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12. IRS Collection Notices - What Do They Mean?

By
Industry Observer with Ocean Consulting Services LLC

I filed my tax return - it showed that I owed money - I didn’t send in payment. Now the dreaded envelope arrives - it’s from the IRS. I finally open it…. Help what does it mean, what does this notice number mean?

The IRS is notorious for sending out cryptic mail. In this post I’ll attempt to provide a bit of clarity to help decipher the various types of notices.

Let’s start with the basics - the IRS uses antiquated technology. Notices generated by the IRS appear to be from the ’70’s - because that’s probably when the notices were designed. The IRS has recently received a commitment for increased funding - a portion of which is designed for technology upgrades.

So I file my return - it shows a balance due - I don’t send in money - clearly I owe the government money - why do they need to send me all these notices - can’t they just seize my property? No they can’t. Under the 14th Amendment to our Constitution we are all entitled to Due Process of Law - which includes an opportunity to be heard in court before you can be deprived of your property.

The purpose of the notices is to provide you with formal notification of the debt in order to afford you the right to be heard before the IRS takes your property.

Notices are typically generated from “the Campus” or from “the Field”. The IRS has a number of offices throughout the country - the Campus refers to notices generated from an office - these are the most common notices and are usually generated automatically by the IRS. These notices are usually designated as “CP” - Computer Paragraph.

The Field refers to activity conducted by a revenue officer. Notices from the Field are not automatically generated. Notices issued from the Field are designated is LTR - Letter.

Let’s review the notices used in the collection process:

  • CP 14 - Notice From the IRS: this is the initial notice you’ll receive once you’ve filed a tax return that reflects a balance that is unpaid - the tax return data is entered into the IRS computer system - the tax liability becomes “assessed” - this notice will be sent to provide notice of the debt and request full payment - the notice contains a 30 day “deadline” - this just means that after 30 days they’ll send out another notice

  • CP 501 - Reminder of Balance Due: this is the first reminder notice relating to the debt - it contains the same 30 day “deadline”

  • CP 503 - Second Notice of Balance Due: this is the second reminder notice relating to the debt - it contains the same 30 day “deadline”

  • CP 504 - Intent to Levy: this serves as another notice of the debt and tells you that the IRS may use a levy in order to collect on the debt if you don’t pay - this is just another notice - no action is taken by the IRS to force collection - the notice contains another “deadline” of 30 days

  • LT 11 - Final Notice of Intent to Levy and Notice of Your Right to a Hearing - this is the important notice - it notifies you of a “real” 30 day deadline - if you do nothing within 30 days the IRS can take forced collection activities - including, for example, seizing money in bank accounts, taking a portion of your wages (garnishing wages), etc. Beware - the LT 11 looks similar to the CP 504 - both notices indicate Notice of Intent to Levy - but it’s not the same notice! Action is required after issuance of this notice to prevent forced collections.

IRS activity relating to tax debts begins once the tax has been assessed.  Once the process has begun you can approach the IRS and attempt to resolve the debt - typical solutions include requesting to pay the debt over time (an Installment Agreement) or requesting that the debt be lowered due to an inability to make payment of the full amount (an Offer In Compromise).

Once you approach the IRS the notices usually stop. In addition to providing constitutional protection the notices serve as a means to encourage taxpayers to approach the IRS. Contrary to popular belief the IRS does not want to engage in forced collection methods - they would much rather work out a payment plan or agree to a compromise.

Although the IRS is prohibited from enforcing collection without notice there are no timelines relating to the issuance of these notices. As mentioned the “deadlines” are, in effect, limitations imposed on the IRS - i.e. they won’t issue the CP 503 until at least 30 days after issuing a CP 501.

I mentioned that the 30 day deadline with the LT 11 is a “real” deadline. In order to prevent forced collection you need to respond to the notice - to request a so-called Collection Due Process Hearing (CDP). Taking this action will move your case to the IRS Appeals division for a hearing.

Making this request suspends forced collection activities. But even if this deadline is missed the IRS is not required to begin forced collection - this just gives them the right to take your property in satisfaction of the debt.

If you miss the deadline you can still make a request to be heard by the IRS. This is called an Equivalency Hearing. It’s similar to a CDP hearing except forced collection may not be stopped.

As discussed in previous posts the IRS has a period of ten years to collect on the debt. During this period the IRS is required to notify you of the debt and allow for you to make payment or arrange for an alternative arrangement (i.e. an IA or OIC). If payment is not made or an alternative is not arranged forced collection can begin 30 days after issuance of the LT 11. Forced collection can, but is not required to, occur from this point up to the expiration of the ten year period.

The moral of this post is - open the mail and read the notices. Bad things happen to those who ignore the notices. Forced collection activity is most likely the result of ignoring notices and missing the opportunity to deal with the IRS.

In our next blog post we’ll discuss the Massachusetts Collection Process.

