What Do All Those IRS Collection Notices Mean?

My firm represents taxpayers with tax problems across Maine. A frequent question I receive is: what do all these IRS collection notices mean?!

These notices serve two purposes: one, they inform the taxpayer of how much is due and two, the IRS asks to be paid otherwise increasing interest and penalties will be assessed. Taxpayers that fail to heed the increasingly aggressive letters may face a bank levy or wage garnishment. So my goal here is to explain what taxpayer needs to know about IRS collection notices.

How IRS Collection Notices Flow

Each notice comes regularly, usually about a month apart, along with escalating threats of collection action. Here is the normal sequence of notices:

  1. CP 14 Notice Balance Due
  2. CP 501 Notice Reminder, We Show You Still Owe
  3. CP 503 Notice Important – Immediate Action Required
  4. CP 504 Notice Urgent Notice – We Intend to Levy on Certain Assets, Please Respond Now
  5. CP 90/CP 297 Notice Final Notice of Intent to Levy and Notice of Your Right to a Hearing

NOTE: If you are receiving SSA benefits than you might receive an IRS collection notice CP 91/CP 298   Final Notice Before Levy on Social Security Benefits.

What these IRS Collection Notices Mean

As you can see the first three notices put the IRS on notice of what is due while the last two notices threaten IRS action, first with seizing state tax refunds (CP 504) then with seizing other assets such as bank accounts and wages (CP90/297) or social security benefits (CP91/298).

Look out for the notice labeled “Final Notice of Intent to Levy.” A final notice of intent to levy means almost certain IRS collection action. If you this notice run, don’t walk, to a tax professional to immediately address your unpaid taxes. If you don’t respond the IRS may seize bank funds or request a wage garnishment. I have had one client whose bank account was cleared out by the IRS, to the tune of $12,000. The client’s business subsequently failed and I think this seizure had  a lot to do with it.

If you or someone you know in the Greater Portland, Maine area has received an IRS collection notice, please feel free to contact me directly at 207-299-0515 or by filling out my contact form.