IRS Notice? Here’s What To Do

Getting a notice from the IRS of your state Department of Revenue can be downright scary. Your mind jumps to worst case scenarios, and suddenly you’re wondering what you missed or what went wrong.

Half the time you're not even sure what the notice means, much less what you’re supposed to do next. The language is confusing, the deadlines feel urgent, and the consequences sound intimidating. 

Let’s start with what NOT to do if you get a notice

Ignore it, hoping it will go away. It won’t — and waiting usually makes the situation more expensive and more complicated than it needs to be.

The IRS is a large, automated system. Ignoring IRS notices triggers automatic assessments, penalties, and daily compounding interest. The IRS makes simple things complex—and simple filings can turn into year-long nightmares.

Here's what most people don't realize:

Penalties and Interest Compound Daily. Interest accrues every single day you don't respond, and it adds up faster than most people expect.

Refund Rights Can Disappear. If you file late and are owed a refund, you could lose that money permanently. We've seen clients overpay and miss out simply because they waited too long to file.

The Audit Window Extends. If more than 25% of gross income is omitted, even unintentionally, such as from an incorrect 1099, the IRS has six years to audit you instead of three.

Collection Action Becomes Possible. Ignored notices can lead to bank levies, wage garnishments, or offsets against future refunds and Social Security benefits.

None of this happens overnight, but once the process starts, it’s harder to slow down.

What to do if you get a notice

If you receive an IRS or state tax notice, the most important step is to get it into the hands of your CPA or tax professional as soon as possible.

Tax notices often carry strict deadlines, and delays can result in added penalties, interest, or the loss of valuable appeal rights. Even notices that seem like routine can escalate quickly if they aren’t addressed properly.

Providing the notice promptly allows your advisor to assess the situation, determine the appropriate response, and protect your options from the start.

If you haven’t received any notices but you're behind on taxes

This doesn’t mean the problem is on hold. Penalties and interest continue to accrue whether the IRS has contacted you yet or not, and balances can grow quietly in the background.

The advantage, though, is that you still have control. Addressing unfilled or unpaid taxes proactively often opens the door to more resolution options and better outcomes than waiting for enforcement to begin.

What If you’re not sure you’ve been paying the right taxes?

When you start a business, there’s a lot you don’t know and even more you don’t realize you should know. It’s extremely common for business owners to be out of compliance without even knowing it. In many cases, the issue isn’t negligence, it’s that no one ever explained the rules clearly in the first place.

Here are some of the most commonly missed areas we see:

Individual and Corporate Income Taxes

Income taxes are a frequent source of confusion. We often see situations where individual and business returns don’t align, estimated tax payments are missed, or entity-level taxes are overlooked altogether, such as when a husband and wife form a partnership and don’t realize that in some states, this requires the filing of a Form 1065 Partnership return.

These issues don’t always trigger immediate notices, but interest and penalties continue to accrue quietly in the background, turning manageable gaps into much larger balances over time.

Payroll Taxes

If payroll is handled manually, payments are missed, or filings are delayed, penalties and interest escalate quickly. And unlike many other taxes, payroll taxes don’t disappear when a business closes.

We worked with a client whose business ultimately shut down but had accumulated over $1 million in unpaid payroll taxes, most of it driven by penalties and interest. Because payroll taxes include “trust fund” amounts withheld from employees, the IRS assessed a portion of those taxes personally against the owner. Even after the business was defunct, he spent more than two years working through the fallout.

Payroll tax issues don’t always require panic, but they do require expertise. These obligations can follow individuals, not just businesses.

Sales and Use Tax

Many business owners assume they don’t need to collect sales tax because they provide a “service.” In reality, certain services that include the sale of tangible goods, such as materials, products, or equipment, may trigger sales tax obligations depending on the state.

When sales tax isn’t collected and remitted, the liability doesn’t go away. Over time, penalties and interest can accumulate, and states treat unremitted sales tax as trust fund money, not business revenue.

We’ve seen this play out publicly. A local restaurant that had been opened for about 30 years, ultimately closed after federal and state authorities claimed more than $650,000 in unpaid payroll and sales and use taxes. The business attempted to reorganize but was forced into liquidation when those tax obligations couldn’t be resolved. The closure wasn’t the result of one error, but years of unresolved compliance.

Catching sales and use tax issues early keeps problems manageable and preserves far more options than waiting for enforcement action.

