These Are The Type Of Letters The IRS Typically Sends

CP88 – Delinquent Return Refund Hold

The CP-88 is the Delinquent Return Refund Hold is letting the taxpayer know that the refund has been held, that the IRS is not giving you the refund because there is a return that needs to be filed.

So, you get a CP 88 letter because you have a return that has not been filed, this could be in a previous year because there is no determination if you have a debt, meaning that you owe money from previous years. Therefore, to fix this you need to file that return for the year before the one that you are claiming the refund, if you don’t file the tax return for that year could be a year before or 2 years before the year that you are filing, the return is going to be on hold. This is because the IRS cannot determine if there is a debt or if there is a refund for that year.

CP 14 – First Notice of Balance Due

When you receive letter CP 14 first notice of balance you have 2 options, either pay the balance due with a check in the letter you will get a payment slip, that you will cut it off put it in an envelope with the check or you will do an installment agreement. This is not a problematic letter it will become a problem if you do not pay because it will bring penalties and interest for the payment not done. The balance due has not been paid and now you have interest to pay, meaning if you owe an amount, it will not be that amount only.

So, it’s critical when you receive this letter because it’s the first letter and there are two more if you don’t pay and the fourth one is for leaving your assets, they are kidnapping your assets, so at this point you are still good.

When you are doing an installment agreement it all depends on how much you owe, if you owe less than $25,000 the IRS will allow you to do an installment agreement either by phone, by the internet or an accountant can do it for you, and you don’t have to pay with direct debits. If you owe more than $25,000 up to $50,000 you are obligated to do an installment agreement with automatic debits from your bank account.

CP 501 – Reminder Notice – Balance Due

When you get this letter is when the IRS is starting to dig in, they want to receive the payment and you are not complying with the obligation so this is a reminder only but at this point you should not receive a reminder you are supposed to fix it the moment that you receive the letter. If you receive this, this might be the consequence of you filing an installment agreement on the first notice but not doing the payments. If you filed an installment agreement and requested automatic debits the IRS doesn’t process immediately, it takes 90 days. The problem is that within the next 90 days after filing the installment agreement with automatic debits you need to do payments through the IRS.gov/payments site because the installment agreements doesn’t kick in immediately. If you didn’t choose automatic debits you have to start doing payments either by check and send it to the IRS and you out your Social Security number and you do that through the numbers of the month you have agreed to pay the debt.

CP 503 – Second Request Notice – Balance Due

This is when you have not done an installment agreement or paid your debt so at this point my recommendation is do something with a professional or if at this point you are not able to pay consider the offer in compromise to pay a portion of the debt.

If you are broke and cannot support yourself and receive no income and have no job and you can prove this to the IRS, they will put the debt for 10 years frozen on standby and this will be because of economic calamity. Is doubtful that the debt will be collected because of the economic calamity. Within 10 years you are not supposed to receive no income, if within those years you are in the same situation the debt will be forgiven after 10 years, but you must apply for forgiveness at the end of those 10 years. There are options, so you need to talk to a professional CPA, a tax attorney or an enrolled agent experienced in tax debt resolution to give you the best options.

CP 504 – Final Notice & IRS Intends to Levy – Balance Due

This is the final notice, and the IRS is going to kidnap your assets, this letter is perhaps the last hope that you have. At this point, you are still in time to do an arrangement with the IRS but you will be in a weak position and not be able to negotiate. The IRS has given you 90 days because these letters CP 501, CP 503 and CP 504 they are very 30 days and you haven’t done anything at this point the only thing that you have is that you are broke obviously do an offer in compromise because you don’t have money and no job, they are going to ask you how long have you been this way and what you are going to do, you have 2 options you can do an installment agreement or do an offer in compromise and they are going to send you 2 sets of documents and ask you to sign it. The problem is that you are not familiar with the documents so you can talk to the IRS, but you never agree to sign anything, they are not going to force you or go to jail.

