Tuesday, June 26, 2012

Understanding IRS Letters and Notices

Understanding IRS Letters and Notices
Letters and Notices Offering an Appeal - Examination Letters/Collection Letters

CP 11 - We Changed Your Return You Have a Balance Due [Balance Due]
This notice reflects adjustments the IRS made to your return and the effect it had with penalties and interest.  If you don’t agree, speak up now, usually the longer you are in the collection process the harder it is to undo things.  If you don’t understand why the changes were made, contact the IRS and ask.  You don’t have to answer questions beyond the verifying questions to prove that you are you, or make promises of when you will make payment.  Just say you will call back soon after looking into the matter.

Letter 11 - Final Notice of Intent to Levy [Balance Due]
And notice of your right to a hearing.  You have 30 days to appeal.  We prefer solving the case before 30 days and getting the Revenue Officer (RO) to hold off on the levy (file Form 12153).  Appeals are time consuming, and still won’t solve the compliance issues of filing delinquent returns, and payment issues of paying delinquent taxes.  If you can’t file the delinquent taxes and fill out the collection information statements within the 30 days, call the RO or Automated Collection Service (ACS) Individuals 800.829.7650, Small Business 800.829.8310, ACS Collections 800.829.3903; and explain your great desire to cooperate.  Give the IRS information and answer the IRS' questions, and you will probably be given more time.  If not, call back again.  Don’t give up.  You are allowed to have time to resolve your case.

CP 14 – Request for Tax Payment [Unpaid Taxes]
This is your first bill for taxes due.  A nice simple request for payment.  The IRS feels that you still did not pay enough to cover the liability plus interest and penalties.  This letter will go to great lengths to explain the interest and penalties, and often less about why you owe money.

CP 22E [Balance Due]
This is a change based on the results of an IRS audit examination.  You don’t even have to be aware of it!  There are many things that can set off audit triggers.  Auditing without your knowledge, is a common IRS practice.  If the IRS thinks everything is okay, then you probably will never know it happened.  If not you will get a letter.  You should respond with your proof for any items you want to claim are justified as stating the way you reported them.  Or you can just agree to their changes.  Often the reasons for the change are missing.  How nice.  Pull your third party payer information (1099's) and see why the IRS has different information than you.   If you can’t get it in time, call and ask for more time.  You may have to make a few calls.  Hang in there.

CP 71A or CP 71D – Reminder of Balance Due [Unpaid Tax, Penalty and/or Interest]
Your annual notice of what is still owed.  This notice will also inform you of your “currently not collectable” status.  How nice of them!

CP 90 – Final Notice of Intent to Levy and Notice of Right to a Hearing
As it says, they will levy.  The ball is in your court to fix what is wrong.  Get into compliance and work out payment arrangements.  You have 30 days to appeal the notice of levy.  You can appeal a lien separately as a lien appeal.  You can appeal a collection action with a specific appeal.  You appeal the tax by an offer, appeal, or tax court petition.  You have the right to a Collection Due Process (CDP) hearing.

CP 101 – Math Errors
This form consists of math errors the IRS says you made.  Examples are; computational errors, tax deposit errors, or no reply to additional information, etc.  If the IRS is wrong, correct them.  If they are right, just ignore the letter.

CP 161 – Underpaid Tax
This shows the underpaid tax according to the IRS records.  
Pull your record of account and verify your payments and filing of returns, Order a Transcript. You will see how the IRS came up with the balance. If you owe it, pay it. Use EFTPS if you are set up or call the IRS office on the letter to resolve it. If you need to do an installment agreement or an offer-in-compromise consult us.

CP 210 or CP 220 – Penalty Notice for Failure to Deposit [FTD Penalty]
Check your records against the IRS.  Check circular E and make sure you understand when to make your deposits, and how much they should be.  You should not rely on IRS notices to tell you how often to deposit.  You also must use the correct deposit method. Certain large employers must use electronic deposits and not regular bank deposits.

CP 297
See CP-90 final notice

CP 501 or CP 502 – Reminder of Balance Due, etc.
These are initial requests before the CP-503 and CP-504 are issued.  You are in notice status now.  Probably no collection action yet if this is your only IRS contact.  What a great time to plan for your resolution with us!

CP 503 – Important Immediate Action Required
If you have received this notice, it means you have ignored the initial tax bill, CP-14, they skipped the CP-501 and CP-502 notices (or you received them prior to this), or your case is back in collections after being declared “currently not collectable” for a while.  If you owe for more than one tax period, you will receive this notice even if you made arrangements to make installment payments, or you have been placed in a “hardship” status.  It will say on the face of it to ignore it if you have entered into an installment agreement or paid the balance.  As long as you have confirmed this, then you can ignore the letter.

