Before the IRS can levy a taxpayer on an outstanding balance, the IRS will issue a series of notices or letters regarding the outstanding balance due. The IRS will issue computer generated notices to inform taxpayers of the balances due for each tax period. By issuing computer generated notices, the IRS can reach a lot of taxpayers within a short period of time to collect the delinquent taxes.
A taxpayer will receive their first notice regarding a balance due after a tax assessment has been made. A taxpayer will be assessed a new tax liability by either filing a tax return or from an audit. If the balance due is generated from a tax return, a taxpayer will receive the balance due notice, approx. 4 to 6 weeks from when the current year tax return was filed. The older the tax return (for previous tax years), the longer the IRS takes to process, and the longer it takes for a taxpayer to receive the balance due notice (CP-14). If there is money owed on an unpaid shared responsibility payment (SRP), the IRS will issue a CP-14H. The shared responsibility payment is the amount due for not having minimum required health coverage during the tax year.
The balance due notice, CP-14 will inform the taxpayer of the total tax due on the tax return, the amount of any tax withholdings, estimated tax payments, total payments and credits, penalty and interest. The CP-14 provides instructions for taxpayers that agree with the notice, to full pay the balance due. If the taxpayer pays the total amount due by the date of the notice, the taxpayer will not be charged additional interest. However, the payment must be received by the IRS on said date. The notice also provides instructions for taxpayers that disagree with the notice, to contact customer service. The phone number to contact the IRS is located on the upper right hand corner of the notice.
If the balance due is not paid by the due date on the CP-14 notice, in approx. 5 weeks, the IRS will issue a second notice CP-501. The IRS issues this reminder notice of the balance due, and provides instructions to the taxpayer on how to pay the balance due (in full or in monthly installments). The CP-501 notice also informs the taxpayer that if the amount is not paid in full, the IRS can issue a Notice of Federal Tax Lien, interest will continue to increase and penalties may apply. If the taxpayer does not respond to the CP-501 notice, the IRS will issue the CP-503 notice. The CP-503 is another reminder notice of the balance due and the taxpayer has not paid the tax or has not responded to the IRS.
If the taxpayer has not full paid the balance due or has not made any payment arrangements, the IRS will issue a CP-504 via certified mail to the taxpayer. This notice is more aggressive than the reminder notices and it signifies that the taxpayer’s case is in collections. The CP-504 notice states that the IRS can issue a levy against a state tax refund and can also file a Federal Tax Lien if they have not done so already. Please note that a CP-504 can be issued after the Final Notice of Intent to Levy to remind the taxpayer he or she is subject to enforcement action.
If no response to the IRS, or no payment, the IRS will issue a LT-11 (or CP-1058, or CP-90), Notice of Intent to Levy and Right to a Hearing via certified mail. The IRS is ready to attach a levy to a taxpayer’s wages and/or bank accounts to collect the unpaid tax and can also file a Federal Tax Lien if they have not done so already. However, before the IRS can issue a levy, the taxpayer has a constitutional right to request a hearing. The response to a timely request for a Collection Due Process Hearing must be within 30-days of the notice. If the taxpayer files a request for an appeal, the IRS will not issue a levy on the specified tax periods during the appeal process. However, if the taxpayer does not file a request for a hearing, the IRS can issue a levy after 45 days of the date of the LT-11, CP-1058, or CP-90 notice.
If the taxpayer receives social security benefits, the IRS will issue a CP-91 which notifies the taxpayer that the IRS intends to levy 15% of their social security benefits to pay for the unpaid taxes. The taxpayer has a right to file an appeal request, however, the appeal may not stop the garnishment against the social security benefits. Generally, if a taxpayer wants the IRS to release the levy against his or her social security benefits, the taxpayer would have to disclose their financial information to show financial hardship. Otherwise, the taxpayer would have to resolve their account via an offer in compromise or an installment agreement.
If the taxpayer had an installment agreement, but the taxpayer missed an installment payment, or incurred a new tax liability, or did not timely file a tax return, the installment agreement will default. If the agreement is going to default, the IRS will issue a CP-523 Intent to Levy, Intent to Terminate the Installment Agreement. Generally, the taxpayer has 30-days to respond to the notice before any action is taken by the IRS. Please note that the IRS cannot levy on a tax period without first issuing the LT-11, CP-90, or CP-1058 Final Notice of Intent to Levy. However, the LT-11, CP-90, and CP-1058 notices only have to be issued once on a specific tax period before that tax period is subject to levy.
For example, in 2011, the IRS issued a CP-1058 on the 2010 tax year. It is now 2015, and the taxpayer still has a balance due on the 2010 tax year which is included in an installment agreement. However, the agreement is going to default because the taxpayer did not timely file his 2015 tax return. If the taxpayer does not respond to the CP-523 Intent to Levy, Intent to Terminate the Installment Agreement, the agreement defaults and taxpayer is subject to levy.
However, if the IRS never issued the LT-11, CP-90, and CP-1058 Final Notice of Intent to Levy, the taxpayer is not subject to levy action for the specific tax periods. The IRS will have to issue the final notice before taking levy action.
In summary, the general order of the collection notices are as follows:
If taxpayer defaults an installment agreement, the IRS will issue the CP-523 notice.