Types of IRS Collection Notices

If you receive an IRS collection notice, this means that you have unpaid taxes that the government needs to collect. Your initial collection notices are a reminder about your unpaid federal tax or state tax bill. Ignoring these notices and other collection notices will have severe consequences (e.g., bank levies, federal liens). 

Learn about the most common notices you may receive if you have a balance due on your federal tax return.

In 2024, the IRS started sending out a new notice called Letter LT38. This notice explains that the IRS plans to resume sending out notices and increase collection actions.

Balance Due Notices

A balance due notice is often the initial correspondence you will get from the IRS regarding your unpaid tax bill. IRS CP14 letters will detail the exact amount of tax debt you owe the government for a specific tax year, accrued penalties and interests, and a due date for your first payment.

Typically, you will receive two opportunities to settle your tax bill before the IRS escalates its collection efforts. Following the initial balance due notice (CP501), the IRS will issue a second notice (CP503) as a reminder to promptly address your outstanding tax liability.

Final Balance Due Notice

If you fail to respond to the previous two letters, the IRS will send a final balance due notice (CP504) that will include a proposed levy intent on your bank accounts, if the tax bill remains unpaid. This letter will also inform you that the IRS is searching for other assets to levy, such as your car, boat, home, retirement account, or other savings accounts.

Final Notice and Notice of Intent to Levy

Taxpayers who fail to pay taxes after receiving other collection notices will be sent an ACS Letter LT11, otherwise known as the Final Notice and Notice of Intent to Levy. This letter informs you that your assets and property will be levied to pay off your tax bill.

After you get this letter, your assets and funds will be seized after 30 days. During this 30-day time frame, you will be able to respond to the letter, such as by appealing for a partial release or arranging for an installment agreement to start making payments on your unpaid taxes.

Suspended Passport Notice/Notice of Certification to the State Department

If your taxes are considered seriously delinquent and the IRS has already taken other collection actions against you, they may move forward with suspending your passport with the help of the U.S. State Department. Notice CP508C tells you how much you owe, what will happen with your passport if you fail to settle the tax debt, and how to proceed if you wish to keep your passport.

IRS Revenue Officer Notices

In addition to the standard collection notices sent by the  IRS, some notices involve interactions with IRS Revenue Officers. These notices serve a distinct purpose in the tax collection process and indicate a more hands-on approach rather than automated notices that are sent out. Below are some of the notices that are sent when a Revenue Officer is involved.

• IRS Notice 725-B: This is the letter the IRS uses to request in-person meetings with taxpayers. It is generally related to discussing tax debts or related issues.
• IRS Form 9297: This form is often sent by revenue offers to gather detailed information about a taxpayer’s financial situation. This is a preliminary step to understand the taxpayer’s financial situation before taking collection actions against the taxpayer.
• LT 1058. This notice is generally issued by a revenue officer as a final notice before the IRS tax levy action. 
• Notice CP40: In some cases, the IRS may assign your account to a collection agency. Then, the agency will call you rather than a revenue officer. The agency sends Notice CP40 to alert taxpayers about private collections.

Automated Collection System (ACS)

The ACS is an automated system that sends out collection notices based on certain triggers. You may receive an ACS notice that demands payment of your outstanding balance or that notifies you of a levy on your bank accounts. Follow all instructions on the notice you receive to comply, or contact an ACS agent using the provided contact information.

Outstanding Tax Returns Notice

In addition, you might receive an ACS Letter LT19 as a notification to settle your overdue tax returns. This letter serves as a formal demand from the IRS, indicating that previous attempts have been made to contact you regarding your outstanding tax return. The IRS typically sends this letter when there is an unpaid balance on your most recently reviewed or updated tax return.

Notices About Changes to Your Tax Return

If the IRS makes changes to your tax return, the agency will send you a notice. One of the most common notices about changes to your tax return is the CP2000 notice. The IRS sends this notice if it makes changes to your return based on information received from third parties. For instance, if the IRS receives a W2 wage document that you didn’t include on your tax return, it will update your return and send you a letter. Pay close attention to the response deadlines on these notices. If you disagree, you must respond quickly.

Intent to Terminate Your Installment Agreement

The IRS sends out Notice CP523, Notice of Intent to Levy, Intent to terminate your installment agreement, when your installment agreement payment is overdue. You have 30 days to respond to this notice by paying the minimum balance or contacting the IRS. Otherwise, the agency will pursue the levy, meaning they will seize your wages or assets to cover your tax bill, and you’ll default on your payment plan.

Trust Fund Recovery Letters

The IRS assesses the Trust Fund Recovery Penalty on businesses that don’t pay payroll taxes withheld from their employees’ paychecks. The agency can also assess this penalty on individuals deemed responsible. Here are some of the notices you may receive:

• Notice 784 – Information about the TFRP for employers who outsource their payroll to third-party service providers.
• Form 4180 – the IRS wants to interview you about a possible TFRP assessment.
• Letter 1153– The IRS is proposing a TFRP assessment against you, but you have the right to appeal.

How Are IRS Notices Sent?

Generally, IRS notices are sent via mail, such as certified mail. However, depending on the balance you owe and whether or not you have failed to respond to other tax collection efforts, the IRS may deliver you one of these notices to your place of business.

Should You Keep Notices?

Taxpayers should keep any notices from the IRS as part of important tax records. Just like you may need records of taxes you have filed, you will also need to have records of correspondence with the IRS. Tax records and letters from the IRS should be kept for at least three to seven years just in case you need to review these documents in the future.

What Should You Do After You Receive a Notice?

After you get a notice of tax collection from the IRS, you should read the letter thoroughly, so you can understand why the IRS is contacting you. The letter will give you specific information about your tax debt and additional information, such as appeals you can file with the government if you disagree about your tax bills.

Sometimes, your letter will require a response with a corresponding due date. You should respond to the letter as soon as possible to preserve your rights as a taxpayer and reduce any penalties that may be charged to your debt for ignoring the letter.

How Should You Respond to a Letter?

The letter from the IRS will tell you the best way to respond (e.g, mail, fax). Some letters are equipped with a unique QR code that allows taxpayers to respond to letters online through the Documentation Upload Tool. Taxpayers should respond to collection letters before the deadline to avoid another collection letter.

Should Taxpayers Contact a Lawyer About Collection Notices?

Taxpayers who are concerned about collection efforts from the IRS should contact a tax lawyer for guidance about their next step. A lawyer who practices tax law can help you with your appeals process or give you advice about how to pay your tax bill before a levy is filed against your assets.

What Options Do You Have to Avoid Collection Efforts?

To effectively address unpaid taxes and meet the IRS’s collection requirements, enrolling in an installment agreement is often the most suitable choice. This arrangement allows you to gradually pay off your tax debt over a period of time. There are several plans that are part of the installment agreement group, such as short-term payment plans and long-term payment plans. When you sign up for an installment agreement, you will be able to make monthly payments to reduce your tax debt and avoid the IRS filing any legal actions.

Understandably, taxpayers who get an IRS collection notice may be concerned about collection practices such as wage garnishment or bank levies. 

For more information about how to respond to different types of collection letters, contact Damiens Law Firm, PLLC at 601-957-9672 today.