CP 504 – Urgent we Intend to Levy on Certain Assets
This means that you have 30 days before the IRS will actually seize (levy) a bank account or wages, etc.  If you owe for more than one tax period, you will receive one of these notices each year.  You may receive this notice even if you have made arrangements to make installment payments, or you have been placed in a “hardship” status. You may get this notice at any stage of collections.  It requires immediate attention. 

CP 515 – Request for your Tax Return [Filing Requirements]
If you have received this notice, it means you have failed to file a tax return, or at least the IRS has not logged in a copy on their computer system.  The type of return and tax period will be shown in the upper right corner as well as in the body of the notice.  File the return as soon as possible, otherwise your case will be transferred to an audit group who will prepare the return for you, without those necessary deductions you need to lower your liability.

CP 518 – Your Tax Return is Overdue [Filing Requirements] 
Well now you know.  Get it prepared and sent in.  If you owe more than you can pay, then prepare to deal with the collection division. 

CP 521 – This is an Installment Agreement Payment Notice
As long as you are meeting your terms of your payment plan, there is nothing else for you to do.  If you’ve broken your agreement, even if you didn’t receive this notice, take the initiative to immediately get back into your agreement.

CP 522 – Two Year Review for more Financial Statement Information
Be careful responding.  If your income has gone up, your monthly payments to the IRS will probably go up too.  Maybe your living expenses, especially medical, has increased too!  You want to maximize deductions to offset any increase in income.  If you need to lower your monthly payments, argue that too.

CP 523 – Notice of Intent to Levy [Intent to terminate Installment Agreement]
Oops, either you defaulted on your agreement or the IRS isn’t posting your payments properly.  Remember the IRS must receive payment by the due date of your monthly payments.  The IRS must also receive payment by the due dates for all taxes you are liable for.  Not a day late or a dollar short.  You have about a week to straighten it out.  Call and get it fixed.

CP 525 – 30 Day Letter to Appeal
After getting audited, the audit adjustment letter gives you 30 days to appeal if you disagree with the adjustments.  It’s a good idea to prepare this appeal along with your continued arguments and give it to the auditor.  This way you protect your rights if you and the auditor disagree about the changes.

CP 531 – Notice of Deficiency
This shows how much you owe for each year, and how to dispute the adjustments.  In many dispute cases you must pay first, and then file a claim for refund.  Otherwise you have 90 days to file a tax court petition.

CP 566 – Initial Contact Letter on an Audit
Be glad you received it.  Many audits take place without taxpayer notification.  At least you get a chance up front to defend your positions.  Make sure you prepare properly.

Form 668W – Wage Levy
Fill out the exemption portion so you can get the biggest paycheck.  This is a very serious collection action.  If you want your next full check, you need to take care of delinquent filings and information the IRS needs from you to determine a payback plan right away.  Get your information together and develop a defensible position of your financial situation.  File any delinquent returns, and pay any current payments of estimated taxes that are delinquent (or prove that you are not required to make one by providing your estimated tax calculation).  Provide this calculation anyway if your payment is less than it normally should be.  Then call for an immediate levy release.  Give the IRS the name and the fax number of the person in your company whose job it is to receive wage levy releases.  Your social security or retirement can be levied.

Form 668A – Levy
Same as above, except this is a one time bank or financial institution levy.  Works on anyone who is holding your money.  The funds are on hold for 21 days, then they are sent to the IRS collection person who sent out the levy.  Banks generally follow the rules on the one time nature of this levy.  On the back of the levy it states that this is a one time, not continuous levy.  It is for funds on hand the day it is received only. 

Letter 692 – Request for Consideration of Additional Findings
This comes with proposed adjustments to your tax return.  It gives you courses of action.  You can sign it, or request an appeal.  Be careful, you usually have less than 15 days from your receipt of the letter, to take action.

Letter 1058 – Final Notice of Intent to Levy and Notice of your Rights to a Hearing.  Please Respond Immediately.
If you received this notice, it means you owe tax and have ignored Letter 2050.  This is one the most serious collection attempt notices the IRS sends to a taxpayer owing tax.  It must be responded to or you will lose appeal rights and the IRS will levy anything they can find.  As always prepare a preliminary financial statement to know where you stand before contacting the IRS.

