Facing a looming tax bill can be a terrifying proposition. Perhaps even more frightening, though, is the thought of carrying a tax debt without ever having a clue…until it’s too late. This may seem like an unlikely scenario, but it happens to taxpayers every day.
While it’s true that the IRS will send you a notice regarding tax return questions or a proposed liability, there is the chance that they’re simply not getting through to you. You might think this is to your benefit, but it’s just the opposite. Failing to receive and respond to IRS notices can present serious complications to your financial health.
There are a few reasons to explain the communication breakdown between you and the IRS. If you’ve recently moved and did not request to have your mail forwarded, the IRS may simply be sending notices to the wrong address. This is particularly problematic if you moved shortly after tax season, as the IRS will likely not receive updated information until you file your next tax return. If you somehow provide the wrong address info year after year and the IRS is never able to reach you by mail, your tax problem can become infinitely more costly.
So, what happens to your balance as the years tick by? First, you’re subject to failure-to-pay penalties. This is compounded by failure-to-file penalties you may incur from any missing returns. Additionally, you’re liable for interest charges on any unpaid balance for the life of the debt. Since the penalties and interest charges are calculated and assessed monthly, your original balance can become grossly inflated. To put it into perspective, your tax debt can double in only four short years, as a result of the additional fees assessed against you.
You might be able to (inadvertently or otherwise) dodge IRS notices for a while, but eventually your luck will run out. Ultimately, income provided by third parties such as your employer or bank can lead the IRS to your wages or bank accounts – or both. Worst case scenario, they can garnish your paychecks or levy your bank account, taking as much as you have available up to the total you owe. So, your $4000 checking account can drop to zero overnight. And while you might have a leg to stand on in contesting such action, retrieving levied funds is notoriously difficult.
Rather than waiting to get the shocking news that you’ve been cleaned out by the IRS, it’s smart to find out where you stand. If you want to reach the IRS directly, you can dial 1-800-829-1040 and inquire about any potential liability. On the other hand, if you’re already aware of a tax debt or you’re currently dealing with collection action, you may want to consult with a licensed tax professional. No matter your circumstances, though, not knowing about a tax debt won’t prevent you from eventually paying for it.