It’s hard to think of anything more stressful than dealing with IRS collections.
If a taxpayer is unable to pay or make arrangements, what follows is a series of enforcement actions by the computerized notice system, automated collections system, and sometimes an IRS Revenue Officer knocking at their door.
Computerized notices and automated collections system (ACS)
Once your file your return, the IRS processes it and assesses the tax, plus any penalties and interest.
After the taxes, penalties, and interest (balance) has been posted to your account, a Computer Paragraph (CP) notice is automatically mailed out. Your file is now deemed a tax delinquency account and you will receive a notice CP-14 which informs you that you have unpaid taxes.
A month or so after the CP-14, the IRS computer will begin to send out the “500 series” of notices:
- CP-501/502 – “You have a balance due”
- CP-503 – “Immediate action is required”
- CP-504 – “You have an amount due – intent to levy”
After these notices, your next notice will be a CP-90 notice or Letter 1058 “Final notice – intent to levy and notice of your right to a hearing.”
This final notice of intent to levy notice is very important because it gives you 30 days before the IRS can start levying assets, including garnishment of wages and other income.
During this process, the IRS may at any time file a Notice of Federal Tax Lien (NFTL) which will usually be filed in the county of your last known address.
Your file will probably end up on the desk of a local IRS Revenue Officer if you owe $250,000 or more, or if you owe payroll taxes.
Your first encounter with a Revenue Officer (RO) may be an unannounced visit to your home or work, or they may call you first to set up an appointment. At the first meeting, the RO will conduct a personal interview to gather details of your finances and record them on a Collection Information Statement (433-A, 433-B, or 433-F).
A lack of cooperation may result in rapid enforcement action or a legal summons.
At the conclusion of the interview, you’ll be asked to sign the financial disclosure forms, which you should not rush into. You may have understated your expenses, which would overstate your finances and cause the IRS to demand you to pay more money than you are able to. It would be wise to have professional representation.
The IRS collections process is a complex maze of rules and procedures. While you should always aim to never be in such a situation, if you do find yourself owing back taxes, it’s important to retain an experienced tax professional.