I see a lot of IRS notices in my practice, but when I saw this one I thought — wow, this would scare most taxpayers. The letter starts with:

“We’re attempting to collect taxes you owe.”

That alone is not pleasant. Nothing particularly unusual about that sentence.

But then it says:

“We intend to contact other persons such as a neighbor, a bank, an employer, or employees.”

Yes, you read that correctly.A NEIGHBOR.

Yes, the IRS can actually do this.

The letter is calledIRS Letter 3164-B, and if you receive one, my advice is:

DO NOT PANIC. But DO NOT IGNORE IT.

This is not simply another computer-generated balance-due reminder. Letter 3164-B is used in a balance-due investigation when the IRS intends to contact third parties concerning collection of the taxpayer’s liability.

In the actual letter my client received, the IRS specifically stated that it intended to contact third parties and identified a future period during which those contacts could occur.

Normally, the IRS deals directly with you or with your authorized representative.

But sometimes the IRS believes it needs information that you have not provided, that it cannot otherwise obtain, or that it wants to verify.

That can lead a Revenue Officer to contact a third party.

The IRS itself gives examples including aneighbor, bank, employer or employees.

Obviously, receiving a letter telling you that the IRS may start contacting these people can be very upsetting.

Imagine finding out that the IRS may contact your employer about your tax situation.

Or your bank.

Or even your neighbor.

But the important thing is to understandwhy you received the letter and what stage your tax problem has reached.

Not necessarily.

This is anadvance notice that the IRS intends to make third-party contacts.

Under current IRS procedures, the IRS generally must send the taxpayer this notice at least45 days before the first third-party contact, and an IRS employee generally cannot begin those contacts until the46th day following the date of the notice. The notice must also specify the period during which the IRS intends to make the contacts, and that period cannot exceed one year.

So if you receive Letter 3164-B, don’t assume that the IRS has already called your employer, bank or neighbor.

But I also would NOT put the letter in a drawer and forget about it.

The IRS did not send this particular letter just to give you some general information. Current IRS procedures specifically say Letter 3164 should only be issued when the IRS employeeintends to contact a third party.

That distinction is important.

This is another question I think taxpayers will immediately have:

“Is the IRS going to tell my neighbor how much I owe?”

Generally, no.

The IRS says that when making these contacts it generally shares only limited information necessary to obtain or verify the information it is seeking, such as the taxpayer’s name. Tax law restricts the IRS from disclosing more taxpayer information than necessary for that purpose.

Of course, even knowing that, most people would still prefer that the IRS NOT contact their employer, bank or neighbor.

Which brings me back to the practical issue.

My first reaction would NOT be to panic over the words“neighbor, bank or employer.”

I would start with the underlying tax problem.

• What does the taxpayer owe?
• Which tax periods are involved?
• Is the balance correct?
• Why is a Revenue Officer involved?
• What information has the IRS requested?
• Has the taxpayer responded?
• Is there missing information that can be provided directly to the Revenue Officer?
• And most importantly – what needs to happen to resolve the collection matter?

Because the third-party contact letter is really a symptom of a bigger problem.

There is an unresolved IRS collection case.

That is what needs attention.

Yes.

This is another important taxpayer right that many people probably don’t know about.

The IRS is generally required to maintain a record of third-party contacts, and the taxpayer canrequest a list of the third parties contacted. The IRS says this request can be made orally or in writing to the person identified on the letter.

There are certain statutory exceptions to the normal advance-notice and reporting requirements – for example, particular jeopardy, reprisal, taxpayer-authorized, or criminal-investigation situations – so the rules are not absolute in every case.

But for the ordinary Letter 3164-B collection situation, the taxpayer has important rights.

This Is Why I Tell People Not to Wait

Taxpayers sometimes come to me after receiving a whole stack of IRS letters.

The first letter didn’t look too scary.

So they ignored it.

Then another one came.

They ignored that one too.

Eventually the language changes.

Now there is a Revenue Officer involved.

Now there may be collection enforcement.

And now there is a letter saying the IRS intends to start contactingbanks, employers, employees or even neighbors.

At that point, the problem has become considerably more serious.

It doesn’t mean the situation cannot be addressed.

But it does mean thatwaiting for the next letter is probably not a good strategy.

Don’t Panic. Understand What Is Happening.

I say this frequently with IRS problems:

Don’t panic – but don’t ignore the IRS either.

Letter 3164-B does NOT necessarily mean that tomorrow morning an IRS Revenue Officer is going to call your employer or knock on your neighbor’s door.

There are advance-notice requirements and taxpayer protections.

But the letter does mean something important:

The IRS intends to make third-party contacts in connection with your tax liability.

That deserves attention.

Find out what the IRS is trying to collect.

Find out what information the Revenue Officer needs.

Determine whether the balance is correct.

Respond to outstanding information requests.

And then work on resolving theunderlying tax problem, rather than waiting to see what the IRS does next.

This article discusses an actual type of IRS collection matter handled by our office. All taxpayer-identifying information has been omitted. Every tax situation is different, and the appropriate response depends on the particular facts and circumstances.

IRS representation matters can become complicated quickly. If you received Letter 3164-B or another IRS collection or enforcement notice and are not sure what it means, my office can review the notice and the underlying account and help determine the appropriate next steps.