All taxpayers are required to pay the full amount of tax owed on or before the April 15 deadline. If the tax is not paid in full, or if payment arrangements (such as an installment agreement) have not been made, then the Internal Revenue Service (IRS) will begin to take enforcement action in order to collect the tax owed.
The demand letter is the first step in the collection process. The IRS is not allowed to levy your assets until after it has sent you a demand letter to advise you of the back taxes you owe.
Included in the demand letter is the full amount of tax owed plus the amount of penalties and interest which have accrued. The letter will also provide you with a deadline by which the tax must be paid in order to prevent further collection activity.
Failure to respond to the demand letter within 10 days will result in further collection action being taken on your account that could include a levy, which is legal seizure of a taxpayer's property, or a lien. This results in the IRS securing an interest in your property.
The last paragraph of the demand letter includes instructions for filing an appeal. If you feel that the tax assessment is incorrect, or if you believe that you have already met your tax obligation, then you have the right to appeal.
Taxpayers who are experiencing a hardship which prevents them from paying the back taxes, such as incarceration, illness or unemployment, should call the IRS at 1-800-829-1040. Often, the IRS can place your account in what's referred to as currently not collectible, which postpones repayment of tax.