IRS & State Notices/Letters and Their Meanings

Letters and notices sent to you by the IRS or State can be confusing. In a survey about government agencies, it might not be a big surprise to learn that the IRS landed in the least favorite spot in the survey. In fact, 51% of people surveyed viewed the IRS unfavorably.

For many people, the IRS causes anxiety and worry about the money they owe. So, when the IRS sends you one of their many notices in the mail, it can be a big worry. Some IRS notices are purely informational where their purpose is to just communicate information about your taxes to you. Others require action to be taken on your account.

Let’s take a closer look at some of the taxpayer letters you might receive from the IRS.

Why Does the IRS Send Notices?

There are a variety of reasons why the IRS says they send notices in the mail.  Some of these include:

• There’s a balance due on your taxes
• You’re owed a larger or smaller refund
• There’s a question about your tax return
• Need to verify your identity
• Additional information is needed
• Your return was changed in some way
• Notify you of delays in processing your return

The important thing is what you do when you get a letter from the IRS.

It should be noted that the IRS will never reach out to you via social media. If you’re contacted this way, it’s likely a scam – the IRS almost always communicates via paper and mail, and sometimes via phone call.

Notice or Letter in the Mail, Now What?

So, you open your mailbox and there’s an envelope with a notice from the IRS. Your instinct might be to ignore and hope it will go away. While that might work temporarily, if you indeed do have an IRS problem, it isn’t going away.

What should you do?

First, avoid the natural instinct to panic. The IRS is good about spelling out what they want you to do. So, read the letter carefully to understand what the contact is about and if a response is expected. Each official notice from the IRS will tell you what you’re expected to do.

Sometimes the IRS won’t expect you to do anything, they are just providing you with information. Other times, they will tell you what they need you to do and that you should respond by a specific date in order to avoid additional penalties and interest.

Also, be sure to keep any notices you receive from the IRS for your records.

Different Letters and Notices From the IRS

The IRS has dozens and dozens of different notices and letters they use to communicate with American taxpayers. Let’s take a look at some of the more common notices that might show up in your mailbox.

CP88, Delinquent Return Refund Hold

The IRS might opt to not send you a return. They won’t ever just keep your expected return without notifying you. The CP88 letter lets you know that your return is being held by the IRS.

The IRS might opt to keep your return because you owe taxes from a previous year. They will let you know the return you expected is being applied to a previous year’s balance.

CP14, First Notice of Balance Due

Say you have filed your taxes with the IRS and maybe even sent a payment. If you still have a balance due, the IRS will use the CP14 letter to inform you of your balance due. This is like a first reminder or warning that money is owed.

CP501, Reminder Notice – Balance Due

Typically, this notice is used by the IRS as their first attempt at collecting the money that is owed. This is the IRS saying you should pay what is due politely.

CP502, CP503, Reminder and Second Request– Balance Due

Following the CP501 letter, you might receive another reminder CP502. It’s very similar in spirit to the reminder notice that is the CP501 letter. The language might be a bit firmer, but basically, it’s the IRS reminding you that you owe them money.

The CP503 letter acts as an official second request that there’s money owed (even though it’s likely the third time you received a notice).

CP504, Final Notice & IRS Intends to Levy – Balance Due

While many of the notices and letters from the IRS are provided for information purposes and should make you nervous, this one should. The CP504 is the IRS saying you have not responded to previous requests to pay the balance due on your taxes.

If you don’t pay by the date provided, the IRS intends to look for assets it can levy towards your tax liability.

CP523, Intent to Terminate Your Installment Agreement & Seize Your Assets

If you have not paid your tax liability or you haven’t fulfilled your agreed upon installment agreement the IRS can terminate that agreement. The CP523 notice is sent to a taxpayer prior to the termination of the installment agreement.

It will also notify the taxpayer that if action isn’t taken the IRS could:

• Garnish your wages
• Levy your bank account
• Seize other assets

Again, with this notice, the IRS is saying pay your tax liability or these things could happen.

CP90, Intent to Seize Assets and Notice of Your Right to a Hearing

There’s a slight but significant language shift in the CP90 notice. Instead of informing what they could do, the IRS in this notice says they WILL levy assets.

This means you’ve disregarded their previous requests and now they intend to take action that will have financial implications. The IRS could levy any assets including any retirement benefits, salaries, real estate, automobiles, or bank accounts.

