Anyone who has fallen behind with taxes knows there is no shortage of correspondence from the IRS. It can be confusing and overwhelming to receive multiple letters describing what is owed, when documents or payments are due, and when the IRS will pursue enforced collection action and how the collections process works.
It is important to open these letters when you receive them, particularly those sent by certified mail. Here’s why the letters and notices from the IRS are sent out and what receiving them means for you.
Importance of Opening Letters from the IRS
The IRS is required by law to notify you when they have a question about your taxes or when they need to inform you about certain actions. They do this primarily through the mail.
These IRS letters can contain important deadlines and hearing dates. If those letters go unopened, taxpayers can lose the right to appeal certain IRS actions or decisions within a specified timeframe.
Once the IRS has notified you by mail – usually numerous times – and has received no response, they may send a Revenue Agent to conduct a tax audit or a Revenue Officer to collect delinquent taxes. Therefore it's important to pay attention to all IRS notices.
Various IRS Notices
There are various types of IRS notices that, while appearing similar, represent differing issues. The following offers a simple review of some of the more widely used IRS notices and letters.
CP14: Balance Due, No Math ErrorThe CP14 shows underpaid taxes according to the IRS’s records, and is, in fact, a bill. If you owe taxes on a return you filed and have not fully paid what is owed, the IRS will send you a CP14. You’ll notice a payment stub with a due date on it, along with a variety of payment options.
A reasonable guideline to keep in mind when considering how to handle a bill from the IRS is how long it will take you to make full payment.
- If you are presented with a bill for $3,000 and know you have the ability to pay it off within the next three to six months, contact the IRS and set up a payment agreement.
- If you are presented with a bill for $36,000 and cannot make full payment within the next six to 12 months, or if you receive one for $300,000 and have no idea how long it will take to pay, you probably need to contact someone experienced in IRS collection matters for assistance.
CP57: Insufficient Funds PenaltyIf you do not have sufficient funds in a bank account to cover a direct debit once you’ve set up an installment agreement, you’ll receive a CP57. If no action is taken on this notice, your installment agreement will default, and your case will most likely be sent to active collections.
CP77, CP90, CP297: Final Notice, Notice of Intent to Levy, and Notice of Your Right to a HearingThese are sent when IRS does not receive a response to other notices. The CP77, CP90, and CP297 gives taxpayers one last chance to appeal before the IRS moves forward with collections.
CP91: Final Notice Before Levy on Social Security BenefitsA common misconception is that the IRS cannot garnish Social Security or disability income. This is not always true, though. In certain cases, the IRS can take up to 15% of your Social Security Income or Social Security Disability Income.
CP187: Reminder of Balance DueThis may be one of the first notices you receive if you are a business owner who has not paid Employee Withholding Taxes. It does not require immediate action, although action is recommended. This notice communicates that the IRS is aware you owe back taxes and intends to collect.
CP501, 502, and 503: Notice of Balance DueThese notices are designed to motivate immediate taxpayer action. They inform you of a balance due and advises you of the repercussions if no action is taken. As with CP187, the CP501, 502, and 503 offer the taxpayer the opportunity to make arrangements and avoid the active collections process.
CP504: Final Notice of Balance DueWhen you receive this notice, it means you have disregarded CP501, 502, and 503. This notice is similar to CP77 and CP90. The IRS plans to act in the next 30 days to collect, unless you or your representation (your CPA, EA or attorney) get in touch with the IRS. If you receive this notice, it’s time to take action.
Letter 1058 (LT11): Final Notice of Intent to LevyThis letter is like the CP Notices informing you of the IRS’s intention to levy assets. They state their intention to move forward with the collections process within the next 30 days and give you the opportunity to appeal their decision. This letter includes the possibility of your passport being revoked, which happens when the IRS considers your debt “seriously delinquent.”
Letter 1615 (LT18): Request for Immediate Filing of Tax ReturnsThis letter requests a response within 10 days. The IRS asks you to file delinquent returns immediately and lists what time period(s) they are missing returns for. It is their final request for you to file these returns before they file Substitute for Returns on your behalf.
Letter 3172: Notice of Federal Tax Lien Filing and Your Right to a HearingThis letter informs recipients of the IRS’ intention to collect on a debt. Filing a Notice of Federal Lien secures the debt. It will list out what time period(s) the IRS intends to file the lien on. If you have multiple unfiled tax returns, the IRS may send you more than one of these letters and file more than one lien in order to have the legal ability to collect these debts.
Letter 3219: Notice of Deficiency, Increase in Tax, and Notice of Your Right to Challenge
This comes before Letter 1615 (LT18). It notifies you that the IRS hasn’t received your tax return(s). They’ve estimated and prepared Substitute for Returns on your behalf based upon information they received from employers, financial institutions, and other sources. This does not include any tax credits or deductions you may qualify for that would reduce your tax bill.
You must respond within 90 days of the date on this letter, or you will have to file a petition in tax court to challenge the IRS’s determination. The difference between this letter and Letter 1615 (LT18) is that this letter clearly indicates the last day you can petition tax court before the IRS will no longer accept the delinquent tax returns. If those returns are not filed, the IRS will pursue collections on the amount they determined when they prepared Substitute for Returns.
Why You Need to Pay Attention to IRS Notifications
Again, the IRS’s primary means of communication with taxpayers is through the mail. If the IRS does not have your current address, which they typically obtain through your most recent tax filings, they cannot guarantee you will receive their correspondence.
It’s your responsibility to make sure the IRS can contact you if there’s a problem. Make sure they have your current mailing address.
Please note that the COVID-19 pandemic has continued to create a significant backlog in the processing of returns and there are still over one million original and amended tax returns that have not been fully processed. Given the backlog in processing returns, the IRS has suspended the issuance of automatic collection notices to taxpayers.
What if the Case is Assigned an IRS Revenue Officer?
Suspension of enforced collections does not apply if a taxpayer’s case is assigned to an IRS Revenue Officer. A Revenue Officer’s job is to collect any unpaid balances due.
If a Revenue Officer is assigned to the case, they can issue a Federal Tax Lien to protect the government’s interest should an asset be sold or refinanced. The IRS Revenue Officer can also issue levies including, but not limited to:
- a bank levy
- wage garnishment
- any other levy against various income sources, such as an accounts receivable levy
Therefore, a taxpayer should respond to the Intent to Levy notices and Notice of Federal Tax Lien Filing (NFTL) and contact a tax professional for assistance to help them navigate the collection process.
What Happens Next with the IRS Delays?
Once the IRS gets through the backlog of processing original and amended tax returns, the IRS will start issuing collection notices again. The collection notices start with a balance due notice, then escalate to Intent to Levy notices and NFTL, which will be sent via certified mail.
We recommend taxpayers seek the advice of a tax professional upon receiving certified mail from the IRS.