Tax Law Insights

When someone owes the IRS taxes, as a result of not paying the tax shown as due on a tax return or where the IRS audits and imposes additional taxes owed, the IRS will "assess" this tax liability, and with penalties and interest. The term "assess" or "assessment" simply means the IRS has recorded the taxes as a legal liability of a taxpayer. Once the IRS assesses a tax liability against a taxpayer, the IRS then proceeds to collect it.

The IRS has developed a series of "collection notices" sent to taxpayers in its efforts to collect assessed federal taxes. These notices are generated now by the IRS computers, and are essentially "form notices", but each notice conveys important information and has independent significance.

First Notice

The initial collection notice sent from the IRS is on IRS form letter "CP 14" and is titled "Balance Due Notice". This notice states the tax period (e.g. 2015), type of tax (e.g. "1040"), and the balance payable (which includes penalties and interest accrued).

Second Notice

If no response is received by the IRS from the First Notice, the computers then issue a second notice to a taxpayer on IRS form letter "CP 501", titled "First Reminder Notice of Balance Due".

Third Notice

If no response is received by the IRS from the Second Notice, the computers then issue a third notice to a taxpayer on IRS form letter "CP 503", titled "Second Reminder Notice of Balance Due". It is the experience of the author, however, that sometimes the IRS may "skip" this third notice and go directly to the fourth notice, discussed immediately below.

Fourth Notice

If the IRS receives no response from a taxpayer to any of its prior tax collection notices, the IRS then issues a fourth and final notice, form letter "CP 504", and importantly titled "Urgent Notice of Balance Due and Final Notice of Intent to Levy". As the name of this notice states, this is the final collection notice required to be sent by the IRS. If no response is received within the stated time period (10 days), the IRS then is given the right to begin enforced collection proceedings against a taxpayer, including the filing of tax liens and forced seizure of the taxpayer's assets (wage garnishments, bank account seizures, property seizures/sales, etc.). Additionally, if the size of the unpaid tax liability is significant, the IRS may refer the account to the field for direct collection action and the taxpayer will then be speaking (or meeting) directly with an IRS Revenue Officer.