CP91, Intent to Seize Social Security benefits

This notice is notifying you of the IRS’ intent to levy up to 15% of your social security benefits for unpaid taxes.

CP297, Intent to Seize Assets and Notice of Your Right to Hearing

This notice is really the IRS covering all their bases of communication. It is similar in intent to the CP90 letter. The difference is that it’s sent to your work and not your home. Again, the notice states the IRS will levy assets.

LT1058, Final Notice of Intent to Levy and Notice of Your Right to Hearing

This is the final notice from the IRS regarding the money owed.  At this point, the IRS has made multiple attempts to contact you asking you to take responsibility.

This letter states you will have 30 days to take action or a levy will be placed against you.

LT11, Intent to Seize Your Property or Rights to Property

This one states that because they haven’t received the money owed to them in back taxes, they intend to seize assets. Not only can the IRS seize assets, they can also put a lien on your property.

LT16, Please Call Us About Your Overdue Taxes or Tax Return

This is a newly designed form from the IRS. It simply states that you have overdue taxes and the IRS wants the unpaid taxes from you or has not received a tax return due.

CP22A, Notice of Change(s) to Your Tax Return

This is likely a form you don’t want to get from the IRS. It informs you that the IRS has made changes to your tax form, likely because of an error, and now you owe money to the IRS.

CP3219A and Form 5564, IRS Notice of Deficiency

The IRS Notice of Delinquency is a legal determination that you owe additional income taxes and often interest on that amount, plus additional penalties to the IRS. The IRS uses this form when they propose a change to a tax return because of an error where what you submitted doesn’t line up with what they have on file.

This notice is sometimes referred to as the 90-day letter since the IRS gives the taxpayer 90 days to dispute the change and the Notice of Delinquency.

Form 5564 shows the amounts due because of the changes. If you agree with the changes made by the IRS, you sign Form 5564 that was enclosed with the Notice of Delinquency and return it to the IRS.

If you don’t agree, you shouldn’t just ignore the form. You have the right to file a petition that you disagree with the Notice of Delinquency in the US Tax Court.

CP508c, Possible Revocation or Denial of Passport

The IRS will use this form if your tax bill is seriously delinquent. If you receive this notice, then you should know the IRS has communicated with the State Department about your delinquent taxes.

Typically, the State Department will not fulfill a passport application or renew a passport if they receive this notice from the IRS. The State Department can also opt to revoke or place limitations on your current passport because of this notice.

CP2000, Notice of Underreported Income

This form is used by the IRS when their records don’t match with what you reported to them. The IRS will propose changes to your tax form.

This is not an audit letter, instead, you can sign that you agree or sign that you disagree and send it back to the IRS.

IRS Letter 1153 and Form 2751: Proposed Assessment of the Trust Fund Recovery Penalty

These forms are related to the Trust Fund Recovery Penalty. The IRS most commonly uses it when they find a business that hasn’t been paying their payroll taxes and now wishes to hold you personally responsible for the business liabilities.

The IRS will include Form 2751 which you can sign and return if you agree to pay the taxes assessed.

IRS Audit Letters

No individual or business likes to hear the word audit. The IRS has several forms they use related to audits. The letters vary depending on how the IRS plans to proceed with the audit.

Tax Code 280e

The cannabis industry has quickly become a lucrative billion-dollar industry. Unfortunately, for these businesses, the IRS still recognizes cannabis as a Schedule I controlled substance.

This means for those involved in building a cannabis business, none of the business-related expenses can get written off because of the Tax Code 280e. This means that unlike other businesses getting tax breaks, the cannabis business is paying a tax rate about 4 times higher than other businesses.

There is a loophole for a cannabis business to pursue. Yet, you’ll want to consult with a tax consultant who’s an expert in the cannabis business.

Communication With the IRS

While getting any notices from the IRS is nerve-wracking, you want to make sure you read and understand them. You should never ignore them as the IRS won’t stop, especially if owed money.

If you need help settling your tax liability with the IRS or State, Polston Tax is here for you. Our team of Tax Attorneys, CPAs, Case Managers, and Tax Accountants will fight to get you the best resolution possible, and to solve your tax problems once and for all! Contact us today to schedule a free consultation appointment.