When a taxpayer fails to meet his or her tax obligations, a process is initiated beginning with the taxpayer’s receipt of notices from the Internal Revenue Service. Taxpayers can benefit from learning more about these notices, what they mean for the taxpayer, and what a taxpayer can expect following receipt of these notices.
The first notice a taxpayer will receive after failing to remit the appropriate tax payments is a CP 501, which indicates that there is a balance due to the IRS on one or more tax accounts. The notice will include an explanation of taxes owed, including the due date of those amounts, the amounts due, and the payment options that are available. Even at this early stage, it is important for the taxpayer to understand that he or she has certain rights, and particularly if a taxpayer is concerned that the payment amount and date listed is financially unrealistic for the taxpayer, knowledge of the taxpayer’s rights can be crucial. Internal Revenue Service, Your Rights as a Taxpayer, available at https://www.irs.gov/pub/irs-pdf/p1.pdf. Multiple payment options are available, and IRS personnel are available to discuss these options with you, but simply ignoring the notice can have serious implications, including the filing of a Notice of Federal Tax Lien and accrual of penalties and interest.
If a taxpayer fails to respond to the CP 501 notice, that taxpayer may receive a CP 503 notice, which indicates that the amount listed in the CP 501 remains outstanding, and the IRS has not heard from the taxpayer regarding that amount. This is typically the last general warning a taxpayer will receive before the IRS initiates a process whereby the IRS will seize certain assets in order to satisfy the tax obligation.
Failure to respond to a CP 503 notice may lead to the taxpayer’s receipt of a CP 504, which indicates that the unpaid amount remains outstanding, and failure to pay may result in the seizure of the taxpayer’s state income tax refund, which would be applied to the outstanding tax obligation. Internal Revenue Service, Understanding Your IRS Notice or Letter, available at https://www.irs.gov/Individuals/Understanding-Your-IRS-Notice-or-Letter. Alternatively, the taxpayer may receive a CP 504B, which again states that an outstanding tax obligation has not been met, and that the IRS intends to seize (levy) certain property or property rights in order to apply the proceeds to the outstanding tax liability.
The IRS follows procedures designed to give the taxpayer every opportunity to meet his or her tax obligations in a timely fashion. Nevertheless, continuous failure to meet one’s federal tax obligations will not bode well for the taxpayer, and so heeding these various warnings and initiating a dialogue with the IRS is in the taxpayer’s best interest.
Please keep in mind the information and advice presented in this blog is not intended to be used as formal legal advice. Contact a tax professional for personalized tax advice pertaining to your specific situation. While we try and answer all parts of the question when we write our blogs, sometimes there may be some left unanswered. If you have any questions about your problems with the IRS, SBOE, FTB, or BOE, or tax law in general, call RJS Law at (619) 595-1655.