Common IRS Notices
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Few things can throw a bigger wrench into your day than a notice from the IRS. It’s not like they reach out to catch up and see how your family is doing; when the IRS calls, it’s because you’re on the hook for something. Realistically, though, IRS notices are not nearly as intimidating as people think they are. In essence, they’re a notice to you that you have a problem with your federal tax returns.So it’s not like the IRS is going to come busting down your door anytime soon. The IRS website’s first suggestion is not to panic, so they’re not out for your downfall. IRS notices can even include something as simple as a change to your account or a request for more information. Also, most issues with the IRS are resolved quite easily–provided you pay your outstanding balances on time.However, trying to make sense of all the different notices can be a doozy. Who can keep track of all these different forms and files when there’s simply so many more exciting things to ponder? That’s why today we’re here to give you the lowdown on the most common IRS notices for the coming year. We’ve itemized the notices so you can scroll through the list and find the notice specific to you.And with that, let’s begin!
A CP 2000 notifies you of a discrepancy between your payment information on file and the information listed on your taxes. While this might seem like a small error the IRS can gloss over, in reality, it could cause an increase or decrease in your tax returns. If you receive this notice, you should check your other returns for similar mistakes. Make sure to keep a copy of the notice on file as well. If payment is a concern, you’ll be glad to know that the IRS has several payment plans you can conveniently choose.
The CP 504 is officially known as the Final Notice Intent to Levy or the Third and Final Reminder of Past Due Taxes. In layman’s terms, it’s the final warning the IRS gives you before they start collecting from your state tax refund and other assets. Your assets can range from personal property, like your car and home, to business assets. It means you have an unpaid account, and you need to pay it immediately. The IRS will give you 30 days to pay the amount. However, if you think you have already paid this or disagree with the collection statement, you can contact the IRS with your concerns and consult them on what to do next.
CP 14 notices are very straightforward; in essence, they inform you of money you owe on unpaid taxes. Payment plan options are available if you cannot pay the full amount at once. Paying the total amount by the due date also helps you avoid interest on CP 14 notices. If you cannot pay the full amount on time, you may be subject to late fee penalties. However, the IRS may delay collection in times of financial hardship. Contact the IRS if you would like to contest your notice.
While a CP 11 isn’t a serious notice, it’s still not fun to receive. CP 11s notify you of a miscalculation on your tax return and the new fee you now owe as a result. The notice will list the reasons for this miscalculation, so if you disagree with them, you can contact the IRS within 60 days. Most people find that contacting the IRS via telephone gets them faster answers, but you can also contact them via email. If you do agree with the notice, make sure to pay the full amount by the due date listed on your notice and to make changes to your tax return copy.
CP 90/CP 297
Both of these notices inform you that the IRS intends to seize some of your assets for unpaid taxes. The only difference is that CP 90 notices are for individuals, whereas CP 297 notices are for businesses. With both of these notices, you have a right to a Collection Due Process Hearing, where you can appeal to the lien. You can request this hearing by filing Form 12153, Request for a Collection Due Process or Equivalent Hearing. However, you can avoid all of this by directly paying the outstanding taxes, or contact the IRS to set up a payment plan.
This notice is for overdue, unpaid balances. Before you contact the IRS with any questions, check your return to see the list of all the payments applied to your account. See if they’ve applied all the payments you’ve made thus far. If you think there’s a mistake, contact the IRS within ten days by either phone or email. Be sure to have any canceled checks or amended returns on hand while you are talking with the IRS. If you would like an accountant to handle this matter, file a Form 2848, which will give your accountant the Power of Attorney.
This notice shows a balance you owe as a result of the amount estimated on your tax returns and the amount posted to your bank account. The problem could be as simple as one wrong digit on your estimated taxes, so it’s relatively easy to fix. Other charges made while processing your return might also be included. It’s best to compare your previous tax returns to check for any discrepancies, and also to see if any previous payments were applied to your account. Contact the IRS within 60 days of your notice with any questions about how you should handle it.
