Receiving a letter from the IRS can stir a mix of emotions, from mild concern to outright panic. While it is tempting to set aside that envelope unopened, hoping the issue will resolve itself or disappear, this approach can lead to serious consequences.
The IRS communicates with taxpayers for various reasons, not all of which signal an audit or a major problem. Sometimes, the agency needs additional information, wishes to notify you of discrepancies in your tax return, or inform you about a due refund. Ignoring these communications, however, can escalate a minor issue into a significant problem, involving penalties, fines or more severe legal actions.
Penalties and interest accumulate
One of the immediate consequences of ignoring IRS communications is the accumulation of penalties and interest. If the IRS claims you owe taxes and you do not respond, they will proceed with their assessment, adding penalties and interest from the due date of the tax. These additional charges can quickly increase the amount you owe.
Loss of appeal rights
The IRS provides taxpayers with the right to appeal its decisions, but this right comes with a strict timeline. Ignoring initial communications means you might miss the chance to challenge the IRS’s findings, losing the opportunity to present your case or correct misunderstandings.
Potential for more serious actions
If the IRS does not receive a response, it may take more drastic measures to collect what it believes you owe. This can include placing a lien on your property, levying your bank accounts or garnishing your wages. These actions can have long-lasting effects on your financial well-being and credit score.
You need to engage with the IRS when it reaches out for information or to notify you of an issue. While dealing with tax issues might be intimidating, responding promptly and seeking to understand the problem can prevent situations from worsening. It is better to address the issue head-on than to let it grow into a more significant problem.