But do something, if you tell the truth that you are broke and living with a relative and they provide food and roof then they will say you might be able to apply to an economic calamity and they will give you another set of documents and at that point you can talk to a professional or a nonprofit organization that they have to help clients to deal with this tax debt, so talk to someone, get the advice to proceed. If you do not do something the IRS is going to kidnap your bank accounts, if the bank accounts do not satisfy the debt, it will be then a lien on your property but the IRS is not going to sell it because they cannot force you but they can force you to liquidate your retirement account.

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CP 523 – Intent to Terminate your Installment Agreement & Seize your Assets

This is related to the installment agreement because here you did have an installment agreement, but you didn’t honor it. This happens once the IRS has approved your installment agreement and have forgotten to do the payments because you opted for manual payments, meaning that you are sending the checks. This is not going to happen when you have automatic debits but can happen if you don’t have any funds. So the installment agreement you have not honored it because you didn’t send the checks or didn’t have enough money in the bank account or for any reason the account was closed and you forgot to update the IRS or called the IRS about the new account and now the installment agreement has an intent of terminating, means that is going to be terminated if you don’t do anything. If it is terminated the IRS is going to seize your assets, meaning kidnap your bank accounts, garnish you salary and set a lien on your property, this could be one at the same time if the amount is that large that neither your bank accounts and the 10% of your salary is enough to cover the debt so that finally the IRS has to place a lien on your property because it’s not enough. At this point you need to reinstate your installment agreement, but the IRS is going to require automatic if you didn’t have one before and is going to require as well financial information so don’t get to this. Because the IRS can increase the amount that you owe, is going to ask a larger number of payments.

CP 90 – Intent to Seize Assets to the person and Notice of your Right to a Hearing

This is the second group of letters and when things change a lot, there is not anymore, the ability to fix this with a phone call or when you’re filing a document and here is the IRS telling you that your assets are going to be seized meaning that they are going to be taken.

The only option that you have at this point is to pay your debts and this is if you have the money. If you don’t have the money, if you do something like an offer in compromise and this is accepted, the IRS will not seize your bank accounts. But you must prove that the amount in the banks is just to satisfy your obligations meaning to pay rent, buy groceries, gas and pay utilities but you have to give that information to the IRS. Do not expect that just because you have no money and barely to cover your expenses that the IRS is going to forgive you. If you do nothing even that money is going to be taken and you are not going to be able to do anything and get that money back. Even if this is money from your business. Because you are the owner of the business, and you owe money because your business makes profit, and you didn’t pay your taxes. If you are the only shareholder of the business and there is a bank account the IRS is going to take it, if there are multiple shareholders, they cannot take it. So do not believe that your business bank account is not going to be taken, what you need to when you receive this letter is to request a hearing and pay your debt and explain the reason why you didn’t pay or if you’re not able to pay then ask for an offer in compromise.

But at this point I will suggest that you don’t handle this because it’s very difficult the terminology and the pressure when you’re doing this. Talk to a professional CPA, a tax attorney or enrolled agent with experience in dealing with IRS debt resolution and let the professional handle this because this is dangerous, even if you have no money and are broke you can call them and say you have no income, living with a relative and can prove this, they can put in an economic calamity and if your situation keeps is going to be forgiven in 10 year but you have to receive no income.

CP 297 – Intent to Seize Assets to the business and Notice of your Right to a Hearing