Getting a CP 523 notice is a relatively serious occasion. It means you have not been keeping up on your installment payments, have now defaulted on the payment plan as a result, and that the payment plan will be terminated. The IRS will start seizing your assets as a result. While most people would panic at this news, it’s possible to handle with relatively little fallout. First, make a payment before the listed termination date to keep your payment plan active. Contact the IRS immediately to keep your payment plan active. Keep in mind you will have to pay a fee to reactivate it, though.
CP 501/CP 502
These are the first (CP 501) and second (CP 502) reminders from the IRS that you owe money on one of your tax accounts. You will only receive the 502 if you ignore the 501 by not paying or resolving your balance. 502s are typically more pressing than 501s, as the IRS certainly doesn’t like to wait for its money. Your 502 notice may list higher penalties or interest balances as well. Pay your balance, as waiting even longer might result in a federal tax lien and seizure of your assets.
CP 16 notices inform you of a change made to your tax returns that will affect your tax refund. This notice is pretty easy to manage. If you have no objections to the notice, you don’t have to do anything–not even contact the IRS. Of course, if you have some concerns, you should contact the IRS within 60 days to see what you can do. Make sure to have any documents on hand that justify your objection to the changed refund amount, otherwise the IRS may not agree to reverse the changes made to your refund.
Interestingly, a CP 10 notice will affect your tax returns for next year and your return for this year. It notifies you of changes made to your return in light of a miscalculation made on your estimated tax payments. However, this miscalculation will also affect your estimated tax payments for next year. Make sure you amend your returns for this year so that you don’t under-calculate your estimated tax payments for next year. The IRS website recommends filing future returns electronically; filing online could help you make fewer mistakes and discover hidden deductions and tax credits.
CP 91 notices that the IRS will collect up to 15% of your Social Security Benefits to cover unpaid taxes. Contact the IRS and not the Social Security Office in this case. The SSA has no jurisdiction over tax-related issues. Payment plans are useful for these cases, as 15% of one’s Social Security benefits can be quite a lot of money for some people. If you’re still concerned about making the payments on time, see if you can submit an Offer in Compromise, or a request to pay less than the amount you owe.
You will only receive a CP 22E notice in the event of an audit. These notices inform you of changes made to your returns for the tax year listed on the notice. Unfortunately, you now owe money as a result of these changes. You may request an Audit Reconsideration if you have not yet paid the amount and have information that might disqualify the audit. If you’ve already paid the amount, you’ll need to refile a formal claim with a Form 1040-X, a form for amended individual tax returns.
Forget about getting your tax refund back with this notice. CP 49s notify you that the IRS has partially or fully used all of your tax refunds to pay off an outstanding tax debt. Like every other tx notice, you may contact the IRS if you have any objections. Furthermore, you may also pay any remaining balance in installments if you cannot pay the full amount at one time. If you think you might be unable to pay the entire balance, submit an Offer in Compromise to lower the total amount.
People who don’t file their returns will receive a CP 59 notice. It means the IRS has no records of your previous tax return(s). You can either file immediately, pay a late fee, contact the IRS, and notify them why you do not need to file. This requires you to complete Form 15103, Form 1040 Return Delinquency. In this form, you will need to explain your reasons for not filing, why you’re filing late, why you don’t need to file, or that you already have filed your returns. Send in the completed 15103 form with your tax return and notice stub.
Who is that filing your taxes? The IRS wants to know, and that’s why they’ll send you this notice. The name or ID number listed on your returns does not match the ones on your account. You must contact the IRS with the correct information to receive your tax refund. Usually, this requires you to complete the response form at the bottom of the notice, where you must explain why two different names or ID numbers are listed. You’ll also need to include documents verifying your correct name and ID number. Also, you may need to contact the SSA to update your records.
