Receiving a notice from the IRS is not something most people look forward to. You may be confused as to what the notice is saying, and afraid of the possible consequences, such as owing substantial back taxes, interest, and penalties.
However, there are two important things to know about most IRS notices:
- You may have the right to challenge or appeal the action the IRS is taking, and
- You usually have a limited time to do so.
If you toss the IRS notice aside and forget about it, you may lose out on your chance to appeal an incorrect tax assessment or to stop an IRS collection action. The IRS is also much easier to deal with when you are proactive about solving your tax problems, rather than failing to respond to IRS notices and hoping for the best.
There are many different types of IRS notices, but the Notice of Deficiency and the various collection notices are two common ones that you should be aware of.
The Notice of Deficiency
The Notice of Deficiency, also known as a 90-day letter, is the last best chance to disagree with the IRS determination of additional tax due. Don’t ignore it! If you do, you will be very unhappy later.
Once you receive this notice, you have 90 days to file a petition in Tax Court. If you have any reason to believe that the IRS has made an error in computing the tax, you should contact a tax litigation attorney immediately, so you can argue your case in Tax Court.
After filing your petition, you may not need to go to court at all. Your tax attorney may be able to negotiate a settlement that eliminates some or all of the assessed tax. Even if you and your attorney decide that the IRS is likely to win their case, you can negotiate an installment plan or Offer in Compromise in order to avoid any IRS collection actions.
IRS Collection Notices
There are many different types of notices to inform you that the IRS is about to use its broad collection powers to take your assets. Some of these notices include:
- Notice of Intent to Levy
- Notice of Federal Tax Lien
- Notice of Jeopardy Levy
- Notice of Levy on Your State Tax Refund
- Post Levy Collection Due Process Notice
If you receive any of these IRS notices, it means that the IRS is about to—or already has—seized your property, whether it was the funds in your bank account, a portion of your wages, or something else.
You have a right to challenge these collection actions, whether they have already happened or not. In most cases you can request a Collection Due Process hearing, but you only have 30 days to make such a request.
You may or may not be able to dispute the tax assessment at this point, but you can challenge the specific collection action being taken, and either agree to a payment plan or Offer in Compromise, either of which is preferable to having the IRS drain your bank account or garnish your wages.