Receiving a certified letter from the IRS can be very distressing and confusing, especially if you have no idea why such a letter is sent to you or how you should go about responding to it. Letters from the IRS, mostly by certification, indicate that certain critical tax issues need your immediate attention—unpaid taxes, penalties, or other such aspects that may lead to severe consequences if left unheeded. In this article, we will go into the reasons behind the IRS sending certified letters, how to handle them, and what one could do upon receipt of a Notice of Intent to Levy. Further on, we will touch on the involvement of tax consulting firmin such cases and how to avoid notices from the IRS in the future.
Common Reasons the IRS Mails Letters via Certified Mail
The IRS sends certified letters to ensure you receive important information about your tax account. This is usually reserved for when the IRS needs to have a record that you were officially notified, in most cases where there can be some legal or financial consequence. Here are some of the most common reasons you might get an IRS certified letter in the mail:
H3: Back Taxes
Many times, the IRS will send a certified letter when one owes back taxes to demand payment or advise of intended collection activity.
Notice of Intent to Levy
The most serious certified letters are perhaps the Notice of Intent to Levy—Letter 1058 or LT11. This letter gives notice that the IRS intends to seize assets, which can include bank accounts, wages, or property, unless one addresses the debt owed for taxes within a certain period.
Audit Notification
If your return has been selected for an audit, you may also be sent a certified letter informing you that an audit will be conducted and more documentation may be needed.
Notice of Tax Lien
If you owe a significant amount of tax debt, the IRS may file a tax lien against your property. A lien gives the IRS a legal claim against your property to secure a tax debt.
Failure to File or Inaccurate Return
The IRS may send you a certified letter if they note any discrepancy in the return or if you haven’t filed. They are requesting resolution or penalty payment.
Payment Plans or Offers in Compromise
If you have submitted a payment plan or your tax debt to be settled, also known as an Offer in Compromise, the IRS will mail you a certified letter accepting or rejecting your request.
How to Handle an IRS Certified Letter
Receiving an IRS certified letter can be intimidating; nevertheless, it is in your best interest to remain calm and follow these steps to effectively handle this situation:
Open the Letter Immediately
The reason most people don’t open an IRS letter is fear or anxiety. It’s important that you open the letter right away to understand the issue and when deadlines need to be met.
Read the Whole Letter Carefully
It gives background information on why the letter was written and may require action by you. Be alert for any deadlines, as failure to respond in time may make matters worse.
Verify the Information
Check the letter against your tax records to ensure the IRS has accurate information. If you think they’ve made a mistake, gather supporting documentation for your dispute.
Take Immediate Action
Whether the letter pertains to taxes owed, a Notice of Intent to Levy, or an audit, act quickly. Ignoring the letter may lead to penalties, interest, or further legal action by the IRS.
Seek Professional Help
If you are unsure of how to respond or if the letter involves complex tax issues, consult a tax professional. They can guide you on how to proceed and represent you in correspondence with the IRS.
Steps to Take If You Receive a Notice of Intent to Levy
A Notice of Intent to Levy is one of the most serious certified letters because it signals the IRS’s intent to seize your assets to satisfy unpaid taxes. If you receive this letter, here’s what to do:
Levy Notice Timeliness
The Notice of Intent to Levy gives you a 30-day window to settle the issue before the IRS initiates levy actions. Within this period, you can apply for a payment plan, an Offer in Compromise, or appeal to stop the levy.
Request a Collection Due Process Hearing
If you disagree with the levy or believe the IRS made an error, you are entitled to request a Collection Due Process hearing by filing Form 12153.
Set Up an Installment Agreement
If you’re unable to pay the full tax debt, consider establishing an installment agreement, which allows you to pay in monthly installments and avoid asset seizure.
Offer in Compromise
If you’re experiencing financial hardship, you may qualify for an Offer in Compromise, allowing you to settle your tax debt for less than what you owe.
Seek Professional Tax Help
A Notice of Intent to Levy is challenging to handle alone. A tax professional or attorney can help you explore options to prevent the levy before it takes effect.
Consequences of Ignoring an IRS Certified Letter
Ignoring an IRS certified letter can lead to serious consequences depending on the issue.
Asset Seizure
The IRS will proceed with the levy, potentially garnishing wages, levying bank accounts, or seizing personal property such as cars or real estate.
Additional Penalties and Interest
If you do not address the issue, penalties and interest will continue to accrue, increasing the amount you owe.
Tax Liabilities
Ignoring unpaid taxes can result in a tax lien on your property, negatively impacting your credit score and making it harder to sell or refinance.
Legal Action
In extreme cases, the IRS may take legal action, requiring you to appear in court and potentially face fines or additional litigation costs.
The Role of Tax Professionals in Managing IRS Certified Letters
Dealing with the IRS can be complicated, especially if you don’t know the laws and procedures. Here’s how tax professionals can help:
Expert Guidance
A tax professional will explain the letter, assess your situation, and help you determine the best course of action.
Representation
If negotiations or a Collection Due Process hearing are necessary, a tax professional can represent you and present your case in the best possible light.
Tax Planning and Prevention
Once the immediate issue is resolved, a tax professional can help create a tax plan to prevent future IRS problems and minimize your tax liability.
Avoiding Future IRS Certified Letters
The best way to avoid IRS certified letters is to stay ahead of your tax obligations. Here are some tips:
File and Pay Taxes on Time
Ensure you file your tax return by the due date and pay any taxes owed promptly.
Set Up a Payment Plan If Needed
If you’re unable to pay in full, set up a payment plan with the IRS to avoid escalation to liens or levies.
Keep Accurate Records
Maintain accurate records of your income, expenses, and tax payments to avoid issues with the IRS.
Regular Consultation with a Tax Professional
Regular consultations with a tax professional help you stay compliant and prevent IRS-certified letters in the future.
Conclusion
IRS certified letters are urgent matters that should be addressed quickly to avoid escalating consequences. Whether you owe unpaid taxes, receive a Notice of Intent to Levy, or face other tax-related issues, taking immediate action and seeking professional help can prevent serious outcomes. By staying proactive with accurate records and professional advice, you can minimize the risk of future IRS-certified letters and avoid financial distress.
