What Happens When you Don’t Pay Taxes

You might be honest in citing a reason for not filing taxes such as ignorance of tax laws or a personal crisis, but if you owe taxes, the non-filing of your returns will always lead to even bigger tax debt, irrespective of the reason. The IRS may not immediately be aware that you owe, but when they discover that you have unpaid back taxes, they will begin collection action by sending notices regarding its payment. An IRS notice regarding tax debt is an indication that the IRS has reviewed your tax details and will pursue your case until it is resolved.

Substitute for Return (SFR)

If you fail to file a tax return, the IRS files a substitute return based on the information they have from other sources. An SFR is filed by the IRS to determine the exact amount of tax debt owed so that they can begin collection efforts. Although an SFR is an estimate, if the taxpayer does not respond to initial notices regarding the estimated tax debt, the estimate may become permanent. Based on the SFR, the IRS places a lien and levy.

IRS Notices for Tax Debt Payment

The first collection action the IRS takes is to send notices to the taxpayer. The initial IRS notices include information on the total tax debt owed, the reason for the owing of taxes, and how the taxpayer can pay the tax debt. These are the notices you can expect to receive from the IRS if you have not paid your taxes.

CP21E, CP22E

The IRS conducted an audit and changes were made to your tax return. You owe taxes because of the changes.

 

CP21I, CP22I

The IRS made changes to your tax return for Individual Retirement Arrangement (IRA) taxes. You owe taxes because of the changes.

 

CP22A

The IRS made changes to your tax return that you requested and you owe taxes as a result of the change(s).

 

CP23

The IRS made changes to your return because there was a difference between the amount of estimated tax payments on your tax return and the amount the IRS posted to your account. You have a balance due because of these changes.

 

CP51A, CP51B or CP51C

You have a tax debt because the IRS computed the tax on your Form 1040, 1040A or 1040EZ.

 

CP71, CP71A, CP71C, CP71D, CP160, CP161, CP163, CP187

These notices are sent to remind you of the amount you owe in tax, penalty and interest.

 

CP501

You have a balance due (money you owe the IRS) on one of your tax accounts.

CP503

You have not responded to earlier notices and you still have an unpaid balance on one of your tax accounts.

Federal Tax Lien and Levy

The next collection steps the IRS takes if the taxpayer ignores or avoids paying or resolving the tax debt after the initial notices is either the placement of a federal tax lien or the placement of a tax levy. A lien is the IRS’ legal claim to a taxpayer’s property/assets to ensure payment of tax debt. Generally, the IRS places liens on tax debts of $10,000 or more.

A tax levy is when the IRS seizes property or assets for the purpose of satisfying your tax debt. The IRS may levy assets such as wages, bank accounts, Social Security benefits, and retirement income. The IRS also may seize your state or federal income tax refund and apply it to your tax liability. Finally, the IRS can seize and auction off your property including your car, boat, or real estate to satisfy your tax debt.

Before the lien or levy is placed, the taxpayer will receive a notice informing them of IRS action:

CP504B

You have an unpaid amount due on your account. If you do not pay the amount due immediately, the IRS will seize (levy) certain property or rights to property and apply it to pay the amount you owe.

CP 90 / CP 297

Final Notice - Notice of Intent to Levy and Notice of Your Right to a Hearing

CP 297A

Notice of Levy and Notice of Your Right to a Hearing

CP 91 / CP 298

Final Notice Before Levy on Social Security Benefits

After the placement of the levy, one of these two notices is send by the IRS:

CP90C, CP297C

We levied you for unpaid taxes. You have the right to a Collection Due Process hearing.

After the final notice of the intent to levy, the IRS stops sending notices and seizes and/or sells the seized property/assets to fulfill the maximum amount of tax debt. To avoid aggressive collection actions of the IRS such as lien and levy, it is recommended that you begin resolution efforts after receiving the initial notices regarding tax debt.

From the Author: Tax Resolution Legal Team

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