Have you ever heard of Earned Income Tax Credit? It’s a refundable tax credit for those in lower-income brackets. If you file a tax return claiming an EITC and make some errors, you will receive the CP 11A notice informing you of an outstanding balance. You’ll need to pay the balance within 60 days. You can also contact the IRS to set up a payment plan. If you miss the deadline, the IRS might audit your case, so start paying it off as soon as possible.
The CP71C notice is a friendly reminder from the IRS that you still owe money in taxes, penalties, or interest. It also informs you of why you are not eligible to receive a United States passport, or why your passport is being revoked. It’s crucial to pay off as soon as possible, as interest accrues on the balance until it is paid off. However, if paying off the debt will be an issue, you can set up a payment plan or submit an Offer in Compromise, just as you can with other notices.
For those enrolled in IRS payment plans, this notice lets you know that you have an upcoming installment due. You must mail in your payment with the bottom part of the notice so that your account can receive the payment appropriately. Try to keep up on your payments, as interest and penalties will accrue on late payments. Furthermore, your account might go into default if you miss too many, which will create a host of newer and more complicated problems. Check out the IRS website’s payment plan page to see the payment options available.
A Letter 1058 notice is the IRS informing you that they have not received your payment for overdue taxes. This notice means that the IRS intends to seize your property or property rights immediately. Contact the IRS as soon as possible to resolve this issue. They can help you set up a payment plan if the total outstanding balance is under $50,000. However, if you believe you have already paid this balance, notify the IRS with proof of payment so that they can take the balance off of your account. One last word of advice: pay what you can even if you are unable to pay in full, as it will reduce the interest that accrues on your account.
Receiving this letter means the IRS has filed a tax lien, or a legal claim to seize your assets, against you for unpaid taxes. If you object to this, you can file an appeal within 30 days of receiving the notice. The letter explains how you can request a hearing to appeal your case. If you do want to appeal your case, you will also need to file Form 12153, Request for A Collection Due Process Hearing within 30 days of receiving the notice. Send this form to the address listed on the lien notice.
Last but not least, the most welcome letter you can receive from the IRS is the 668D, as it notifies you of the release of a tax lien that was being held against you. This letter means that the IRS no longer intends to seize your assets as you have paid off your outstanding balance. The IRS may issue this letter in the event of a successful appeal as well.As you can see, most IRS notices are pretty mundane. While some people might get apprehensive at the idea of hearing from the IRS, in reality, it’s usually nothing to worry about. Granted, some of these notices are more urgent than others. But contacting the IRS for any questions or concerns is an excellent place to start. Hopefully, we’ve dispelled some of that fear today so that you can breathe a little easier. Just make sure to get your taxes in on time so you won’t have to put any of this information to use.Happy filing, and don’t forget to file on time!
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– Nicholas Jones – 08/04/2020
What is the IRS Fresh Start Tax Relief Program?
The IRS officially launched the Fresh Start Program back in 2011 with the aim of helping taxpayers get a “fresh start” with their tax debt and get some relief. The goal of the program was to help taxpayers and small businesses with paying back taxes and avoiding tax liens. Changes implemented by the program largely revolved around tax lien, installment agreements, offer in compromise and currently not collectible charges.
- Tax Lien Changes
- Installment Agreement Changes
- Offer In Compromise (OIC) Changes
- Currently Not Collectible Changes
The IRS made changes to their policies regarding tax liens. Here are some of the changes summarized:
- The FSI increased the tax debt threshold at which the IRS will file a Notice of Federal Tax Lien (Letter 3172). The threshold amount went from $5,000 to $10,000. It is important to remember that the IRS (at its discretion) can file a tax lien on someone below $10,000.
- The IRS also made changes regarding the withdrawal of tax liens. What is a tax lien withdrawal? A tax lien eliminates the Notice of a Tax Lien publicly. These policy changes made it easier for individuals to get “back on their feet,” and get a tax lien withdrawn in these specific ways:
- The lien was paid off or the statute of limitations (CSED) was reached. Although IRS liens are generally self-releasing, they don’t always come off. Therefore, a taxpayer in this situation needs to be in filing compliance for the past three years and in compliance with estimated tax payments (if a business or self-employed) before they can request a lien withdrawal.