I filed my tax return - it showed that I owed money - I didn’t send in payment. Now the dreaded envelope arrives - it’s from the IRS. I finally open it…. Help what does it mean, what does this notice number mean?

The IRS is notorious for sending out cryptic mail. In this post I’ll attempt to provide a bit of clarity to help decipher the various types of notices.

Let’s start with the basics - the IRS uses antiquated technology. Notices generated by the IRS appear to be from the ’70’s - because that’s probably when the notices were designed. The IRS has recently received a commitment for increased funding - a portion of which is designed for technology upgrades.

So I file my return - it shows a balance due - I don’t send in money - clearly I owe the government money - why do they need to send me all these notices - can’t they just seize my property? No they can’t. Under the 14th Amendment to our Constitution we are all entitled to Due Process of Law - which includes an opportunity to be heard in court before you can be deprived of your property.

The purpose of the notices is to provide you with formal notification of the debt in order to afford you the right to be heard before the IRS takes your property.

Notices are typically generated from “the Campus” or from “the Field”. The IRS has a number of offices throughout the country - the Campus refers to notices generated from an office - these are the most common notices and are usually generated automatically by the IRS. These notices are usually designated as “CP” - Computer Paragraph.

The Field refers to activity conducted by a revenue officer. Notices from the Field are not automatically generated. Notices issued from the Field are designated is LTR - Letter.

Let’s review the notices used in the collection process:

  • CP 14 - Notice From the IRS: this is the initial notice you’ll receive once you’ve filed a tax return that reflects a balance that is unpaid - the tax return data is entered into the IRS computer system - the tax liability becomes “assessed” - this notice will be sent to provide notice of the debt and request full payment - the notice contains a 30 day “deadline” - this just means that after 30 days they’ll send out another notice

  • CP 501 - Reminder of Balance Due: this is the first reminder notice relating to the debt - it contains the same 30 day “deadline”

  • CP 503 - Second Notice of Balance Due: this is the second reminder notice relating to the debt - it contains the same 30 day “deadline”

  • CP 504 - Intent to Levy: this serves as another notice of the debt and tells you that the IRS may use a levy in order to collect on the debt if you don’t pay - this is just another notice - no action is taken by the IRS to force collection - the notice contains another “deadline” of 30 days

  • LT 11 - Final Notice of Intent to Levy and Notice of Your Right to a Hearing - this is the important notice - it notifies you of a “real” 30 day deadline - if you do nothing within 30 days the IRS can take forced collection activities - including, for example, seizing money in bank accounts, taking a portion of your wages (garnishing wages), etc. Beware - the LT 11 looks similar to the CP 504 - both notices indicate Notice of Intent to Levy - but it’s not the same notice! Action is required after issuance of this notice to prevent forced collections.

IRS activity relating to tax debts begins once the tax has been assessed.  Once the process has begun you can approach the IRS and attempt to resolve the debt - typical solutions include requesting to pay the debt over time (an Installment Agreement) or requesting that the debt be lowered due to an inability to make payment of the full amount (an Offer In Compromise).

Once you approach the IRS the notices usually stop. In addition to providing constitutional protection the notices serve as a means to encourage taxpayers to approach the IRS. Contrary to popular belief the IRS does not want to engage in forced collection methods - they would much rather work out a payment plan or agree to a compromise.

Although the IRS is prohibited from enforcing collection without notice there are no timelines relating to the issuance of these notices. As mentioned the “deadlines” are, in effect, limitations imposed on the IRS - i.e. they won’t issue the CP 503 until at least 30 days after issuing a CP 501.

I mentioned that the 30 day deadline with the LT 11 is a “real” deadline. In order to prevent forced collection you need to respond to the notice - to request a so-called Collection Due Process Hearing (CDP). Taking this action will move your case to the IRS Appeals division for a hearing.

Making this request suspends forced collection activities. But even if this deadline is missed the IRS is not required to begin forced collection - this just gives them the right to take your property in satisfaction of the debt.

If you miss the deadline you can still make a request to be heard by the IRS. This is called an Equivalency Hearing. It’s similar to a CDP hearing except forced collection may not be stopped.

As discussed in previous posts the IRS has a period of ten years to collect on the debt. During this period the IRS is required to notify you of the debt and allow for you to make payment or arrange for an alternative arrangement (i.e. an IA or OIC). If payment is not made or an alternative is not arranged forced collection can begin 30 days after issuance of the LT 11. Forced collection can, but is not required to, occur from this point up to the expiration of the ten year period.

The moral of this post is - open the mail and read the notices. Bad things happen to those who ignore the notices. Forced collection activity is most likely the result of ignoring notices and missing the opportunity to deal with the IRS.

In our next blog post we’ll discuss the Massachusetts Collection Process.

As always feel free to reach out if you need assistance - Contact The Author

Link to Outline Slides: Outline - Notices

Link to Video:  Video - IRS Collection Notices