Receiving a letter from the IRS can be stressful. For many taxpayers, the first reaction is to put the envelope aside and hope the problem can be dealt with later.
Unfortunately, an IRS collection problem usually does not disappear when a notice is ignored.
When a taxpayer owes federal taxes and does not pay the balance, the IRS generally follows a collection process that can become progressively more serious. What begins as a bill requesting payment can eventually lead to federal tax liens, levies against bank accounts, wage garnishments, seizure of certain property, and other collection actions.
The good news is that the IRS normally sends notices before taking many of its most serious collection actions. Understanding those notices—and responding before important deadlines expire—can give taxpayers considerably more options.
Here is what taxpayers should know about the IRS collection timeline, the letters that deserve immediate attention, and what can happen when those letters are ignored.
When Does the IRS Collection Process Begin?
The collection process generally begins after the IRS assesses a tax liability, sends the taxpayer a notice and demand for payment, and the taxpayer does not fully pay the amount due.
The balance may include:
- Unpaid income taxes
- Additional tax resulting from an IRS examination
- Payroll or employment taxes
- Penalties
- Interest
- Other assessed federal tax liabilities
Interest and, when applicable, penalties can continue to accrue while the balance remains unpaid.
It is also important to understand that the IRS generally has a limited period in which to collect an assessed tax. Under Internal Revenue Code Section 6502, the IRS generally has 10 years from the date of assessment to collect the tax.
This is commonly called the Collection Statute Expiration Date, or CSED.
However, taxpayers should not assume that simply waiting 10 years will make an IRS debt disappear. Certain events can suspend or extend the collection period. Depending on the circumstances, these can include bankruptcy proceedings, certain installment agreement requests, Collection Due Process proceedings, offers in compromise, and periods when a taxpayer is outside the United States for an extended time.
For that reason, determining the actual collection expiration date requires looking at the taxpayer’s IRS account history rather than simply counting 10 years from the year shown on a tax return.
The IRS Collection Notice Timeline
There is not one identical sequence of letters in every collection case. The notices a taxpayer receives can depend on the type of tax, the taxpayer’s circumstances, the collection status of the account, and whether the case has been assigned for more active collection.
However, individual taxpayers with unpaid balances commonly encounter notices such as the following.
CP14 — Balance Due, Unpaid Taxes
For many taxpayers, CP14 is the first major balance-due notice.
The notice tells the taxpayer that the IRS believes there is an unpaid balance and generally identifies:
- The tax year involved
- The amount of tax owed
- Penalties and interest
- The amount currently due
- The payment due date
- Available methods for paying or addressing the balance
A CP14 should not be treated as junk mail.
If the taxpayer agrees with the balance but cannot pay it in full, this is an important time to investigate collection alternatives. Depending on the taxpayer’s circumstances, those alternatives may include an installment agreement, an offer in compromise, or a temporary determination that the account is currently not collectible.
If the taxpayer believes the amount is incorrect, the notice should still be addressed promptly. Ignoring an incorrect IRS bill does not correct the IRS’s records.
CP501 — Reminder Notice
If the balance remains unpaid, the IRS may send CP501, reminding the taxpayer that money is still owed.
At this stage, the taxpayer may still have an opportunity to resolve the problem before it becomes more serious.
A taxpayer who cannot pay the entire balance should not assume that contacting the IRS is pointless. The IRS has collection alternatives for taxpayers who qualify, and addressing the problem earlier can sometimes prevent more aggressive collection activity later.
CP503 — Second Reminder
If the taxpayer does not resolve the balance, CP503 may follow.
This is another indication that the IRS has not received satisfactory payment or arrangements for the outstanding liability.
The longer a taxpayer waits, the more important it becomes to understand the account, confirm that all required tax returns have been filed, and determine what resolution options are realistically available.
CP504 — Notice of Intent to Levy
CP504 is a notice taxpayers should take very seriously.
It is commonly titled something similar to:
Notice of Intent to Levy – You Have an Amount Due
Among other things, the notice warns that the IRS intends to levy certain property or rights to property if the balance is not resolved.
Depending on the circumstances, the IRS may also apply a state tax refund to the federal tax debt.
The CP504 is a major escalation from an ordinary reminder notice. A taxpayer receiving it should review the notice promptly rather than waiting for another letter.
Ignoring it can move the account closer to enforced collection.
