Making sense out of an IRS letter is pretty simple as long as you know how to interpret them properly and understand the reason why the IRS sent one.
In this article:
- IRS Notice of Deficiency: CP3219A Notice
- Reminder Notice: CP501
- Second Request Notice: CP503
- Notice of Intent to Levy: LT11
- Final Notice of Intent to Levy: LT1058
- Notice of Changes: CP22A
- Intent to Seize Assets: CP90 and CP297
- Intent to Terminate Your Installment Agreement: CP523
- Possible Revocation or Denial of Passport: CP508C
The Many Forms of an IRS Letter
IRS Notice of Deficiency: CP3219A Notice
Tax Deficiency Definition: It is the amount by which the imposed tax exceeds that which the taxpayer has filed on a return.
Sometimes, taxpayers receive a CP3219A in the mail informing the taxpayers that there is a deficiency in the tax return sent. Together with this notice is a form where the taxpayer can just fill out and send to the IRS together with the lacking amount.
Taxpayers receive the notice when the IRS finds out you filed a lower tax return. Usually, the IRS receives financial information from your employer or bank but can come from other third parties.
A common reason why a taxpayer receives this notice is due to an employer sending a W-2, which informs the IRS how much a worker receives. When someone changes jobs with different salaries and bonuses, the IRS may receive conflicting information from you and the companies.
In fact, you may even receive an email that you underreported your income.
The good thing about this notice is that taxpayers can easily see what kinds of data are conflicting.
Remember that the IRS gives the taxpayer only 90 days to answer the notice. Not answering the CP3219A notice waives the right of the taxpayer to contest the figures.
If the taxpayer agrees with the changes, he or she just needs to fill out the attached form and send the payment. Remember, because there is an increase in taxes, the unpaid part will have penalties already attached to it.
If the taxpayer wants to challenge the amount, the taxpayer must apply with the Tax Court. There is a tax petition available online or the taxpayer can call the tax court at 202-521-0700.
Lastly, if you both disagree with the CP3219A notice and have other important information you want to share with the IRS, send your documents with the pertinent information together with the notice and the form.
More information about CP3219A is in the IRS CP3219A Resource Page.
Reminder Notice: CP501
A CP501 reminds the taxpayer that they have not paid the remaining income tax amounts for the year. The IRS must receive the payment within 21 days.
If the taxpayer does not pay the outstanding amount, the IRS will apply a failure to pay penalty of .5% per month as well as interest. The interest rate is 3% plus the short term federal rate, which makes the IRS debt more expensive than bank loans.
If you have already paid the amount, whether in full or through a payment plan, you can disregard the said notice. Also, if you are currently undergoing bankruptcy proceedings or have a Currently Not Collectible (CNC) status, then you may also disregard the said notice.
Remember that non-payment of the debt may result in a tax lien. A more in-depth discussion about this notice is present in the IRS CP501 Resource Page.
Second Request Notice: CP503
After CP501 and the taxpayer have not replied within 21 days, the IRS sends its final notice, CP503.
An example of a CP503 can shed light on the purpose of the said notice.
Unlike the CP501 which has 21 days as a grace period, CP501 typically only has 10 days. By this time, there are already penalties applied to the account.
Payment is pretty straightforward. The notice already has a payment stub attached to it for ease of mailing a check and, at the same time, investors can also pay electronically with the information provided.
Ignoring the CP503 can lead to the next IRS Letter, which is the LT11 or the LT1058.
Notice of Intent to Levy: LT11
LT11 informs the taxpayer of a 30-day deadline. If the taxpayer has not paid the taxes within 30 days, the IRS can levy the unpaid taxes on your assets.
Together with this letter is the Form 12153, which is the Request for a Collection Due Process Hearing. The form provides the taxpayer the opportunity to appeal either the amount of taxes or to talk with an IRS personnel informally to plan out the best way to pay for the unpaid taxes.
To clarify, the LT11 signals that the IRS is ready to seize your properties. The LT11 is not a notice for a tax lien proceedings.
