Taxpayer’s Guide to IRS Tax Collection Notices

If you have unpaid taxes, the primary way the IRS will communicate with you is through the mail. The first contact with the IRS will always be through the mail, but once you’ve established contact, you may end up talking on the phone or communicating electronically. 

Note that as of 2023, the IRS no longer makes unannounced house calls. The agency also doesn’t start communicating with taxpayers over the phone. If someone comes to your door, calls you on the phone, or emails you, they are most likely scammers and not from the IRS. 

However, if you receive a legitimate tax collection notice, you need to take it seriously. 

What Are IRS Collection Notices?

Collection notices are letters that the IRS sends to taxpayers who owe back taxes. Generally, the IRS starts by sending demands for payments. Then, if you don’t pay, the letters become more serious, threatening liens and levies. 

The IRS may also send notices if the agency makes adjustments to your tax return and/or decides to assess a penalty against you or your business. Additionally, the IRS sends out audit letters, but those aren’t the same as collection notices. 

Most Common IRS Collection Notices

The IRS sends out many different collection notices, but these tend to be the most common. The Automated Collection System (ACS) sends out the majority of these notices, and typically, once they start, they arrive every four to six weeks or so.

  • CP14 – Balance due notice, generally the first notice sent by the IRS.
  • CP501 – Reminder of balance due, with payment options.
  • CP503 – Second reminder of balance due, may note the filing of a federal tax lien.
  • CP504 – Notice of intent to levy assets, including tax refunds, wages, and bank accounts if you don’t pay. 
  • LT19 – Notice of unpaid balance and demand for payment.
  • CP90 notice – IRS intent to levy your assets for unpaid taxes.

Not all IRS letters are collection notices. For example, if the IRS makes changes to your tax return due to unreported income, the agency may send CP2000. This is not a collection notice, but if you don’t dispute or pay the tax liability noted on the CP2000 letter, the IRS may start sending you collection notices. 

Intent to Levy Notices

If you don’t pay your taxes, the IRS has the right to seize your assets, but first, the agency must complete some requirements. The IRS must assess the tax against you, send a balance due notice, and give you a 30-day warning with the right to appeal. 

The agency uses a few different intent to levy notices including the CP504 and the CP90 noted above. It also sends out Letter 11, Letter 1058, Letter 3174, Letter 75, CP242, CP92, CP77, CP177, and CP297. The IRS doesn’t have to give you a 30-day notice if collection is in jeopardy, but in that case, you may receive LT2439 about a jeopardy levy.

Trust Fund Recovery Penalty Letters

Unpaid payroll taxes can lead to a Trust Fund Recovery Penalty (TFRP). At 100% of the unpaid tax, this is one of the highest tax penalties, and the IRS has the right to stick this penalty to many different people at a business, including owners, shareholders, employees, third-party payroll providers, and anyone else who was responsible for making the company’s payroll tax deposits. 

A TFRP investigation starts with the IRS contacting the employer about the unpaid payroll taxes. The revenue officer may send Letter 725-B to schedule a meeting, and they may also send Form 9297 (Summary of Taxpayer Contact) to collect information about the taxpayer’s financial situation. 

If the Revenue Officer decides to assess the TFRP, they will complete Form 4183 and send it to their manager. The manager has 120 days to review the form. If they decide to move forward with the penalty assessment, they must send out Letter 1153 within 20 days of their decision. At that point, the agency will send out Letter 1153 Notification of Proposed TFRP Assessment (60-day letter) to every responsible party via certified mail or hand delivery.

How to Read an IRS Collection Notice

Valid IRS notices contain the agency’s name and symbol in the top left corner. The top right corner shows the notice number, tax year, date, your Social Security number (or tax ID), and the IRS’s contact number. Below that, you will see a billing summary. This shows how much you owe, including the tax liability, penalties, and interest. 

The text of the letter usually contains a demand for payment. It may also list payment options and/or explain what happens if you don’t pay. Most collection notices sound threatening, but in most cases, the IRS cannot take your assets until they send the 30-day notice of intent to levy and your right to a hearing. 

Before you receive that notice, the IRS may seize your tax refund or issue a tax lien, but you don’t have to worry about the agency garnishing wages or seizing assets until you get this final notice. At that point, you need to respond, or you risk losing your assets. To be on the safe side, however, you should always try to make arrangements to pay your tax debt as soon as possible. 

