It's a natural reaction for most people to expect the worst when they receive a notice from the Internal Revenue Service. In fact, it's not uncommon to panic. While there may only be a simple detail that needs clarification, you certainly want to know when to be concerned about any IRS letters.
Since you'll likely be pressed for time in responding to a notice about your taxes, it's smart to review the basics ahead of time. If you've never faced a tax problem, you're in for a bumpy ride if you don't handle it swiftly. There are a handful of issues to be mindful of regarding IRS correspondence that can mean the difference between a quick fix and finding a complicated solution:
Notices Requesting Payment
Obviously, you'll likely be concerned if you receive a letter requesting additional payment. The first thing to understand is that such a notice may or may not be accurate. The IRS is not infallible, and it's entirely possible that what they have assessed is not on the money (no pun intended). You'll be given the option to dispute the IRS' estimate in tax court, but you must respond by the deadline; extensions are not granted. On the other hand, you may agree with the IRS assessment and you're then left with an obligation to pay, and pay as soon as possible.
A frequent misconception is that audits are always conducted in person by an examiner. In point of fact, many audits are actually conducted through the mail. Like a notice requesting payment, you're given the opportunity to participate in the forthcoming examination. If you choose not to respond, the IRS will assume that their assessment is correct by default. This may lead to a request for payment which, again, will be due immediately. Either way, receiving this type of notice should give you pause and spur you into some type of action, even if it's to determine how you're going to pay the impending balance.
Advanced Collection Action
You may take the position that not acting on IRS notices is preferable to determining a payment plan. Unfortunately, the IRS has a full ten years to collect on a taxpayer debt; that's ten years from the date of assessment. During this time, you're subject to more severe IRS collection efforts. You may find your bank account drained by a levy, you can have your wages garnished and your property can be seized – all in the name of satisfying the tax debt.
If you find yourself in any stage of IRS collections, your best course of action is to talk to a licensed tax professional. An appeal, for instance, may be in your interest if you know that an assessment is incorrect; a tax professional can make such an argument on your behalf. You may be in a position where the debt is accurate but you have no hope of paying it back. A tax resolution company may be able to put you into an installment plan that stretches your repayment over several years. You may also be eligible for Currently Not Collectible status, which prevents you from having to pay anything on your debt for a period of time. Regardless of your circumstances, a licensed tax professional can provide you with a solution, or at least advice. Having a tax debt doesn't have to be the end of the world if you handle it the right way.