Why You Shouldn’t Sweep That Tax Problem Under the Rug

It can be awfully tempting to ignore financial problems, especially those that involve unpaid debts. Choosing indifference over reconciliation is seldom to your advantage, though, when it comes to addressing delinquent balances. This was never truer than in the case of back taxes, which can quickly become a major financial burden.

If you're handling an IRS assessment for the first time, there are some important details that distinguish your balance from most other debts. You can't afford to simply disregard your liability, given the inevitable action you face. The IRS, after all, is unlike any other collection agency in the country.

Distinct Differences

Collection agencies, in most cases, have strict limits regarding what they can and can't do when attempting to secure a payment from you. The IRS, on the other hand, has a much longer reach when you have an unpaid balance. They can take invasive collection action (more on that in a moment) and typically only need to send you a notice before doing so. Even if you declare bankruptcy, a federal tax debt will be unlikely to be included in your filing. Once you have a tax debt, there will be little recourse beyond paying it. And the longer you wait, the more it's going to cost you.

Penalties and Interest

Tax debts, much like delinquent credit card balances, come with both penalties and interest. These additional fees are assessed on a monthly basis and can greatly augment your total balance. As an example, an unpaid tax liability can double in just four years from the addition of interest and penalties. These charges are notoriously difficult to contest, so your only remedy may be to satisfy your tax balance as quickly as possible. Additional monthly charges will apply, no matter how small your unpaid total becomes.

Statute of Limitations

Most debts come with an expiration date and a tax debt, thankfully, is no different. The bad news is that this date, known as the Collection Statute Expiration Date (CSED), arrives ten years after the date of assessment. This means that if your tax debt was assessed on July 14th, 2014, it will not expire until July 14th, 2024. If you manage to reach your CSED – even if you haven't paid your debt – the balance is dissolved. However, enduring this decade without succumbing to collection action is a dubious proposition at best.

IRS Enforcement

What can the IRS do if you ignore a delinquent balance? For starters, you should expect a flurry of notices. These will inform you of your balance, how long you have to resolve the issue and what corresponding action you can expect from failing to address it. IRS collection activity is progressive, so the severity of their efforts will become greater the longer your debt goes unpaid. Informative notices can ultimately evolve into a tax lien, wage garnishment or bank levy. Contesting any of these actions will be futile, save for obtaining a formal resolution for your debt.

Proactive Options

Rather than waiting for undesirable IRS collection action to be put into motion, you can proactively take charge of the issue. There are a number of affordable resolutions that the IRS will accept; the only question is which one will be right for you? You may want to consult with a licensed tax professional regarding this point, to ensure you get the solution that's going to benefit you most. No matter what, the faster you make an effort to resolve your tax concern, the more attractive your options are likely to be.

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