Letter 1085 – This is a 30 Day Letter to Protest an Assessment on a 6020(B)
This is a 30 day letter to protest an IRS tax assessment on a 6020(B), which is the IRS code for a payroll report they filled out and filed for you.  Don’t just accept their figures, even if they are close to the actual amounts.  Your 941 payroll reports must balance to the 940, the state reports, W-2′s, etc.  At a minimum, you must see that the total gross wages for the year is the same for each report.  Hire a professional to help you if you can’t do this on your own.

Letter 1153 – Trust Fund Recovery Penalty
The remaining FICA and withholding not collected from the business is now being charged to you.  Very serious.  Different regions of the country rely on different court rulings to settle some disputes.  Basically you must show that you didn’t have authority to direct the company’s funds and that you did not have knowledge of the taxes not being paid.  You should send the RO your appeal along with your proof that you are not liable, just in case they don’t agree with you.  It shows that you are very serious.  Many people will wait on this part until it is absolutely necessary.  Sometimes RO’s will chase everyone who has signature authority on the bank account, any stockholder, any signer of a tax form, or listed officer, and then leave it up to you to defend yourself.

Letter 1389 – 30 Days Protest on Tax Shelter
This gives you 30 days to protest changes made to your return because of your tax shelter activity.  Sign it or appeal it.

CP 2000 – We are Proposing Changes to your Return [Proposed Adjustment for Underpayment/Overpayment] If you received this notice, it means that you have omitted income from your return or the amount of income or expenses on your return does not match the amount reported to the IRS.  Respond immediately, with all the proof you have nothing to worry about.  Do not shortcut your proof.

Letter 2050 – Please Call us about your Overdue Taxes or Returns
If you received this notice, it means you owe tax and have ignored previous notices CP-504 or CP-523 or you have delinquent tax returns.  You may receive this notice even if you have made arrangements to make installment payments or you have been placed in a “hardship” status.  Call and explain you will spend time now preparing the delinquent returns, and preparing your financial statements.

Letter 3016 – Preliminary Determination Letter
You have 30 days to appeal, if the IRS turned down your request for innocent spouse relief.  Go back and develop your arguments before calling for a new determination.  If you can’t get the reviewer to understand your position, then file an appeal in a timely manner.

Letter 3172 – Notice of Federal Tax Lien and Right to a Hearing
You now have a real property lien in a particular county only.  Just the county listed.  Not all counties you own property in.  If the lien causes a hardship, then appeal it.

Letter 3174(P) – Notice of Levy
Similar to letter 1058.  Used when a taxpayer changes address.  This needs immediate attention.  You avoid levies by resolving the collection issues, or you can appeal based on a hardship.

Letter 3173 – 3rd Party Contact
This letter advises taxpayers that the IRS may be contacting 3rd parties to ask questions.  You can’t really do anything about it.  Don’t worry though, your personal information will be kept confidential.

Letter 3219 – Notice of Deficiency
Issued to a taxpayer before an assessment is made.  Usually the result of an audit.  If you disagree, you need to file a tax court petition within 90 days.  You can file an appeal to contest it.  Don’t worry, if you miss the deadline for an appeal you can usually get Appeals to take the case, by filing a tax court petition.  Once accepted by the IRS legal division you can call and convince them that this is really a case to be heard by Appeals.

Letter 3228 – Annual Reminder Notice
This is a notice to let you know what taxes and years you owe.  This is sent yearly as long as there is an unpaid balance.

Letter 3391 – 30 Day Notification Letter
The IRS says you owe for the years stated.  The letter shows you what the liability is based on.  Agree to it or protest.  However, if you never filed the return, then file it.  Use the IRS numbers for income and expense if you feel comfortable with them.  If you just want to accept their information without filing a return, ask for a signature form so you can show you signed the return they prepared. The IRS files an SFR (substitute for return) using the 3rd party payer information they have on file.  This includes the W-2′s, K-1′s, 1099′s, etc. filed under your tax ID number.  Signing a return and having the IRS enter it on their system will start the Statue of Limitations on collections.  IRS can try to collect tax liabilities way beyond 10 years if the taxpayer never starts the running of the collection statute.  The statute starts when the taxpayer files a signed return accepted by the IRS.

If you have any kind of IRS tax liability (large or small) and would like to be considered for an streamlined Installment Payment Plan (liabilities under $50,000), Offer in Compromise, partial payment plan for existing life of statute or noncollectable status) contact us for a FREE confidential consultation regarding your options please call Stephen B. Jordan EA at 603.893.9336 or go to our website Stephen B Jordan EA

1 comment:

  1. What great information. I have been doing research on IRS tax services when I came across your blog. This is very helpful information and I will be using some of it in my paper. Thanks so much for posting such great information.