What to Do If You Receive a Collection Notice

First, read the notice carefully. Make sure that you understand it and that you agree with the information shown. If anything is incorrect, reach out to the IRS immediately or contact a tax attorney for help. Ignoring mistakes can make the problem worse. It’s always easier to deal with errors as soon as possible, and depending on the situation, you may have a limited amount of time to dispute the issue. 

If you owe a tax debt, try to make payment arrangements before the situation escalates, or contact the IRS or a tax attorney about other options. The IRS has programs that allow you to pay less than you owe if you meet certain qualifications. If you cannot afford to pay anything, you may be able to get your account marked as currently not collectible, and then, the IRS won’t pursue any collection actions until your finances improve. 

Remember that final intent to levy notices also note your right to a hearing. During the hearing (which is often just a phone call), you can appeal collection actions and propose alternatives, such as setting up payment plans. But you must do so by the deadline on the notice.

What if You Disagree With the Notice

If you disagree with the notice, you need to take action as soon as possible, but the actions you should take vary based on the situation. Here are some possible options. 

  • Disagree with the tax due — Contact the IRS. The agency may have adjusted your return in error, or you may have made a mistake on your tax return. 
  • Believe the balance due is related to your spouse or ex-spouse — If you filed a joint return, you both owe the tax, but in situations where your spouse underreported the tax without your knowledge, you may be able to get relief. 
  • Disagree with the penalties — IRS penalties for filing or paying late can get very high. If you think the penalties were assessed in error, contact the IRS. Even if the penalties are correct, you may be able to get penalty abatement. 

If there are severe issues with the notice (for instance, if you get a bill for a year that you didn’t file), you may be the victim of identity theft, or the IRS may have filed a substitute for return for you. In both cases, you need to contact the IRS or an attorney. 

What if You Agree With the Notice but Can’t Afford to Pay

You know you owe the tax debt, but you cannot afford to pay in full right now. Luckily, there are options, and making payment arrangements will help to cut down on the penalties. Here are the main options:

  • Installment agreement – Make monthly payments until you pay off the balance in full. You can take up to six years to pay, and potentially longer if needed, and you provide a financial disclosure. 
  • Offer in compromise – Pay as much as you can afford, and then, the IRS forgives the rest of the balance due. 
  • Currently not collectible — Get the IRS to pause collection actions if you can’t afford to pay anything right now. 
  • Bankruptcy — Use this option very cautiously, and note that you can only discharge certain taxes in bankruptcy.

When you talk with a tax attorney, they will help you find more options for your situation. 

What if You Don’t Respond to Collection Notices

Ignoring tax collection notices can be a big mistake. The IRS will add penalties and interest to your unpaid balance. The agency can also issue tax liens, take your tax refunds, and if you owe over a certain amount ($59,000 as of 2023), they can tell the State Department to revoke your passport. Eventually, as explained above, the IRS can seize your wages, income, real estate, personal property, and other assets. 

What if the Notice Isn’t Really From the IRS

Unfortunately, scammers prey on people’s biggest fears to trick them into giving up money or private information. This includes fears about taxation. Scammers often send out fake IRS notices demanding payments or threatening people. These notices may contain false IRS phone numbers. 

When unsuspecting victims call in, the person who answers the phone pretends to be from the IRS. Then, they try to trick the person into sharing their Social Security number or making payments over the phone. Note that all IRS payments are to the U.S. Treasury. If anyone tells you to make a payment to another entity or if they request an odd payment like a gift card, they are a scammer. Do not give them information. 

What if the Notice Is From a Collection Agency

The IRS outsources some collection actions to third-party collection agencies. If you get a letter from a collection agency, it should include a code number that you use to verify your identity with the agency. 

The IRS works with a few different collectors. Check their website to make sure that they really work with the collection agency that has contacted you. Note that you don’t have to deal with the collection agency if you don’t want to. If desired, you can request to have your account sent back to the IRS. 

Get Help With IRS Collection Notices

A lot of people find IRS collection notices so intimidating that they just throw them away. But unfortunately, ignoring the problem will only make it worse. No matter how bad things feel, there is a resolution option that can help you. 

To get help now, contact James Cha at Ace Plus Tax Resolution today. We’ll help you deal with the notices and get back into good standing with the IRS. 

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