What to Do If You Receive a Notice of Intent to Assess

Receiving a Notice of Intent to Assess from tax authorities can be unsettling, but acting quickly is essential. This notice indicates that the government believes additional taxes are owed, and failure to address it could lead to penalties or collection actions.

Understanding the notice, responding within the required timeframe, and seeking professional assistance when necessary can help resolve the issue efficiently.

Common Reasons for Receiving This Notice

Several factors can trigger a Notice of Intent to Assess, typically involving discrepancies in reported income, unpaid taxes, or filing errors. Identifying the specific reason helps determine the best course of action.

Underreported Income

A common reason for receiving this notice is failing to report all taxable earnings. Tax authorities compare reported income from employers, financial institutions, and other sources against tax returns. If income from freelance work, contract jobs, or investments is missing, the discrepancy can lead to an assessment.

For example, if a taxpayer forgets to report interest from a savings account or stock dividends, the IRS or state tax agency may calculate additional taxes based on third-party reports. The same applies to gig economy earnings, such as rideshare driving or online sales. When income is omitted, tax authorities may assess additional taxes, interest, and penalties.

Unpaid Taxes

Outstanding balances from previous tax years can also prompt a Notice of Intent to Assess. This may result from an underpayment, a missed installment plan payment, or adjustments made by tax authorities. If a deduction is disallowed or taxable income is recalculated, the revised balance may be higher than originally filed.

Interest accrues daily on unpaid amounts, increasing the total debt. Failure-to-pay penalties, typically 0.5% of the unpaid tax per month under federal rules, can further add to the liability. Some states impose even higher penalties, making prompt action critical.

Filing Discrepancies

Errors in tax filings, such as mathematical mistakes, misclassified deductions, or incorrectly claimed credits, can also lead to an assessment. For example, claiming the Child Tax Credit or Earned Income Tax Credit without meeting eligibility requirements may trigger a review.

Missing forms, such as a W-2 or 1099, can also cause issues if they were reported to the IRS but not included with the return. Business owners may face assessments if they misreport payroll taxes or fail to account for self-employment obligations. Correcting these errors quickly can help avoid penalties.

Important Details Listed on the Notice

The Notice of Intent to Assess includes key information that determines how to proceed.

– Tax Period: Indicates whether the issue stems from a recent filing or a prior year. If multiple years are referenced, it may suggest a pattern of discrepancies or unresolved liabilities.
– Proposed Assessment Amount: The additional tax authorities believe is owed, which may not yet include penalties and interest. The notice should explain how this amount was calculated, such as adjustments to reported income or denied deductions.
– Response Instructions and Deadlines: Specifies how to challenge the assessment or arrange payment. Some notices allow for appeals before the amount becomes final. Others outline payment options, such as installment agreements or hardship provisions.

Understanding these details early can prevent further complications.

Response Timeline and Filing Requirements

Responding to a Notice of Intent to Assess requires close attention to deadlines. Federal notices from the IRS typically allow 30 days before an assessment becomes final, while state agencies may provide slightly longer timeframes. Missing the deadline can result in an automatic tax bill, making it harder to contest the findings.

If disputing the assessment, a formal protest must be submitted before the deadline. This often requires a written statement explaining the disagreement, along with supporting documentation such as corrected tax forms or financial records. For example, if income was misclassified, providing bank statements or employer-issued forms can help clarify the issue.

Some agencies require specific forms, such as IRS Form 12203 for small case requests or state-specific appeal documents. Ensuring all required paperwork is included helps prevent delays.

For those who agree with the assessment but need more time to pay, requesting an installment agreement or temporary delay in collection may be necessary. The IRS offers online payment plans for balances under $50,000, while state programs vary. Submitting these requests before the due date can prevent enforcement actions such as liens or levies.

Potential Consequences of Ignoring the Notice

Failing to respond can lead to escalating enforcement measures. Once the deadline passes, tax authorities may issue a formal assessment, converting the proposed amount into a legally enforceable debt. This allows the government to initiate collection efforts, including wage garnishments, bank levies, and tax liens.

A federal tax lien automatically attaches to all current and future property once the IRS assesses a debt and sends a demand for payment that remains unresolved. This can impact creditworthiness, making it harder to secure loans or refinance a mortgage.

At the state level, additional consequences may include license suspensions or revocations, particularly for professionals in regulated industries such as law, healthcare, or real estate. Some states, including California and New York, allow tax agencies to suspend driver’s licenses or business permits for unresolved tax liabilities.

In extreme cases, persistent noncompliance can lead to criminal penalties, especially if authorities determine the failure to respond was an attempt to evade taxes.

Options for Addressing the Assessed Amount

Once a formal assessment is issued, taxpayers have several options to resolve the balance. The best approach depends on financial circumstances, the accuracy of the assessment, and the ability to pay in full or over time.

Paying the Full Amount

For those who agree with the assessment and can afford it, paying the balance in full is the simplest option. This prevents further interest accrual and eliminates the risk of collection actions. Payments can be made online through the IRS or state tax agency portals, via check, or through electronic funds transfer.

If paying in full would cause financial hardship, penalty abatement may be available if the underpayment was due to reasonable cause.

Setting Up an Installment Agreement

For those unable to pay immediately, installment agreements allow structured monthly payments. The IRS offers streamlined plans for balances under $50,000, which can be set up online without extensive financial disclosures. Larger debts require a more detailed application, including income and expense documentation.

State tax agencies have their own terms, with some requiring a down payment before approving a plan. While installment agreements prevent aggressive collection actions, interest and penalties continue to accrue until the balance is fully paid. Missing payments can result in enforcement actions such as wage garnishments or liens.

Submitting an Offer in Compromise

For taxpayers facing severe financial hardship, an Offer in Compromise (OIC) may be an option. This program allows taxpayers to settle their debt for less than the full amount owed if they can demonstrate that paying in full would create an undue burden.

The IRS evaluates OIC applications based on income, expenses, asset equity, and future earning potential. Approval rates are low, with strict eligibility criteria. State tax agencies also offer settlement programs, though terms vary.

Submitting an OIC requires a non-refundable application fee and an initial payment toward the proposed settlement amount. Taxpayers must remain compliant with all tax filings during the review process.

When to Seek Professional Guidance

Navigating a tax assessment can be complex, and professional assistance can help ensure the best outcome. While minor discrepancies may be resolved independently, larger liabilities, disputed assessments, or financial hardship situations often require expert intervention.

Tax attorneys, certified public accountants (CPAs), and enrolled agents specialize in negotiating with tax authorities. If the assessment involves a legal interpretation of tax law—such as whether certain income qualifies for an exclusion or deduction—an attorney with tax litigation experience may be necessary. CPAs and enrolled agents can assist with filing amended returns, preparing financial disclosures for installment agreements, or submitting Offers in Compromise.

Professional representation is especially important if a taxpayer has received notices indicating potential liens, levies, or wage garnishments. Hiring a professional can help negotiate a hold on enforcement while a resolution is pursued. If an assessment results from an audit, professional representation ensures all legal avenues for appeal are explored.

The cost of hiring a tax professional varies based on the complexity of the case, but the potential savings from reduced penalties or negotiated settlements can outweigh the expense.