IRS Collection Notices: 4% of Americans Fear ‘Catastrophic Financial Stress’
Written by
Andrew Lisa
Edited by
Carly Brashears
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The IRS stopped sending debt collection notices during the pandemic, but the agency is taking the gloves back off and will soon resume mailing those famously warm and fuzzy letters once again.
Like eviction moratoriums and the student loan repayment pause, a treasured COVID-era grace period is ending — and not everyone is ready to get back to reality.
A new GOBankingRates survey of more than 1,000 adults found that some people are dreading IRS collection notices as if they were, well, IRS collection notices.
So, Wait — The IRS Went Away, but Now It’s Back?
In March 2020, the IRS temporarily paused some debt collection efforts as the COVID-19 crisis unfolded. In February 2022, the agency extended the suspension and announced it would no longer mail collection letters.
The agency’s actions were meant to alleviate the widespread suffering and financial anxiety of the pandemic — at least in part. But the IRS was also chronically underfunded and overburdened at that time, with a backlog of 24 million unprocessed returns crippling its ability to collect revenue.
Then, just as the pandemic subsided, the Inflation Reduction Act injected the IRS with a sorely needed $80 billion funding boost.
With the backlog cleared and the pandemic tamped down, a new cash-flush IRS plans to resume sending out collection letters “sometime this calendar year,” according to the Taxpayer Advocate Service.
A Small but Significant Minority Is Rightfully Worried
First, the good news. More than three out of four people — about 77% — say they don’t owe any back taxes and aren’t on the IRS’s mailing list.
Among those who do owe the agency, the largest share of people are prepared and have a plan in place to manage the situation. The next largest percentage isn’t panicking but plans to reevaluate their budgets in preparation for collections to resume.
But the smallest percentage — a little more than 4% — are bracing for the worst, and expect the resumption of IRS collection notices to create “catastrophic financial stress” in their lives.
Confusion Reigns — Here’s What To Expect
Interestingly, the GOBankingRates study showed that even though 77% don’t owe any back taxes, only 65% are certain that the IRS’s resumption of collection notices won’t affect them. That’s because there’s significant confusion on the issue — when asked how their finances would be affected, people were most likely to say they were unsure.
Here’s what they can expect:
- An IRS officer might request a rare in-person visit if you owe an exceptionally high balance.
- Everyone else will receive a CP14 notice alerting you to a balance due and requesting payment within 21 days.
- If you don’t respond to the CP14, the IRS will send two follow-up notices, CP501 and CP503.
- After that, the IRS will send a CP504, a final notice warning that if you don’t pay your past-due balance immediately, the agency can seize your tax refunds, wages, bank accounts and even property.
Don’t Panic, but Do Take It Seriously
When GOBankingRates asked the study’s respondents how they planned to pay their back taxes, the smallest percentage said they simply wouldn’t be able to. That cohort likely aligns with the 4% who are bracing for “catastrophic financial stress.”
While their anxiety is certainly understandable, at least some of it probably traces to the IRS’s notorious reputation as a villainous organization that relentlessly pursues debtors without pity or compassion — and there was a time when that reputation might have been earned.
“I started doing taxes and defending audits in the 2000s when the IRS was as scary as the SEC,” said Crystal Stranger, enrolled agent, lawyer, author of “The Small Business Tax Guide,” and partner and COO of Cleer Tax. “The IRS was tough on taxpayers back then. When I worked in L.A., people would come into my office just terrified of an audit, and the fear was real — we almost always had an active in-office audit going on in our conference room.”
The IRS is a different agency today, but that doesn’t mean you should take a collection notice lightly.
No, the IRS Did Not Forget About Your Overdue Tax Bill
At the close of 1999, millions of Americans believed the world’s computers would crash at the start of the new millennium and their credit card debt would be lost to history — but Y2K never happened, and the next day, their Visa bills were still waiting for them.
Anyone banking on a similar disaster-based reprieve from the IRS’s pandemic collections pause should expect to be similarly disappointed.
“I think there is an element of human nature that people hope bad things will just go away on their own,” said Stranger. “With taxes, that is rarely the way it works out, though. It typically just gets worse and worse. The IRS doesn’t forget debts.”
Dana Ronald, CEO of the Tax Crisis Institute, also cautions against head-in-the-sand wishful thinking — and he thinks that’s just the kind of mentality that leads to “catastrophic financial stress.”
“From my experience, taxpayers who owe back taxes often have a false sense of security that the IRS has forgotten about their debts,” he said. “Unfortunately, many people do not understand the consequences of ignoring tax debt and are not aware that the COVID-era pause in collections is only temporary. This lack of understanding can lead to a state of panic when the
IRS resumes collection notices.”
Be Proactive — The Worst Thing You Can Do Is Make Them Chase You
Few pieces of mail are more unwelcome than IRS collection notices, but if you get a CP14, don’t ignore it and wait for a CP501, CP503 and finally, a CP504 that leaves you no choice but to confront the situation.
“I recommend taking action immediately,” said Ronald. “The worst thing they can do is ignore the notices and hope it goes away. Taxpayers should pay attention to the collection notices from the IRS.”
An even better plan is not to wait for the IRS to make the first move.
“Going online and getting a copy of your tax account transcript from IRS.gov is a good place to start,” said Stranger. “This will show all the amounts that are owed and the status. This way, you aren’t waiting for letters and can see what is really owed and why. Reading these can be tricky, so it is a good moment to get a paid consultation with a resolution expert who can walk you through it.”
Some tax resolution companies, such as Tax Relief Advocates, offer a free consultation where a specialist will review your situation and advise you on the best course of action.
If you moved since the pandemic, Stranger advises updating your address with the IRS to ensure you receive all notifications promptly — and always double-check the agency’s math.
“The IRS isn’t always correct in the letters they send,” she said. “For example, this year we have been getting a ton of letters from the IRS over elections that were filed and they must have lost during the pandemic period. So don’t just trust the tax is owed on the collection letter. Be sure to verify this is accurate, as the IRS loses things and makes mistakes too.”
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