Receiving an IRS notice can be an anxiety-producing experience, but it doesn’t have to be. Even though IRS notices look scary, not all of them are bad. The IRS sends some notices to verify or to request basic information. The agency’s scariest notices pertain to the collection of unpaid taxes. It is imperative that you understand what it says. If you have an issue with the IRS, following specific steps should resolve it.
IRS notices for collection issues are generally sent in this order, generally five weeks apart:
CP14 – Notice of Balance Due
You owe money for unpaid taxes and this notice explains how much you owe and when and how to pay it. This notice starts the IRS collections process and continues until the account is satisfied or until the IRS may no longer legally collect the tax. A CP14 will indicate the amount of tax owed and any penalties and interest accrued on your unpaid balance. If you agree with the amount owed (perhaps you just forgot to mail in your tax check), then all you need to do is pay the tax and the issue is resolved.
CP501/CP71 – First Reminder That You Have a Balance Due
You have a balance due on your tax account, but you didn’t respond to the CP14 notice. This notice again specifies the amount due plus penalties and interest, the deadline for paying it, and payment options. If you agree with the amount shown, all you need to do is pay the tax (a single payment or in installments with the IRS), and the issue is resolved. Warning: if you do not respond to the CP501 notice, the IRS can file a Notice of Federal Tax Lien on your assets.
CP503 – Second Reminder That You Have a Balance Due. Immediate Action is Required on Your Part
You still have an unpaid balance on your tax account and the IRS has not received a response to its prior notices. This reminder again shows the amount due, the deadline for paying it, and payment options. If you cannot pay the amount shown on the notice, contact the IRS to set-up payment arrangements. Warning: if you do not respond to the CP503 notice, the IRS can file a Notice of Federal Tax Lien on your property.
CP504 – Urgent Notice – Intent to Levy Your Assets
At this point, the IRS notices start to get more intimidating because you haven’t responded to previous notices. This notice says it represents an “intent to levy your assets,” but it really is another (strong) reminder that you have an unpaid balance on your tax account. If you do not pay the amount due immediately (or set-up an arrangement to pay the tax), the IRS will seize (levy) your state income tax refund and apply it toward the amount you owe. At this point, your state tax refund is the only asset the IRS can levy. Generally, this is the final notice you will receive before the IRS issues a “Final Notice of Intent to Levy.” The best way forward at this point is to pay the tax due (including penalties and interest) or enter into a tax settlement agreement with the IRS.
CP90/LT11/LT1058 – Final Notice of Intent to Levy Your Assets
This final notice can be a true source of anxiety, for it notifies you of the IRS’s intent to levy certain assets for unpaid taxes. It also informs you of your right to a Collection Due Process Hearing (a hearing with the IRS office of appeals) if you respond within 30 days from the date of the notice. At this point, the IRS will begin to levy other assets you have (i.e., your wages, bank account, personal assets, social security, etc.). Do not ignore this notice. If you do, the IRS will begin to take your assets without further warning.
If you receive an IRS notice, do not panic! The IRS provides options for settling the tax debt. Somerset CPAs and Advisors can help you understand the IRS notices received and help plan the appropriate course of action. We routinely help taxpayers resolve their IRS collection issues and avoid them in the future. If you have any questions about IRS tax problems or other issues, please feel free to contact Patrick Wanzer at 317-472-2188 or e-mail me at .