Understanding IRS Collection Notices

In this article, I discuss the various notices the IRS will send when they believe you owe them money. I discuss the CP14/CP116, CP501, CP503, CP504, LT11, Letter 1058 and, Letter 3172.

You reach into your mailbox and see a letter with the IRS logo, you have a sinking feeling in your stomach knowing that it’s rarely good news when the IRS decides to write. With trepidation, you take the letter into your home hiding it under the junk mail hoping and wishing that when you get inside it will have magically disappeared. However, your magic spell doesn’t work, so you face facts and open the envelope that is all too real. You pull the letter from the envelope and start to read it, but you are not really sure what it means or what the next steps should be.

In this article, I discuss the series of letters that you will receive, from the IRS, when you have outstanding taxes due. I’ll go over exactly what each notice really means, and the important deadlines associated with each letter. Let’s get started:

CP14/CP161, Balance Due Notice and Demand for Tax

This is the first notice you will receive when you have a balance due to the IRS. It is one of the more friendly correspondence you will receive and it is basically a bill or invoice that states how much the government believes you owe. There is a summary on the notice that shows:

  • How much tax is due;

  • Any payments you have made;

  • Penalties that have been assessed against you, including:

  • Failure-to-File Penalties;

  • Failure-to-pay Penalties;

  • Failure-to-pay Estimated Tax Penalties;

  • And any Interest Charges that have been added to your account (interest is added to the tax due and penalties).

The IRS then asks you to please pay the amount due using the payment voucher, electronically, or by making an alternative arrangement like a Payment Plan or an Offer in Compromise. The payment has to be remitted by the date shown on the letter to avoid additional penalties and interest.

If you do not agree to the amount due, a phone number is provided so you can call the IRS to discuss your account. We always think it is best for your tax representative to call on your behalf - please contact us if we can assist you.

The CP14 is generally sent 6-8 weeks after a tax return has been filed and there is tax outstanding. Any penalties you have been assessed and the interest charges will be detailed along with an explanation of the charges and rates at which they are applied.

Click Here to download a sample CP14.

CP501, Important Notice - Reminder Balance Due

The second notice the IRS will send when the government believes you continue to have a balance due. It’s important to note that, at this point, your account has not been turned over to the Collections Division of the IRS, and therefore forced collection actions like a bank levy or seizure of property will generally not happen. However, the IRS does point out that a statutory tax lien has arisen and that they can and may file a public Notice of Federal Tax Lien against you.

The IRS also states that if you do not agree with their intent to file a lien that you can request an appeal within 30 days of the date of the notice. When you are dealing with the IRS we always think it is important to be represented and are happy to discuss the appeal options you have and how we can assist you with the process.

Aside from the information about the tax lien and your rights to appeal the lien, the CP501 contains largely the same information as the CP14.

Click Here to download a sample CP501.

CP503, Urgent Notice, Second Reminder

The third letter you will receive from the IRS and it will generally come 5 weeks after the CP501.

The CP503 Notice states that the IRS has not heard from you, and serves as a reminder of your balance that they think is due. The IRS also reminds you that a tax lien attaches to all the property you currently own and any property you subsequently acquire and that a lien may be publicly filed against in the county if you do not respond.

What is different between the CP501 and CP503 is that the IRS no longer gives you the right to file an appeal relating to their intent to lien. This is because the 30-day period referenced in the CP501 has come and gone. There are still options available to you at this point and I encourage you to contact us to discuss what courses of action you can pursue to solve your tax problem.

Click Here to download a sample CP503.

CP504, Refund Levy

Provided you still have a balance due to the IRS and have not made alternative payment arrangements, five weeks after receiving the CP503 you will receive the CP504 Notice.

At this point, things are starting to heat up and the language in the letter becomes much more forceful. The headline reads “Notice of intent to seize (levy) your property or rights to property”. However, if you read the fine print, what this notice is really telling you is that the property that the IRS intends to levy/seize is your State Tax Refund. If you don’t live in a state that has an income tax or if you are not due a refund, there is obviously not much for them to seize. Despite the limited scope of the levy, this notice (and all notices from the IRS) should certainly be taken seriously as a taxpayer who receives a CP504 is just one step away from their account being turned over to the Collections Division of the IRS, where things can get serious very quickly.

In addition to the threat of levying your state tax refund, the IRS notifies you that they have the ability to levy Disqualified Employment Tax or proceeds from a Federal Contract if those apply.

Lastly, the IRS provides notice that your US Passport can be revoked or denied when you have a seriously delinquent account.

Since there is a new notice of intent to levy, the IRS does allow you to appeal the latest intent to levy within 30 days of the date of the letter. Again, if you wish to appeal or if you are at this stage in the IRS set of notices, I strongly encourage you to schedule a free one-hour consultation with my firm where we can discuss your circumstances and solutions. I absolutely believe that every tax problem has a solution and am here to help you find a solution to your tax issue.

Click Here to download a sample CP504.

Letter 1058, LT11, or Letter 3172, Final Notice of Intent to Levy and Notice of Your Rights to a Hearing

The final letter in this series and is where the rubber hits the road. It’s the IRS’s way of saying things are about to get REAL (and they are)! This letter is written notification (as is required by law) informing you that the IRS intends to levy/seize your property or rights to your property. The IRS has the right to seize any property that you currently own or acquire and includes, but is not limited to:

  • Your Wages and any Other Income

  • Funds in your Bank Accounts

  • Any Business Assets

  • Many Personal Assets (including your car, home, boat, motorcycle, RV, airplane, etc)

  • Your Social Security benefits

  • Any Dividends you receive from the Alaska Permanent Fund

  • State Tax Refunds

If you have received Letter 1058, LT11, Letter 3172, or an equivalent, your account is officially in the Collections Division of the IRS. The IRS is demanding payment of your balance immediately and may commence with seizing your wages, assets, and property within 30 days.

You do have the ability, at this point, to request a “Collections Due Process Hearing” within 30 days or an “Equivalent Hearing” within a year from the date of the letter. Time becomes of the essence once you receive this notice it is imperative that you begin to address your tax issue as soon as possible. Failing to do so could result in your wages being garnished, your bank accounts being frozen and seized, and possibly having your car, boat, RV, or home taken by the IRS.

I feel at this stage, it is of the utmost importance to obtain representation and begin to discuss a solution. Once you retain our firm, we will fight on your behalf for the lowest settlement allowed by law and work to get you back on track. In addition, when you retain us, the IRS will stop contacting you and will only contact us, your representative. Contact us today to schedule a free consultation.

Click Here to download a sample LT11.

In this article, I have gone over the series of letters and notices the IRS will send when they believe you have a balance due relating to outstanding tax, penalties, or interest. The notices at the beginning are fairly friendly, but escalate quickly as time passes.

Don’t forget that the IRS is the biggest badest collection agency in the world and they are very effective at collecting money - what other creditor has the power to reach into your bank account, intercept your wages, and even seize your property?!?!

When going up against the IRS, I think it’s of paramount importance to be represented by a qualified tax professional. If you have received any of the notices mentioned above, I encourage you to contact us today to schedule a free consultation. This discussion is 100% free, and you will be under absolutely zero pressure to retain us. There is no risk and you have nothing to lose. The worst-case scenario is that you spend an hour of your time with us and leave the conversation with clarity and insight into a very complex tax issue. To schedule your consultation, please click here.

Stephen J. Hardy, Enrolled Agent, MBA

Founder, Resolution Tax Services