IRS Letters and Notices

Common IRS Letters and Notices: How to Respond and Next Steps

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It is crucial to respond to IRS letters and notices, even if you cannot pay the amount owed. Ignoring these notices can lead to penalties, interest, asset seizures, wage garnishments, and other collection actions. Responding in a timely manner may allow you to negotiate a payment plan, dispute errors, or prevent enforcement actions.

CP14 – Balance Due Notice

  • Purpose: This is the first notice sent when the IRS determines that a taxpayer has an outstanding tax balance.
  • Deadline: Payment is typically due within 21 days (10 days if the balance is over $100,000).
  • Actions:
    o Pay the full amount using Form 1040-V (Payment Voucher) or via the IRS website.
    o Apply for an Installment Agreement using Form 9465 if unable to pay in full.
    o Dispute the balance by submitting supporting documents to the IRS.
  • Consequences of Ignoring: Interest and penalties will continue to accrue, and the IRS may send further collection notices.

CP2000 – Underreported Income Notice

  • Purpose: Issued when the income reported on a tax return doesn’t match IRS records (e.g., W-2s, 1099s).
  • Deadline: Respond within 30 days from the date of the notice.
  • Actions:
    o If the IRS is correct, pay the proposed amount or request a payment plan.
    o If incorrect, file Form 1040-X (Amended Return) with supporting documents (e.g., corrected W-2 or 1099).
    o Call the IRS or mail an explanation if there is a discrepancy.
  • Consequences of Ignoring: The IRS may assess additional tax liability, penalties, and interest.

CP501 – Reminder Notice (Unpaid Balance)

  • Purpose: First reminder that a taxpayer has unpaid taxes.
  • Deadline: Payment is typically due within 30 days of the notice date.
  • Actions:
    o Pay the full balance online or by mail.
    o Set up an Installment Agreement (Form 9465) if you cannot pay in full.
    o Contact the IRS if you need additional assistance or dispute the amount owed.
  • Consequences of Ignoring: The IRS will continue sending collection notices, and penalties will increase.

CP503 – Second Reminder Notice (Unpaid Balance)

  • Purpose: Second reminder that taxes are still unpaid after the CP501 notice.
  • Deadline: Payment is typically due within 10 days of the notice date.
  • Actions:
    o Pay the balance immediately.
    o Request a payment plan if you haven’t already.
    o Contact the IRS if you believe there is an error.
  • Consequences of Ignoring: Continued inaction may lead to Notice of Intent to Levy (CP504).

CP504 – Final Notice of Intent to Levy

  • Purpose: This is a final warning before the IRS may levy assets or wages.
  • Deadline: 30 days from the notice date to respond.
  • Actions:
    o Pay the balance immediately to stop enforcement actions.
    o File Form 12153 (Request for a Collection Due Process Hearing) if you want to appeal.
    o Apply for an Installment Agreement or Offer in Compromise (Form 656) if eligible.
  • Consequences of Ignoring: The IRS may seize bank accounts, wages, Social Security payments, and other assets.

CP523 – Defaulted Installment Agreement

  • Purpose: Issued when a taxpayer fails to make scheduled payments on an IRS installment agreement.
  • Deadline: Immediate action required to avoid enforcement.
  • Actions:
    o Contact the IRS to reinstate the installment plan.
    o Pay the outstanding balance to avoid additional penalties.
    o Apply for a new payment plan if needed.
  • Consequences of Ignoring: IRS may cancel the installment agreement and begin collection actions.

Letter 1058 – Final Notice of Intent to Levy and Right to a Hearing

  • Purpose: The last warning before the IRS levies assets.
  • Deadline: 30 days from the date of the letter.
  • Actions:
    o Request a Collection Due Process (CDP) Hearing (Form 12153) to dispute or negotiate a resolution.
    o Pay the balance or request an installment agreement.
  • Consequences of Ignoring: The IRS may levy wages, bank accounts, or property.

Letter 3219 – Statutory Notice of Deficiency

  • Purpose: The IRS is proposing additional tax due and allows the taxpayer to challenge it.
  • Deadline: 90 days to file a petition with the U.S. Tax Court (150 days if outside the U.S.).
  • Actions:
    o Pay the amount due or challenge the deficiency in Tax Court.
    o Provide supporting documentation if you disagree.
  • Consequences of Ignoring: The IRS will assess the tax and begin collection.

CP90 – Levy on Social Security Benefits

  • Purpose: Notifies the taxpayer of an impending levy on Social Security benefits due to unpaid tax debt.
  • Deadline: 30 days to appeal.
  • Actions:
    o File Form 12153 (CDP Hearing Request) to appeal the levy.
    o Pay the balance or negotiate a payment plan.
  • Consequences of Ignoring: A portion of Social Security benefits may be seized.

CP161 – Request for Payment of Unpaid Balance

  • Purpose: Notification of an outstanding balance due.
  • Deadline: 21 days to pay or contact the IRS.
  • Actions:
    o Pay the balance or set up an installment agreement.
    o Request penalty abatement if you qualify.
  • Consequences of Ignoring: The balance will accrue additional penalties and interest.

CP22A – Tax Return Adjustment Notice

  • Purpose: Informs the taxpayer of changes made to their return by the IRS.
  • Actions:
    o Review the changes and compare them with your records.
    o Contact the IRS if you disagree.
  • Consequences of Ignoring: If additional taxes are assessed, they will become due.

LT16 – Unpaid Tax Debt Notice

  • Purpose: Urgent notification about a serious unpaid tax debt.
  • Actions:
    o Pay immediately or contact the IRS for resolution options.
  • Consequences of Ignoring: The IRS may escalate collection efforts.

CP75 – Earned Income Credit (EIC) Audit Notice

  • Purpose: IRS is reviewing EIC eligibility.
  • Actions:
    o Provide documents to verify EIC eligibility.
    o Respond within the deadline specified in the notice.
  • Consequences of Ignoring: EIC may be disallowed, and future claims may be denied.

CP88 – Refund Held Due to Tax Debt

  • Purpose: Notifies the taxpayer that their refund is being withheld.
  • Actions:
    o Pay the debt to release the refund.
    o Dispute the debt if incorrect.
  • Consequences of Ignoring: The refund will be applied to the outstanding debt.

 

Final Thoughts

Understanding IRS letters and notices is crucial to avoiding tax issues. Respond promptly to prevent additional penalties, interest, or enforcement actions. If you receive an IRS notice and need assistance, consider consulting a tax professional or the Taxpayer Advocate Service for help.

 

How to Respond to IRS Notices:

  1. Identify the issue and deadline.
  2. Collect tax returns, income documents, and financial records.
  3. Complete necessary forms: Form 9465 (payment plan), Form 1040-X (amendment), Form 12153 (hearing request).
  4. Mail responses via certified mail and track delivery.
  5. Follow up if no response in 30-60 days.

Key IRS Forms for Notice Responses:

 

Common Mistakes When Responding:

  • Missing deadlines.
  • Sending incomplete forms.
  • Providing insufficient documentation.
  • Ignoring notices or failing to track responses.

 

IRS Contact Information: