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Receiving a notice from the IRS can be alarming, especially when the notice concerns an audit or assessment of additional tax owed. One way of preventing unwarranted panic is understanding what kind of notice you’ve received. Some notices may just inform you of a balance you overlooked, while others inform you that the IRS is taking action to collect a debt. If a notice seems confusing to you, you have two options. The first is to call the IRS and ask for clarification regarding the notice you’ve received. The IRS has tools online and representatives over the phone that can give you more information. If you’re still confused, or if you’re not sure about interacting with the IRS yourself, you can also hire a tax attorney to represent you in your tax controversy with the IRS.
To help you better understand your notice, these are the most common IRS notices sent to taxpayers for purposes of collection:
CP501/502 – Balance Due, Unpaid Taxes
A CP501 notice means that you have a past balance that is due and the IRS is calling your attention to it. A CP501 notice will inform you of the amount of the balance. A CP502 serves as a reminder to the taxpayer regarding an outstanding balance. The IRS usually levies interest and penalties on unpaid tax, so the notice might also indicate how much the interest and penalties are.
You have two options if you’ve received a CP501 notice from the IRS. If the balance is confirmed to be correct, you can pay it off, or set up a payment plan to settle the balance. If you’re not sure about the correctness of the amount, you can inquire with the IRS, or better yet, ask your trusted tax lawyer to verify it on your behalf.
CP504 – Final Notice
A CP504 notice also informs you of a balance that is due and payable. What distinguishes it from a CP501/502 notice is that a CP504 will include a statement that the IRS is starting its collection process. Oftentimes, the IRS will seize any tax refund that belongs to you and will apply it to the debt to pay it off. It doesn’t stop there though – the IRS will go after the taxpayer until the entire balance is paid.
A CP504 is a secondary notice, which means that it’s not sent until a previous notice regarding the balance has already been sent to the taxpayer. This means that as a taxpayer, you can stave off the possibility of receiving a CP504 notice by paying immediately any balance you owe, or setting up a tax relief option if you’re unable to pay the whole amount at once.
CP90 – Intent to Levy
A CP90 notice is sent by the IRS after multiple attempts to inform the taxpayer of their overdue balance. A CP90 will be sent if you do not respond to any of the previous attempts to contact you regarding the overdue balance. A CP90 notice will inform the taxpayer that the IRS is intending to carry out a levy if the overdue balance is not paid. A levy will involve taking the taxpayer’s property, (often money in a bank account) or rights to your property in order to satisfy the tax debt.
If you receive a CP90 Notice, you should contact the IRS as soon as possible to rectify the situation. Ignoring the notice will only lead to more problems, as it gives the IRS impetus to proceed with the levy. At this point, it’s still possible to prevent the levy if you can agree on a tax relief option with the IRS.
If you’re still unsure about which step to take after receiving an IRS notice, the best option is to consult a knowledgeable tax lawyer regarding options. A tax lawyer will be in a better position to advise you – and fight for you if need be.