IRS Collection Notices

There is something inherently frightening about seeing the IRS logo on a letter. IRS notices can be cryptic and hard to understand. If you receive a notice that you are not expecting we always ask you to send us a copy. We will check it out and give you an honest opinion.

A few things to know about IRS notices:

• The IRS always contacts taxpayers by mail. They will NEVER call or contact you by email or social media to ask for personal or financial information. If this happens, it's a SCAM and you should sever contact immediately and report it to the authorities. Even if an IRS notice is legitimate, it's rarely a good idea to call them. Unless we tell you otherwise, it's generally best to correspond with them in writing.

• The IRS is not a bank, they are a collection agency. They have one job, which is to take your money and they are VERY good at it. Do not underestimate them! They are not your friend and are not on your side and the advice they give will always be in their best interest NOT yours! Even though the notice may ask you to call the IRS, we strongly suggest that you call us instead.

• The "due date" on the notice is simply the date through which the IRS has calculated interest. We all think that the IRS has super-computers that track our every move, but the reality is that they don't even have the computing power to calculate your balance in real-time. Instead, they run the calculation just before the notice is printed. With few exceptions, the only "penalty" for paying late is that a little interest will accrue. In fact, balances of less than $10 are usually written off as rounding error.

• The IRS always sends letters to the last known address with duplicate copies to both spouses. Failure to respond or claiming non-receipt does not stop the IRS from taking action or proceeding to the next step. It's always best to sign for certified mail and get copies to us for review as timely as possible.

• In February 2022, the IRS stopped sending collection notices. Penalties continued to accrue and refunds were offset, but none of the usual letters were sent for several years. This led many to mistakenly believe that their balance had been written off. Now that notices have resumed, taxpayers have a better, more realistic idea where they stand.

• IRS notices are created at a central printing office in Colorado and take about two to three weeks to be printed and mailed. If you paid your IRS bill and then received a balance due notice several weeks later, they very likely "crossed in the mail".

Here is a list of typical IRS notices along with a general time frame and what they mean:

• Note: ACS is the Automated Collection System. Calling the IRS can involuntarily get your case moved to this department.

CP 14 - Balance Due Notice

The CP 14 letter is the first letter sent to provide an initial notice of the balance owed along with any penalties and interest assessed. Think of it as a gentile reminder that you "forgot" to send payment along with your tax return. If you receive this notice, relax... you have a long time before it gets serious!

CP 501 - Reminder Notice

The CP 501 letter is a slightly stronger reminder notice regarding the balance due. It warns of collection action including lien notice filing if no response is provided but does not give the IRS any legal right to seize your property.

CP 503 - Second Reminder Notice

The CP 503 letter is a second reminder notice regarding the balance due. It again warns of collection action including lien notice filing if no response is provided and payment made however still does not give the IRS any legal rights. (Sometimes the IRS skips this step.)

CP 504 - Third Reminder Notice

The CP 504 letter is particularly frightening because it arrives via CERTIFIED MAIL! Despite the serious “tone” and language indicating that is a FINAL notice, it really isn't that final and doesn't give the IRS much legal standing. It does however give them the right to file a lien (which they almost never do at this stage) and seize any state tax refund you may have coming. For most people that owe the IRS, this isn't much of a threat.

LT11/L1058/CP90 - Final Notice of Intent to Levy

This is the big one! The “true” final notice! This letter allows the IRS to garnish wage or seize assets including bank account funds. Weirdly, it doesn't come certified but is quietly slipped into your mailbox warning of impending action if not responded within 30 days. This notice MUST be answered timely and gives taxpayers the right to appeal if they feel that the tax is unjust. If unanswered, it also gives the IRS the right to take your money. Should you receive this letter it is very important to bring it to our attention as soon as possible.

IRS Lien or Levy

The IRS does not often garnish wages but they are effective at collecting money through a tax lien or levy. The lien is filed in the taxpayer's county of residence and covers any property the taxpayer owns or subsequently acquires. At this level, they can also levy your bank accounts which requires the bank to set aside any funds in the account on the day of the levy. These funds are held for 21 days after which they are relinquished to the IRS. This does not happen often but call us if it does and we can discuss your options.

LT16/CP508C - Request for Taxpayer Contact and Passport Restriction Letter

Occasionally, when a taxpayer is seriously delinquent, they will assign a Revenue Officer to make personal contact. If this happens, do not talk to them and CALL US IMMEDIATELY! They will be seeking personal and financial information that you may not be required to provide and we will make sure that your rights are protected. Additionally, if a taxpayer owes more than $54,000.00 (adjusted annually), the IRS can set in motion a process that will result in the restriction of the taxpayer's ability to travel by the U.S. State Department. This will prevent a taxpayer from using, requesting or renewing a passport. The restriction is lifted once the tax is paid and there are exceptions for certain hardships, but it's something we want to avoid.

Whenever a balance is owed to the IRS, we like to review the options for paying and consequences for not paying. The IRS is a surprisingly amicable creditor and if you are acting in good faith, the first four notices are not a big deal. We always pay strict attention to the last one because they likely mean that things are about to get unpleasant. If you receive a notice not on this list... you guessed it... call our office.

We hope that your stress level will be a couple notches lower if or when that IRS notice appears in your mailbox. Stay calm my friends.