During the global pandemic, the federal government made changes to give citizens a helping hand during an unprecedented time. Like many other government agencies, the Internal Revenue Service limited its operations during the pandemic. The pause gave taxpayers a reprieve and gave the IRS some breathing room to handle its backlog.
Read: What To Do If You Owe Back Taxes to the IRS
But the collection pause is coming to an end. Here’s what that means for taxpayers.
IRS Collection Pause
The IRS initially offered taxpayers relief through a collections pause in March 2020. In early 2022, the IRS expanded these protections to include the suspension of some IRS notices, like levy notices.
They did this to help people who owed back taxes, which became particularly important due to the early economic impact of the COVID-19 pandemic.
However, this widespread pause has come to an end. In an April 2023 post, the National Taxpayer Advocate announced the IRS will return to normal operations. At that point, the IRS announced that the resumption of collection notices was set to occur in early 2024.
Has the IRS Resumed Collections?
Since the IRS has resumed normal operations, collections activities have also resumed. But the collection process doesn’t jump from a balance due to levying property or wages immediately.
Instead, it’s a stepwise process that gives the taxpayer many opportunities to avoid a negative outcome. If you owe back taxes, the first indication that the IRS is moving forward with the collections process is a CP-14 form. This notice indicates the balance you owe. According to the National Taxpayer Advocate post, “the absolute worst thing taxpayers can do would be to ignore these balance due notices or any other IRS letters and notices.”
Is the IRS Catching Up on Backlog?
Throughout 2022, the IRS indicated that it had a notable backlog of tax returns to process. At the end of the 2022 filing season, the backlog of unprocessed tax returns included 13.3 million. But at the end of the 2023 filing season, the backlog had been reduced to 1.9 million amended returns and 4.3 million account management cases that excluded amended returns.
The IRS has assessed its processes and made significant changes in the last year to further reduce the backlog, including increasing telework abilities and offering overtime.
As the IRS catches up with the backlog, it has the capacity to ramp up other previously paused activities. For example, the agency is also resuming its normal collection activities.
What Happens If You Ignore a Collection Notice?
You should never ignore a collection notice, even if you can’t afford to pay the owed back taxes right away. If you do ignore a collection notice, the following may occur:
- Penalties and interest accrue until the liability is paid in full.
- Current refunds will be offset to cover unpaid tax debts.
- The IRS can levy on wages, bank accounts or other owned property.
- The IRS can file a notice of federal tax lien against property you owe.
- The IRS can certify seriously delinquent tax debts to the state department, which could result in the taxpayer’s password being revoked or a renewal being denied.
What Are Your Options If You Receive a Collections Notice?
If you owe unpaid taxes to the IRS, you should expect to receive a notice about your unpaid balance soon. When you receive the notice, or before, it’s critical to take action immediately. After you receive your first notice, the unpaid balance will begin to collect interest and penalties, which can add up quickly.
Below are some of the options you have to get your financial situation back on track:
- Pay off the tax balance in full. While this isn’t an option for most taxpayers with an unpaid tax bill, it might be an option for you. If you have the funds available or are able to sell an asset to cover the debt, consider paying off the balance immediately.
- Set up a payment plan. The IRS is often willing to work out a monthly payment plan to help you pay off your tax debt over a set period of time. The installment plan might not be your first choice. But it can help you take steps to resolve this tax burden permanently. Unfortunately, setting up a payment plan usually involves a setup fee.
- Ask for a temporary reprieve. In general, it’s best to communicate your situation with the IRS. Instead of ignoring the problem, reach out to explain the situation. In some cases, the IRS may be able to offer temporary relief, especially if paying your tax debts immediately will cause significant hardship.
- Pursue an offer in compromise. An offer in compromise is an agreement between you and the IRS to settle your outstanding balance for less than the full amount. Obtaining this option isn’t always possible. But it could offer you a way out of the situation.
- Ask for help. If you have an unpaid tax debt, the options can be overwhelming. Consider working with a reputable tax service, like Tax Relief Advocates, to find the best tax repayment solution for your situation.
Regardless of the avenue you choose to pursue, it’s helpful to understand your options for repaying your tax debts.
Final Take
If you can’t pay your tax bill, it’s natural to feel uncomfortable about your financial situation. As the IRS resumes collections, don’t panic. Instead, explore all of your options and pursue the strategy that works best for your circumstances. If you want help navigating the tax collections process, consider working with Tax Relief Advocates.
Ana Gotter contributed to the reporting of this article.
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