Please note there is an important difference between tax liens and tax levies.
Final Notice of Intent to Levy: LT1058
On the other hand, the LT1058 is practically the same with LT11. The main difference is the language used in the letters.
According to IRS Tax Specialist and CPA E. Martin Davidoff, the LT1058 straightforwardly mentions a Collection Due Process hearing in the letter. A Collection Due Process hearing (CDP) is the last resort for taxpayers to resolve a tax controversy short of a tax court hearing.
The LT11 does not mention any language about the possibility of a hearing and instead offers the taxpayer to talk with an IRS specialist right away.
Currently, the IRS sends LT11 letters a lot more since they prefer that you talk to an IRS personnel first before applying for a formalized CDP hearing. However, some LT1058 letters do come by, but both IRS notices basically signals that the IRS is ready to seize your assets.
In this stage, it is best if you research more on how to minimize tax amounts, like an Offer in Compromise.
Notice of Changes: CP22A
If you receive a CP22A, then the IRS have received information and updated your tax returns. The IRS sent this letter to inform you of said changes to give you the chance to accept or reject them.
What kind of changes affects your tax return that the IRS sends a CP22A? Some common examples include rejection of a dependent, and the granting or denying privileges and status like Currently not Collectible or financial hardship status.
You can appeal with the IRS directly if you want to change some information or reject the changes. Usually, such changes increase your tax burden and due to the lateness of the CP22A, some penalties may have accrued already.
Do note that the appeal must commence within 60 days. Not appealing the said CP22A waives your right to reply and change the information in the records of the IRS.
Intent to Seize Assets: CP90 and CP297
Another IRS letter which is closely related to the LT1058, CP90 and CP297 informs the taxpayer that the IRS will seize your assets. However, the CP90 and CP297 have language in the letter that allows it to seize not just your assets but also your retirement benefits and other income.
The IRS sends the CP90 to individual taxpayers. On the other hand, businesses receive a CP297 for the unpaid taxes.
Like the LT11, the process for appealing the letter requires Form 12153, the Request for a Collection Due Process Hearing.
Interestingly, the CP90 and CP297 appeals go to the IRS Appeals department. The taxpayers only deal with an IRS personnel assigned to their case, making appeals in this situation typically faster.
Typically, but not always, taxpayers receiving social security gets a CP90. Those in active employment get the LT1058 or LT11.
Intent to Terminate Your Installment Agreement: CP523
For taxpayers who are already in a payment plan and have defaulted in their agreement, they receive a CP523 IRS Letter.
In this letter, the IRS reminds the taxpayer to make sure that payments continue on schedule or the IRS may cancel the installment agreement.
With the cancellation of the installment agreement, penalties and interest rates come back. The IRS may also send an LT11 or CP90 to seize assets.
Sometimes, the IRS immediately sends a notice to apply for a tax lien on assets rather than a CP90 or LT11.
Possible Revocation or Denial of Passport: CP508C
To make sure that the IRS can track taxpayers who defaulted in their payments, the IRS partners with the state government to stop late taxpayers from leaving the country.
Taxpayers with at least $51,000 in unpaid taxes may evade the authorities. The IRS categorizes these taxpayers as seriously delinquent or high-risk taxpayers if they also have a tax lien or an ongoing tax levy.
The IRS needs to inform the said “high-risk” taxpayer, so they send a CP508C.
The state department usually gives these seriously delinquent taxpayers 90 days to straighten out their deal with the IRS. After 90 days, the state may revoke or deny their passports.
These 9 types of IRS letters are the most common ones, but there are also more esoteric letters. However, any taxpayer can rest easy if they have difficulty understanding an IRS letter.
Reading and understanding an IRS letter is simpler than it seems. Knowing and understanding the reason why you receive a letter is already half the battle.
For a more nuanced discussion, the IRS Collection Notices resource page can help.
Do you have an IRS letter that you need help with? What other notices have you received from the IRS? Let us discuss in the comments section below.