The Internal Revenue Service (IRS) will resume sending balance-due notices to U.S. taxpayers after halting them in May because of a massive COVID-19 related mail backlog. Since receiving pushback earlier this year for issuing balance due notices with the incorrect dates, the agency temporarily paused the issuance of the 500 series notice, including CP501, CP503, and CP504, and agreed to stop sending the notices until it caught up with its backlog of unopened mail.
In a statement released on Friday, the agency said, “The mail backlog is now caught up enough to account for the timely mailed payments. Some taxpayers will begin seeing updated notices in late October or early November, the updated 500 series notices with current issuance and payment dates.”
The 500 series includes three notices that are issued at varying stages of nonpayment:
CP501This is the first letter a taxpayer will receive from the IRS concerning the outstanding tax debt. It will state the current amount owed, including additional interest and penalties that will accrue and are normally worded in a non-threatening manner.
CP503 This is a follow-up notice when the taxpayer does not respond to the first payment demand. This notice will mention, for the first time, how the IRS can take action against the taxpayer to secure payment of the outstanding tax debt. More than likely, a federal tax lien will be mentioned in this letter, as well as the amount now due, including an increasing amount of interest and penalties. This letter will be somewhat firm, usually demanding action within the next ten days.
CP504 This is the final written notice before the IRS takes official action. By this time, the situation has gotten very serious, and the notice warns that levy action on any state income tax refund that the taxpayer might have is imminent. It is the strongest worded notice, communicating in absolute terms the IRS’ intention to obtain a lien against personal and business assets, with the intention of seizing them. If the tax debt continues to go unpaid, the IRS will resort to drastic tactics in order to collect.
Received a Notice? What’s Next?
It is easy to simply ignore the growing number of written notices concerning your tax debt; however, this is the worst possible course of action one could take. If you have a tax balance due and get any of these notices, the key is to take action right away. If you can't afford to pay your full tax bill, pay whatever amount you can, and let the IRS know that you are trying to do something about it. The key is don't ignore any IRS notice, especially ones demanding payments. That's a sure way to end up in even more tax trouble.
For taxpayers who were impacted by the pandemic or other circumstances, the IRS states that they may qualify for relief from penalties due to reasonable cause if they made an effort to comply with the requirements of the law but were unable to meet their tax obligations due to facts and circumstances beyond their control.