It is not necessarily a sign that you are in trouble if you receive a collection letter from the IRS, but it does mean that there is a problem. These letters serve as indicators that you have an unpaid tax balance or that one of your payments was not fully processed. However, you might be in trouble if you ignore the letter and fail to address the problem indicated within. Neglecting an IRS collection letter potentially leads to higher interest and penalties.
Why did you receive an IRS collection letter?
IRS collection letters often arrive through the mail sent by the U.S. Postal Service. If you have received a collection letter through an unexpected email or text message, it is a phishing scam. If ever you are skeptical, it would be best to confirm its validity with the IRS directly.
The IRS often includes the specific reason the agency sent you a collection letter within the letter itself. Typically, the IRS sends collection letters to those who have unpaid tax balances on their accounts. However, there are other reasons why the IRS might have sent you a collection letter. For example, there might have been an error with the calculations determining how much you need to pay.
What happens after you receive the letter?
The worst thing you can do after receiving an IRS collection letter is to ignore it. Whether you plan to pay your taxes, request a payment plan or dispute the balance, refrain from panicking and respond in a timely manner to avoid missing the deadline. Remember, failing to pay your taxes completely causes interest to accrue until the balance is paid.
Make sure to confirm that there are no mistakes in the values indicated in the letter and that you are not making any incorrect, unnecessary payments. By paying your taxes, you help fund health programs, education and public safety to improve living conditions for people all across America – including you.