Assessment Letter, IRS Notices and CP Letters
IRS Automated Collection Process and CP Letters
Whether you know it or not, if you received one of these notices, the IRS has deemed that you owe them back taxes. Typically, once the IRS realizes you have unpaid back taxes it will start sending you letters. The letters start with an initial assessment for back taxes and then you receive four more letters before the IRS takes action.
IRS Assessment or CP Letters
Once the IRS determines that you have back taxes, it enters you into the automated computerized notice cycle. The first letter you will receive is an assessment letter which will say that you have not paid taxes for a stated period. It states the tax amount as well as the amount for late penalties and interest. This first notice will contain the least amount of interest and penalties out of all the letters because interest is accrued daily and if a year goes by, it can increase the total tax amount owed by up to 75%. If you have just received this letter, you still have plenty of time before the IRS takes actual action against you, however, keep in mind that interest accrues daily and they will continue to assess you for more and interest and penalties with every day that passes. Typically if you don’t pay when you receive this letter, you can expect the series of CP letters to start in a month.
CP Letters (Computer Paragraph letters, 500 Series Notices)
This is the first of the CP letters you will receive. It is the most undemanding letter of the series, and comes off as very nonthreatening. It will say, ‘Reminder – Your account still has a balance due,’ and it will then state the amount owed, plus additional interest and penalties.
This is the second of the CP letters. The tone of this letter will be a bit more demanding. The statement says your tax is overdue and requests that you pay it now. It will also show the amount due plus additional interest and penalties.
The third of four CP letters. The letter will be more threatening than the previous ones and will say that you must pay within the next 10 days. This is also the first notice that mentions the IRS taking action against you. It says that they are considering filing a notice of federal tax lien. Like the others, it contains the amount owed plus even more interest and penalties.
The fourth and final CP letter. This is the most threatening of all letters. The letter starts of by stating that they intend to levy and if you do not respond they will seize your assets. They state the tax amount owed with taxes and interest. This is your last chance to respond before the IRS takes action.
From the time you receive your first letter to the last letter is typically a period of four to six months, and after this the IRS will begin the collection process. The length of time for this process depends on the type of tax owed and whether or not you have had any other prior tax issues with the IRS. If you owe payroll taxes, the process will most likely be accelerated and the process can be as short as 2 months. Also, if you didn’t file a return or you owe more than $100K, the IRS may skip notices CP 502 through CP 504 and send the Notice-Intent to Levy right away.
Before paying your tax, know what your options are. The IRS will initially suggest an installment agreement for you to pay off the tax over time, but this may not always be the best option for you. Also, make sure that the amount that they assess you with is actually what you owe. If you are not sure, know that you are entitled to a full explanation of why you owe that amount to the IRS.
IRS Notice / Letters Help & Info
IRS Letters and Notifications
Don’t see your notice listed on this page? Here are some more common IRS Letters and Notifications. Understand what they mean and what action can to taken to resolve the particular problem.
Can’t Pay Taxes Owed?
If you owe taxes as stated in your IRS notice, here are some of the consequences of owing taxes and actions that can be taken to resolve your tax situation.
Guide to Resolve Taxes Through a Payment Plan
Setting up a payment plan with the IRS can sometimes be the easiest solution to dealing with back taxes. See this guide to help decide which payment plan fits your situation the best.
Don’t Agree With Penalty Assessement?
Eliminate penalties and interest if you have legitimate reason for falling behind and not paying back taxes owed on time. This guide outlines the reasons you can remove penalties and contains detailed instructions on handling this filing.
Delay IRS Collections
If you just need more time to pay and want to delay the IRS collection system you may be able to get extensions.
Short Term Payment Extension
You can request a short term extension to pay back taxes to the IRS if you think you can pay in 30 to 120 days.
IRS Collections Process
Understand how the IRS tax collection process works. Once a tax amount is assessed the process begins, know what to expect and how to stop.