Last week I wrote about the “IRS Collection Process” and the steps taxpayers need to take in order resolve their tax debts along with some alternatives that are available to them.
This week I am going to take a step back and go into detail on some of the compliance and collection letters that taxpayers who have unfiled returns or balances due the IRS receive.
The form letter numbers are located in the top right hand corner of each page.
If you haven’t filed a tax return in a while, the first letter you may receive is a CP-516, also known as a “Notice of Missing Return”. The IRS is letting you know that they are receiving tax documents from third parties like banks, your employer, mortgage lender, etc. but haven’t received a tax return from you yet. You should file your returns immediately. You don’t want the IRS filing your return for you. It’s called an SFR or “Substitute for Return” and it’s not good for you, but that’s another article.
Once your tax return is filed and you have a balance due, you may receive a CP-501 letter. This is a “billing notice”, where the IRS is saying, “Thanks, we got the return, now please send us the money you owe right away”.
If you ignore this letter, the next one, the CP-503, or “reminder notice” is less friendly. The opening line in this letter is, “As we notified you before…” Clearly, they are becoming impatient.
If you put the CP-503 in the circular file, the next one that comes should really get your attention. It’s the CP-504, also known as the “threat to levy”. The IRS isn’t playing around now. They are coming for your money.
If you haven’t contacted your tax professional yet, the next letter, called “Letter 11”, should get you to reach for the phone. It’s called the “Final Notice of Intent to Levy and Taxpayer’s Right to a Hearing”.
If you request a hearing, it will buy you 30 days to get your tax returns prepared and filed and work out a payment plan with the IRS.
Ignore this letter and your bank account gets cleaned out, the IRS files a “Notice of Federal Tax Lien” which destroys your credit rating and you’ve missed your chance to work with the Appeals Unit or go to Tax Court.
If your situation sounds anything like this, please call me so I can help.