Business Personal Property Taxes

Most counties in most states assess business personal property taxes on assets like computers, desks, furniture, tools, and equipment.

This is a common one new business owners miss when they’re getting started. A few years later, they discover they never filed, and penalties and interest have quietly stacked up in the background.

Whatever you do, don’t put it off

The fix is usually straightforward once identified, but like most tax issues, timing matters.

And the worst outcomes don’t usually come from a single mistake. They come from inaction. We’ve seen cases where ignored notices and misunderstood obligations led to six-figure liabilities, wage garnishments, bank levies, and years of stress that could have been avoided with early intervention. 

In one case, a client received a balance-due notice from the IRS totaling nearly $352,000 with penalties and interest. After reviewing the assessment and preparing a strategic response, we were able to reduce the liability to $3,500.

Another client faced a potential $500,000 Trust Fund Recovery Penalty tied to unpaid employment taxes. By proving they did not have the authority to direct tax payments, we successfully protected them from personal liability altogether. 

These situations are serious, but they are also solvable with the right approach.

How Red Bike Advisors Helps

If an issue is straightforward, you may be able to resolve it with one letter. If it’s more complex, goes back many years, or you’re not sure where to start, that’s where we come in.

At Red Bike Advisors, we help individuals and business owners navigate IRS and state tax issues with clarity and confidence. Our role is to take the confusion, pressure, and backand-forth off your plate so you can focus on moving forward.

Here’s the playbook we guide clients through:

1. Free Consultation. We start with a conversation. We review your exact situation, explain what’s happening in plain language, and diagnose the problem so you understand where you stand.
2. Investigation. With your authorization, we step in as your representative. We communicate directly with the IRS or state taxing authority, pull transcripts, and uncover what’s driving the issue, and what options are available.
3. Compliance. If needed, we prepare unfiled or past-due tax returns to determine your true liability. Getting current is often the key to unlocking better resolution options.
4. Resolution. We negotiate on your behalf to reach the best possible outcome, whether that’s a payment plan, penalty relief, or another form of resolution based on your circumstances.
5. Freedom. Once the issue is resolved, you can put the stress behind you. No more wondering what’s coming in the mail or when the next notice will arrive.

Every situation is different. Our job is to help you find the solution that fits your reality, not a one-size-fits-all approach. Depending on your case, tax relief options may include:

• Installment Agreements: Monthly payment plans structured around what you can realistically afford. In one of our recent cases, a concrete contractor owed close to $1 million in taxes. Paying that balance in full within the IRS’s statute of limitations would have been impossible. We helped them secure a partial payment installment agreement that renews every two years. With updated financials provided at each review, they pay about $2,000 per month, and much of the remaining balance is expected to be written off over time.
• Offer in Compromise (OIC): In some cases, the IRS may agree to settle a tax debt for less than the full amount owed. We worked with a business owner whose company was no longer operating had accumulated more than $1 million in unpaid payroll taxes, largely driven by penalties and interest. Even after the business closed, the trust fund portion of those taxes was assessed against him personally. Resolving the situation, which resulted in a $22,000 Offer In Compromise versus the $1M plus, took several years, underscoring an important reality: tax debts don’t simply disappear when a business shuts down, but with the right strategy, they can still be addressed.
• Currently Not Collectible Status: In limited circumstances, the IRS may pause collection activity due to financial hardship. This is relatively rare and typically applies in cases involving severe constraints. For example, we assisted a widow with three children after the IRS initially pushed for the sale of her home. She was working multiple jobs to support her family, and through careful advocacy, collections were paused while her financial situation stabilized.
• Penalty Abatement: Penalties may be reduced or removed if certain criteria are met. In a recent penalty review, we were able to eliminate nearly $28,000 in assessed penalties for a business client by documenting the circumstances around late filings and presenting a well-supported request to the IRS. 
• Innocent Spouse Relief: If you’re being held responsible for a spouse’s tax debt, relief may be available. In a recent case, a taxpayer was pressured by a Revenue Officer to liquidate personal assets to pay a balance due. With informed negotiation, we secured a monthly installment agreement, instead demonstrating how proper representation can change the outcome.

You don’t have to face state tax collection agencies or the IRS alone. If you are struggling with tax debt or facing collections, the best time to act is now.

Contact Red Bike Advisors today to schedule your free consultation. Let us help you resolve your tax problems, protect your finances, and find peace of mind.