Whatever issue you’re facing, it’s important to understand the problem and take the appropriate action. Learn more about the most common IRS issues below and what to do about them. Then, make a call to Tax Defense Network to get on your way towards the right resolution.
1. Didn’t File a Tax Return
If you didn’t file a tax return and the IRS owes you money, you’ll lose your refund, unless you file within three years of the tax filing deadline. If you owe the IRS money, you’ll be subject to the “failure to file” penalty, which is five percent of your unpaid tax bill for every month your tax bill goes unpaid after the April deadline—up to 25 percent. The IRS will also tack on interest each month the bill goes unpaid.
2. Made a Mistake When Filing
Mistakes happen. You can amend a return for items like filing status, number of dependents, total income, or to claim deductions or tax credits you didn’t claim on the original return. Use Form 1040X, Amended Individual Income Tax Return, to correct the errors.
If you’re amending to pay additional tax, you should file the amended return with Form 1040X and pay the tax as soon as possible to limit any interest and penalty charges.
In some cases, you won’t need to amend your return. The IRS usually corrects math errors when processing your return.
3. Underreported Income (Mismatch Income)
If the IRS believes you’ve underreported the income on your tax return, they’ll send a CP2000 Notice with the amount they believe to be correct.
4. Tax Penalties
An IRS tax penalty comes in two primary forms: failure to file and failure to pay. Once charged, an IRS penalty can be very difficult to remove, but there are special circumstances where it can be waived. Learn more about tax penalties
5. A Notice for Balance Owed
If the IRS determines that taxes have gone unpaid, or not enough tax was paid, you’ll receive a CP14 Notice to explain why and how much they believe you owe.
6. Can’t Pay Amount Owed
If you’re unable to pay the tax debt in a single payment, you have the option to request an installment agreement, which will allow you to pay off the debt over a certain amount of time. If you still are unable to pay, there are more options, including an Offer in Compromise, which can lower your overall tax bill.
7. Tax Levy Issued
An IRS levy permits the legal seizure of your property to satisfy a tax debt. It can garnish wages, take money in your bank or other financial accounts, seize and sell your vehicle(s), real estate and other personal property. If you receive a notice LT11, CP504, CP90, CP91, these will tell you the specifics about the levy being issued.
8. Tax Lien Filed
The IRS files a federal tax lien to protect their interests when a taxpayer fails or neglects to pay a tax debt. You’ll receive a Letter 3172 in the mail from the IRS. They’ll also send this notice to tell creditors that the IRS has a claim against property including real estate, personal property, and financial assets. This is done to ensure the funds made from the property are applied to the IRS debt. Getting a tax lien released is difficult and most often is only done when the tax debt has been paid in full.