If you fail to comply with the individual mandate under Obama’s new health care law — if you can’t afford to purchase insurance or you don’t get around to it — you may be responsible for paying a special “tax” that will be enforced by the Internal Revenue Service. And as I mentioned previously, the only real enforcement tool available to the IRS will be to capture any refund(s) that may be due to you to offset your tax debt.
Of course, if it’s actual taxes that you owe, you probably won’t be so lucky. The IRS can be quick to issue a levy and seize your property (wages, bank account, and other assets) and there are really only a couple prerequisites. Number one, the IRS must send you a bill. And number two, you fail to pay the bill.
However, it is important to know that the IRS notice showing the amount of tax owed doesn’t have to actually be received. As long as the IRS sends it to the last known address of record, then they are in full compliance with the law. Also, there are some scenarios in which the IRS is not even required to give notice (listed in IRS Pub 594):
- collection of the tax is in jeopardy (i.e., the CSED is almost up)
- state tax refund levy
- levy served to collect the tax debt from a federal contractor
- seizure of unpaid employment taxes
My experience is that most people who owe the IRS know they owe, or at least know there is some kind of problem. But it is always disturbing when the IRS comes knocking without sending a nastygram to tip the taxpayer off.