Updated 10/12/26
It usually starts with a single envelope.
You recognize the return address before you even open it. Maybe it's from the IRS. Maybe you've received a few letters already, and you're hoping this one isn't anything serious.
You put it aside and tell yourself you'll deal with it later.
I understand why people do this. Tax problems can be stressful, especially when you don't know how much you owe or what the IRS might do next.
But ignoring the problem rarely makes it easier to resolve.
The sooner you understand what's happening, the more time you may have to evaluate your options and decide what to do.
Here are five signs that you may have an IRS tax problem that needs attention.
1. You Have Unfiled Tax Returns
Maybe you missed a filing deadline because you were dealing with a personal emergency. Perhaps your business had a difficult year, or you haven't filed because you're worried about how much you'll owe.
Whatever the reason, unfiled tax returns can create problems of their own.
It's important to understand that filing and paying are two separate responsibilities. Even if you cannot afford to pay your tax bill, you may still be required to file a return.
If you don't file a required return, the IRS may prepare a Substitute for Return (SFR) using the information available to it.
The problem? The IRS may not account for deductions, credits, or other information that could have been included on a properly prepared return. As a result, its calculation may not reflect your actual tax situation.
Unfiled returns can also complicate efforts to resolve existing tax debt.
What you should do: Determine which returns are missing and what filing requirements apply to your situation. Before assuming you cannot afford to get caught up, find out what you actually owe and what needs to be filed.
You may have more options once you understand the full picture.
2. You're Receiving IRS Notices You Don't Understand
IRS notices aren't all the same.
Some provide information. Others request payment, ask for additional documentation, or explain that the IRS has made a change to your account.
Certain notices require prompt attention, particularly when they explain your rights or warn of a possible collection action.
For example, a notice showing an outstanding balance may be an early indication that you need to address unpaid taxes. Other notices may indicate that the IRS intends to take further collection action.
The notice number, wording, and response deadline matter.
Don't assume that every IRS letter means the government is about to seize your property. At the same time, don't assume a letter is unimportant simply because you don't understand it.
What you should do: Read the notice carefully and identify what the IRS is asking you to do, the tax year involved, and any response deadline.
If you disagree with the amount shown, compare it with your records and determine whether you need to contact the IRS or seek professional assistance.
If you receive a Final Notice of Intent to Levy that provides a right to a Collection Due Process hearing, pay close attention to the deadline. The deadline for requesting that hearing is generally 30 days from the date of the notice.
Not every collection notice provides the same rights, so make sure you understand which notice you received.
3. You Owe the IRS but Cannot Afford to Pay
Sometimes the problem isn't that you don't want to pay your taxes. It's that you genuinely cannot afford to pay the balance in full.
This can happen to employees who didn't have enough tax withheld from their paychecks, self-employed individuals who didn't set aside enough for taxes, or business owners whose income changed unexpectedly.
You may have filed your return, received the amount due, and realized that paying the IRS would leave you short on rent, groceries, or other necessary expenses.
That can put you in a difficult position.
But an inability to pay your full balance doesn't automatically mean you have no options.
Depending on your financial circumstances and eligibility, you may be able to consider an installment agreement, an Offer in Compromise, or Currently Not Collectible status.
Each option has different requirements. Interest and applicable penalties may also continue to accrue while you owe the IRS.
What you should do: Start by determining the amount you owe and reviewing your financial situation.
Avoid agreeing to a payment amount you cannot realistically maintain. Understanding your income, necessary living expenses, assets, and tax compliance status can help you evaluate which options may be appropriate.
The goal is to find a realistic approach rather than make a promise you cannot keep.
4. You've Received a Notice About a Tax Lien, Wage Levy, or Bank Levy
This is a sign that you need to pay close attention to what's happening with your account.
However, it's important to understand the difference between a tax lien and a levy.
A Federal Tax Lien
A federal tax lien is a legal claim against your property that generally arises when the IRS assesses your tax liability, sends the required notice and demand for payment, and you neglect or refuse to pay.
The IRS may file a Notice of Federal Tax Lien to alert creditors to its claim.
A filed lien can complicate financial transactions, including selling or refinancing property.
It does not, by itself, mean the IRS has seized your home or bank account.
A Wage Levy or Bank Levy
A levy is different. It is a legal action used to collect a tax debt by taking property or rights to property.
A wage levy can require your employer to send part of your wages to the IRS. A bank levy can affect funds in your account.
The IRS generally must follow applicable notice and procedural requirements before levying, although specific rules and exceptions apply.
If a levy is already in place, the situation may require prompt attention.
What you should do: Determine exactly what action the IRS has taken and whether a deadline or opportunity to challenge the action applies.
If you're facing a wage levy, bank levy, or property-related issue, review your options promptly. Depending on the circumstances, there may be ways to challenge the action, seek its release, or address the underlying tax debt.
Don't assume a lien and a levy mean the same thing. Understanding the difference is an important first step.
5. You're Being Audited or Disagree With an IRS Assessment
Receiving an IRS audit notice doesn't automatically mean you've done anything wrong.
The IRS may examine a tax return to verify income, deductions, credits, or other information. An examination can result in no change, an adjustment, or additional tax being assessed.
The important thing is to understand what the IRS is asking for and respond appropriately.
If you disagree with a proposed adjustment, you may have options for presenting supporting documentation or challenging the determination. Your available rights and deadlines depend on the type of notice and the stage of the examination.
Ignoring an audit notice can make an already stressful situation more difficult.
What you should do: Read the notice carefully, identify the tax years and items being examined, and gather the requested records.
If the issues are complicated or you disagree with the IRS's findings, consider getting professional assistance before responding.
A qualified representative can help you understand the issues, organize your records, communicate with the IRS when authorized, and evaluate available options.
What If More Than One of These Signs Applies to You?
Tax problems don't always happen one at a time.
You might have unfiled returns and an outstanding balance. You might be trying to resolve older tax debt while receiving new collection notices. Or you may owe both the IRS and the California Franchise Tax Board.
When several issues overlap, it can be difficult to know where to begin.
That's why reviewing the entire situation matters.
Depending on your circumstances, the next steps might include:
Identifying which tax returns still need to be filed.
Confirming how much you owe and which tax years are involved.
Reviewing notices and identifying important deadlines.
Evaluating whether collection activity is underway.
Reviewing your financial situation and potential resolution options.
Developing a plan to address the outstanding issues.
The appropriate order depends on your circumstances. If you're facing an urgent collection deadline, that may need attention before other parts of the case.
The goal is to understand the situation before deciding on a course of action.
You Don't Have to Figure Everything Out on Your Own
Tax problems can make people feel embarrassed or overwhelmed.
I've seen how easily a problem can become harder to deal with when someone doesn't know where to start. Sometimes, the hardest part is simply opening the letter and finding out what it says.
But an IRS notice doesn't automatically mean you have run out of options.
The important thing is to understand what you're dealing with and determine what steps make sense for your circumstances.
At Lucha Tax Solutions, I help individuals and small-business owners understand their tax problems and evaluate potential resolution options.
If you're behind on filing, owe the IRS more than you can afford, or have received notices that you're not sure how to handle, let's discuss your situation.
Contact Lucha Tax Solutions to review your tax problem and find out what steps may be available to you.
Benito Gonzalez, EA, CTRC
Owner, Lucha Tax Solutions
Phone: 760-410-6787
Email: benito.g@luchataxsolutions.com
Lucha Tax Solutions serves clients in Oceanside and throughout California, as well as clients nationwide.
This article provides general educational information and is not individualized tax or legal advice. IRS procedures, deadlines, and available resolution options depend on the facts of each case.
