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 payment is due and how the collections process works. While it may be tempting to throw all those letters and notices in a pile on the corner of your desk or put off opening them until “tomorrow” (we all know tomorrow never actually comes), it is extremely important to open them when you receive them, particularly those sent by certified mail. The following outlines 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 their intended actions against you. They do this primarily through the mail. Once they have notified you by mail, usually numerous times, if they received no response, they may send a Revenue Agent to conduct a tax audit or a Revenue Officer to collect delinquent taxes. The letters the IRS sends out contain important deadlines and hearing dates. If those letters go unopened, taxpayers can hurt themselves by not having information about their right to appeal certain IRS actions or decisions within a specified timeframe.
The primary reason for opening and reading correspondence from the IRS is so you are aware of what could happen next, which allows you to take action before it happens. No one wants to have an IRS representative show up unexpectedly at work or during a family BBQ. No one wants to get called into Human Resources to deal with a wage garnishment or be notified that the IRS is adjusting your withholdings for you. No one wants to have their checking account levied. No one wants to receive a call from a business associate saying they’re unsure if they want to keep doing business with you after the IRS notified them of an Accounts Receivables levy. Being aware of such possibilities saves you the embarrassment and resulting headaches. Being engaged in the communication process and reviewing IRS letters is an important step in the right direction.
Various IRS Notices
As noted above, the IRS sends out a lot of similar, but different, notices. The following offers a simple review of some of the more widely used notices and letters the IRS sends out.
CP14: Balance Due, No Math Error
The 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 pay off. If you are presented with a bill for $3,000 and know you have the ability to pay it off within the next 3 – 6 months, contact the IRS and set up a payment agreement. If you are presented with a bill for $36,000 and cannot pay that off within the next 6 – 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 Penalty
If 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 Hearing
These are the notices received when the IRS does not receive a response to other notices. The IRS is serious about collecting what they believe is owed and is giving taxpayers one last chance to appeal their decision before they move forward with collections. While there are other notices that indicate finality, these notices indicate the IRS means business and are not to be ignored.
CP91: Final Notice Before Levy on Social Security Benefits
A common misconception is that the IRS cannot garnish social security or disability income. This is not true, as proven by Notice CP91. In certain cases, the IRS can take up to 15 percent of your Social Security Income or Social Security Disability Income. This can be a big deal for a person on a fixed income.
CP187: Reminder of Balance Due
This may be one of the first notices you receive if you are a business owner who has not paid in 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 Due
These notices are designed to motivate immediate taxpayer action. They inform you of a balance due and advise 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 Due
When 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 Levy
This letter is like the CP Notices informing you of the IRS’s intention to levy your assets in reaction to you not paying them. They state their intention to move forward with the collections process within the next thirty 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.” You will receive Notice CP508C if it gets to that point.
Letter 1615 (LT18): Request for Immediate Filing of Tax Returns
This letter requests a response within 10 days. The IRS requests you to file delinquent returns immediately and lists what time periods 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 Hearing
In this letter, the IRS is informing recipients of their intention to collect on the tax debt they believe is owed by whatever means necessary. Filing a Notice of Federal Lien secures the debt. It will list out what time periods 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 you filing 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.
A Final Note:
As mentioned before, 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. To add to the list of things no one wants to deal with, no one wants to be surprised by unexpected collections activities because the IRS is sending letters and notices to your old address. 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.
If you have questions regarding IRS notices and what you should do, contact our IRS Dispute Resolution and Collections team.
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