute: If you believe the IRS made an error, you can appeal the assessment or provide documentation to correct your account.
In any situation, responding right away is important.
Professional Guidance Is Needed in These Cases
The IRS collection process is complicated. These stakes are high. Liens, levies, and wage garnishments can have long-lasting financial effects. An experienced tax debt resolution lawyer will:
- Review your IRS notices and tax records
- Identify errors or miscalculations
- Negotiate payment arrangements or settlements
- Represent you in communications with the IRS
With their help, they can prevent unnecessary penalties or enforcement actions.
Get the Help You Need for Your Tax Issues
What triggers IRS collection actions? There are a wide range of reasons. In any case, you need to take action fast. Starting early in the process provides you with more options to resolve these issues.
If you are facing IRS notices, Easter & DeVore, Attorneys at Law can assist. We can help you find the right options to stop the collection actions and get you back on a solid financial path. Schedule a consultation today.