This is for the business; this is for a corporation. In the case of S corporations and small businesses and LLCs, they will not ever have debt. Because LLCs with two or more partners and S Corporation with one owner or more they do not pay taxes. So, the profits of the LLC with 2 partners and the S Corporations with even one shareholder report the profits will become the profits of the owner and he will have to pay taxes. But whenever a CP 297 is received and you opt for the right to a hearing, you call the IRS and explain the situation that you are broke they will put you for 10 years that is the doubt to collection. Obviously if you are in that situation you cannot afford an accountant, and they are going to send you some papers and may need to borrow money from someone and talk to a CPA, tax attorney or enrolled agent to see what information you are going to provide and if you keep the same situation you will be off the hook for the next 10 years and the after those years you will file for definite forgiveness provided that you comply with the department and have no income within the 10 years period. But in other cases, whenever a business receives this letter it’s because is a corporation, they must pay taxes. The IRS has given you this knowledge and you have not paid taxes and because of that this is the final knowledge you can explain this situation to an audience. There will be a revenue officer committed to the case, you might need to meet the officer to see if you’re lying. This is the point where you have to do something, talk to a professional if you have no money to talk to the IRS and fix this, because if you don’t do this, this is for your business, the problem with receiving this letter is that the IRS is not going to believe that your business has no money, after this they will kidnap the bank accounts, the assets, inventory, if you have a building. So, at this point the only way to avoid that is that you call immediately the IRS and give them an explanation and a credible action plan. If your business is breaking the shareholders will be responsible for the debt even if it’s a company, the tax debt will not be forgiven, not even in bankruptcy procedures.

LT 1058 – Final Notice of Intent to Levy and Notice of your Right to a Hearing

This is a letter of intent, meaning there is no hearing here, it’s passed away. The thing here is that there is still hope, but this is the final notice and there is nothing beyond this, this is the chance to explain the IRS why you have not been able to pay, this is the last chance. They might accept it and might not accept your explanation, but this is the last chance. After this, it will be tax court, so be careful at this point. Any final notice is not good news, because it’s final.

LT 11 – Intent to Seize your property or Rights to Property

This is typically the case for the lien on your property. This is final and this is not an information, and your assets are going to be kidnapped. By the time that you receive this letter your bank account is going to be gone. Your money will be gone up to the amount that you owe, if that is not enough then the next thing will happen is a lien on your property. Even if this is a business it will be on the inventory or on the building if you own the building. If you have accounts receivables, the IRS is going to send a revenue officer take the account receivable and notify your clients to send the payment to the IRS not to you. This are extreme measures taken by the IRS.

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CP 22A – Notice of Change(s) to Your Tax Return

This third group of letters are not that dangerous. This is just a notice of changes in your tax return, these changes might cause you will have an amount due but that will be seen in a different letter, that will be in perhaps in letter CP 14 or in a different letter where the IRS is telling you that you owe some money. So in this case this is letter is not something that you purposefully committed, it is changes in the tax return and because of the changes of the information provided to the IRS and when that information was compared to the IRS records the numbers didn’t match and therefore you might owe money but once this calculation is given to you, the IRS will let you know if there is any amount owed. The objective of the letter is for you to present any discharge, for example, there is 1099 form that you didn’t receive timely, and you forgot to include it in the tax return and now the IRS receive this 1099 and you owe money. You should not pay whatever the IRS is asking because the 1099 is a gross income, you need to reduce that gross income for expenses that you will have when producing that income. When you apply those expenses that 1099 the amount of the profit will be lower, and the amount of the involved taxes will be lower as well. Even though you received a knowledge of changes in your tax return, and this is for a 1099, this is for a distribution for a 401k or an income that you receive, and it was not reported originally, you should not agree with the amount that the IRS is showing. You will be better off talking to a professional CPA, a tax attorney or an enrolled agent who are experienced in solving IRS Tax resolution and he will be addressing the IRS or asked their opinion and proceed.

At this point this is only an informational letter, just think of the consequence this might have. Whenever there is a change on the tax return it might have a debt, all the possible changes without any amount owed it could be changes in status. This is not something to get stressed out, but it is something you need to pay attention to and do something.

CP 3219A & Form 5564 – IRS Notice of Deficiency

This means that you pay short your taxes and therefore you need to pay the difference. At this point you can apply for an installment agreement. This letter means that you didn’t report the income or misreported the income and the IRS received notice that you have more income and at this point there is a deficiency in your tax return and the reporting of the income and therefore more taxes are created, and you need to address that. The IRS is notifying you to do something, saying that if this is correct or is not correct, and you will need to talk to the vendor or supplier that provided that 1099.