- An individual can set up a 60-month direct debit installment agreement (aka DDIA or SIA) if their balance is $25,000 or below. Direct-debit means that the IRS deducts an individual’s bank account or wages for the monthly payment. After three consecutive direct debit payments, the lien withdrawal can be requested.
- An individual with a regular installment agreement that is converted to a DDIA can request a lien withdrawal after 3 successful payments.
The IRS made installment agreement policy changes as well with the Fresh Start Tax Relief Program. Below is a summary of the changes they made:
- The FSI increased the threshold for which an individual can qualify for a Streamlined Installment Agreement from $25,000 to $50,000.
- The FSI also expanded the tax debt amount threshold for small businesses to qualify for a DDIA from $10,000 to $25,000. Small businesses can pay down balances above $25,000 in order to qualify for a DDIA.
An Offer in Compromise (also frequently referred to as an “OIC”) is an agreement that can be made between you and the IRS that settles your tax liabilities for less than the full amount that you owe. Essentially, you can come to an agreement with the IRS that sees you pay some of your debt off, but not all of it. Generally speaking, the IRS won’t accept an OIC claim if they believe that you are able to pay your debts in full or through a payment agreement. However, if they take a look at your taxpayer’s income and assets and conclude that you are unlikely to actually be able to pay what you owe, they may be lenient and approve an offer in compromise – an alternative sum that is more reasonable and achievable. Of course, you will have to legally accept and agree to the offer.
Now, this may seem unusually lenient. However, the organization has put these common-sense changes in place, taking a realist approach to real-world situations, helping struggling individuals to resolve their tax problems in as little as two years, as opposed to the average four or five years it often took people to get back on their feet in the past.
Changes to the program include:
- Revising the calculation for your future income
- Allowing you to repay any outstanding student loans
- Allowing you to pay state and delinquent taxes
- Expanding your allowable living expenses (both in terms of categories and amount)
When a taxpayer is in this status, enforcement actions cease. Generally, the taxpayer will need to provide sufficient documentation to justify this status with the IRS. The Fresh Start Program made the process easier for individuals who owe $10,000 or less to qualify for a CNC by easing documentation requirements.
Who Is Eligible for the
IRS Fresh Start Tax Relief Program?
If you are an individual taxpayer and you are happy to repay the debts you owe in a series of installments with a direct payment structure, you could benefit from the IRS Fresh Start Program. You just have to meet the requirements listed below:
- You owe less than $50,000 or you owe more than $50,000 but can reduce your debts to this amount before starting the program
- You can pay off your outstanding debt in less than 60 months
- Your tax files are up to date
- This is the first time you’ve fallen behind on payments to the IRS
- You will agree to a direct payment installment agreement
- You will maintain the installment agreement, keep up to date with tax filings and will not incur further tax debt while you are paying your installments
- You will file for OIC and are able to pay off the agreed settlement amount within 12 months.
As a first-time debtor, you may also be eligible for abatement of specific penalties. For example, if you owe less than $25,000 or you are able to reduce your debts to this amount before starting the program, you may also qualify to have a federal tax lien removed.
If you are a business owner and your business owes taxes, you could also be eligible for the Fresh Start Program. In this scenario, you will need to meet the following requirements:
- Your business owes less than $25,000
- You will be able to repay the full amount within 34 months
- Your business is up to date with current federal tax filings and payments
- It’s the first time your business has fallen behind on payments to the IRS
Of course, we’ve only touched on the basics to help you get to grips with the program. If you have any further questions, would like a firm answer in regards to whether you’re eligible for the program or not, or want to apply for the initiative, don’t hesitate to get in touch with us! Whatever your personal situation may be, our qualified, experienced and friendly tax professionals will be able to guide you in the right direction.