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Notice of deficiency: First step in the IRS collection process

Open that letter from the Internal Revenue Service right away, because a notice of deficiency (NOD) is one way that the agency assesses taxes. Dealing with the tax bill sooner rather than later can avoid other collection activities.

These letters will frequently issue after a tax audit or examination. If you miss this first letter, or read it and ignored it, your debt will go to the Automated Collections System. This blog will cover some of the collection tools the agency has its disposal to get your attention.


Threatening letters

ACS starts the collection process with threatening letters. They send them about once a month. If you have changed addresses, you need to have mail forwarded or you risk not receiving these notices.

Eventually, a letter called the Final Intent to Levy Notice arrives. You need to act at this point. You have 30 days to appeal the amount owed.

Many tax scams seek to imitate the IRS collection efforts. You need to know that the agency will not email you or call you. The agency does not threaten to send the police if you do not pay nor does it ever ask for prepaid debit-type cards. These are tactics used by scammers.

Liens, levies and garnishment

When you do nothing, however, the IRS will file a tax lien with the clerk of court. This becomes public information and can negatively affect your credit. Liens against property can cause significant delays, if you are planning to sell your home or a vehicle.

After the lien is in effect, the agency also looks for bank accounts it can levy.  A levy (or seizure) of your savings account could result in a shock at the ATM.

The IRS also researches where you work and how much you earn. It can garnish up to 70 percent of your wages to satisfy a past due tax bill.

You have rights during the collection process. Protect your rights and avoid the tedious process of removing a lien or garnishment by speaking with a tax attorney immediately after receiving a NOD.

Source: Accountingweb.com, “What Your Clients Should Know About Federal Tax Liens,” Craig Smalley, Feb. 11, 2016

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