Blog : Tax Debt

If you have an unpaid tax debt with the IRS, one of the first steps they take is sending a series of letters and notices demanding payment. Understanding these notices and taking prompt action is crucial to resolving your tax issues as favorably as possible. Let’s decode some of the most common IRS collection notices:

CP14 Notice – This is often the first notice you’ll receive after failing to pay taxes owed on your tax return. It states the amount due, including penalties and interest, and requests full payment within a specified timeframe.

CP501 Notice – This is known as the “reminder notice” and follows up on the CP14 when the debt remains unpaid. It’s a stronger warning that if you don’t pay soon, the IRS will pursue enforced collections actions.

CP503 Notice – With this “third party” notice, the IRS notifies the companies you have relationships with, including employers and banks, that the IRS intends to pursue measures like garnishments or levies against you if the tax debt isn’t resolved.

CP504 Notice – This is the dreaded “Intent to Levy” notice. It means the IRS plans to seize your property, income, bank accounts, or other assets within 30 days if you don’t pay or make other arrangements with them.

LT11 Notice – If you ignore all the other warnings, this “Final Notice” provides a final demand for payment and notifies you that the IRS has approved seizing your property to satisfy the outstanding debt.

There are many other potential IRS collection notices (CP90, CP92, CP63, etc.). Still, they all have the same underlying message: Pay your tax debt immediately or face enforcement actions like liens, levies, garnishments, and more. The further you are in the notice stream, the more imminent the threat of collections activity.

The best way to avoid escalating issues is to address IRS collection notices head-on as soon as you receive the first one. Explore your options like payment plans, offers in compromise, or appealing the debt itself. But don’t ignore the notices, as that’s a surefire way to have your paycheck garnished or assets seized.

If you need help resolving your tax debt, schedule a call with me today to learn about your options.

If you owe back taxes to the Internal Revenue Service (IRS), you may be dealing with the agency’s collections process. IRS Collections refers to the actions the IRS takes to recover unpaid tax debts from individuals and businesses.

The Collections Process

The collections process typically begins when you fail to pay your taxes in full by the filing deadline or fail to respond to a bill from the IRS. Here are the main steps in the process:

1. IRS Notices

The first step is for the IRS to send you a series of letters and notices demanding payment of your outstanding tax liability, including penalties and interest. These ask you to pay the debt or set up an installment agreement.

2. Tax Liens

If you don’t respond to the IRS notices, the IRS can file a Notice of Federal Tax Lien, which publically registers the government’s claim against your current and future property. This makes it difficult to get credit or sell assets.

3. Levies and Garnishments

After sending more notices, the IRS can pursue levies and garnishments if you still don’t pay. A levy allows the IRS to seize and sell your property (e.g., your house, car, recreational vehicle) to collect the debt. Garnishments allow them to take money directly from your paycheck or bank account.

4. Suspend Credentials

For certain occupations, such as attorneys and pilots, the IRS can request that your federal credentials be suspended for failing to pay taxes.

5. Summons and Prosecution

In extreme cases, the IRS can summon you to appear and be questioned under oath about your finances. Failing to comply can even lead to criminal prosecution.

Your Options

During collections, you have options like setting up an installment agreement to pay over time, making an offer to settle the debt for less, or showing that you can’t pay and qualifying for temporary non-collection status. The most important thing is to promptly respond to IRS notices to avoid escalating enforcement actions.

The IRS collections process aims to compel payment through increasingly aggressive measures if you fail to resolve your tax debt. The best way to resolve the situation through less drastic means is to work proactively with the IRS as soon as you have a balance due.

If you need help resolving your tax debt, schedule a call with me today to learn about your options.