CP 508c – Possible Revocation or Denial of Passport

This is when you owe more than $50,000 and you have no installment agreements and you have not paid your debts, this can be a personal debt or company debt or even payroll tax debt whenever you have this the IRS is going to deny your passport. Meaning whenever you apply for a passport renewal because the IRS will notify the department of State for not to issue a passport on your name or if you don’t have one, they will not issue one. For example, if you are broke and have no many you are not supposed to travel so why are you going to apply for a passport. Let’s say you are in a 10-year frozen period for economic calamity and you want to apply for a passport is going to be denied because you have no money to travel. In other words if you owe more than $50,000 you are banned from applying to a passport, if you are in economic calamity you can’t apply for a passport, if you are in an offer in compromise and you want to apply for a passport during the period of the offer in compromise be very careful because the IRS will receive a notice and the they are going to come after you, because you have lied on your offer in compromise applications.

CP 2000 – Notice of Underreported Income

This is an automatic letter that happens when the records of the IRS are compared to the records of your tax return and if the records show more income than your tax return. When this comparison happens and your tax returns show more income than the IRS, they will not do anything. The problem is when the income that you report is lower than the income the IRS has on the records and at that point there is an automatic letter and this is will give you the detail showing why the income was misreported, they will give you the name of the company of the vendor that reported a 1099 with more income to you and even the calculation of the additional taxes will be there. This letter is the chance to pay your debt amicable without first notice or second notice and without any intent to seize assets. At this point you need to write a check and pay the money back to the IRS or do an installment agreement if you are not able to pay the amount in one shot.

Letter 1153 and Form 2751 – Proposed Assessment of the Trust Fund Recovery Penalty

This is for payroll taxes, whenever there are payroll taxes owed to the IRS, the company is never off the hook. There is no installment agreement, there is no forgiveness, there will not be any kind of reduction of penalties or interest. Because that money is not of the company.

Whenever a company has employees, they are obligated to withhold 3 types of taxes: federal income tax, social security and Medicare, those are that the IRS is supposed to receive. Many time companies pay payroll checks and they withhold those taxes, and they pay at the end of the year. The problem is when the companies are short of cash and instead of paying it monthly the companies will use that company believing that things will be better in the future and at that point, they will pay what they owe. This is a mistake. Even before paying the banks and credit cards you are supposed to pay the IRS because they are the government. They can trace you and will take you to jail. This trust is established to recover the money from the taxes that were withheld by companies and were not paid to the IRS.

This is the reason of the trust fund recovery. This is the intention of the IRS to recover the money that the employers are supposed to pay the IRS, so this is taxes from the employees, income tax, social security, Medicare, and the portion that the employer is also supposed to pay. So, whenever the employee doesn’t submit the money to the IRS is a felony, because this money doesn’t belong to the company. If there’s a taxpayer who can’t pay their debt and that debt is personal that will not create jail because that money is from the taxpayer. In this case its payroll taxes so federal income tax, social security and Medicare taxes that were not paid to the government, but that money is not from the company, that money is from the employee and was withheld and didn’t submit it to the IRS, that means the company has misappropriated funds from a third party and that is a felony. If this happens and there is no arrangement to recover the money the next step, the IRS will bring criminal charges with the individual. At that point there will not be renewal of passports, if the person escapes the country, they will not be able to return to the US never again and immigration will take that person to jail. To prevent this, if you have to pay your payroll taxes at the end of the month, borrow money from the bank because they cannot take you to jail. You do the riskiest activity first, and this is not doing your tax payments especially if they are payroll taxes.

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. This article cannot serve as a substitute for such professional services or advice. Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation. This article is subject to change at any time and for any reason.

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