The Letter That Requires Immediate Attention: Final Notice of Intent to Levy
One of the most important stages of the IRS collection process occurs when the IRS issues a Final Notice of Intent to Levy and Notice of Your Right to a Hearing.
Depending on the circumstances, this may appear on notices or letters such as:
- Letter 11 (LT11)
- Letter 1058
- Certain other notices carrying Collection Due Process rights, depending on the case
This notice is different from an ordinary collection reminder.
It generally tells the taxpayer that the IRS intends to levy and explains the taxpayer’s right to request a Collection Due Process (CDP) hearing.
The 30-Day Deadline Matters
In general, a taxpayer has 30 days after the date of the levy notice to request a Collection Due Process hearing.
That deadline can be extremely important.
A timely CDP hearing request generally suspends levy action for the periods covered by the hearing while the administrative process is underway, subject to statutory exceptions. It can also provide an opportunity to raise appropriate collection issues, including possible collection alternatives.
Depending on the circumstances, taxpayers may propose:
- An installment agreement
- An offer in compromise
- Currently not collectible status
- Other appropriate collection alternatives
Certain taxpayers may also be able to challenge the underlying tax liability if they meet the applicable legal requirements.
If the deadline for a timely CDP request is missed, some administrative review may still be available—for example, an equivalent hearing may be requested within the applicable period—but the taxpayer does not receive all of the same protections and rights associated with a timely CDP request.
This is why a Final Notice of Intent to Levy should never sit unopened on a kitchen counter or desk.
CP90 — Another Final Notice That Demands Attention
Taxpayers may also receive CP90, Final Notice – Notice of Intent to Levy and Notice of Your Right to a Hearing.
Like other final levy notices, this is a serious collection notice.
If you receive a CP90, Letter 11, Letter 1058, or another notice specifically stating that it is a final notice of intent to levy and advising you of hearing rights, review the deadline immediately.
Waiting until the IRS actually takes money from an account can make the situation considerably more difficult.
What Can the IRS Do If Collection Notices Are Ignored?
IRS collection powers are significant. Once the IRS has satisfied the applicable legal notice requirements, it may be able to take enforced collection action.
1. File a Notice of Federal Tax Lien
A federal tax lien is the government’s legal claim against a taxpayer’s property and rights to property when the taxpayer fails to pay a tax debt after demand.
The lien itself generally arises by operation of law after assessment, notice and demand, and failure or refusal to pay. The IRS may also file a public Notice of Federal Tax Lien (NFTL).
A filed NFTL can create complications involving property, financing, business assets, and other financial transactions.
If the IRS files an NFTL, the taxpayer may receive Letter 3172, Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320.
This is another notice that should receive immediate attention because it generally provides a limited period to request a Collection Due Process hearing regarding the lien filing.
2. Levy a Bank Account
An IRS levy is different from a lien.
A lien is a legal claim against property. A levy is the legal seizure of property to satisfy a tax debt.
The IRS can potentially levy money held in a taxpayer’s bank account after applicable requirements have been met.
When a bank receives an IRS levy, the process can move quickly. Federal law generally requires a bank to hold funds subject to a bank levy for 21 days before sending the money to the IRS.
That period can provide a short window to address certain problems, but taxpayers should not rely on being able to stop a levy after it has already reached the bank.
It is much better to address the collection notices beforehand.
3. Levy Wages or Salary
The IRS may also levy wages, salary, and certain other income.
Unlike a one-time bank levy, a wage levy can generally continue from pay period to pay period until the levy is released, the tax debt is paid or otherwise resolved, or collection is no longer legally permitted.
Only a portion of wages is exempt from levy, based on statutory rules and the taxpayer’s filing status and dependents.
For someone depending on each paycheck to cover normal household expenses, a wage levy can create an immediate financial crisis.
4. Levy Other Property
Depending on the facts and legal requirements, the IRS may levy other property or rights to property.
More severe collection actions involving physical property are less routine than collection through financial accounts or income, but taxpayers should not assume they are impossible.
The key point is simple: IRS collection letters become more serious as a case progresses.
Can the IRS Collect Forever?
Generally, no.
As noted earlier, the IRS normally has 10 years from the assessment date to collect a tax under IRC Section 6502.
But the 10-year rule is more complicated than it sounds.
For example, certain actions can suspend the running of the collection statute. When the statute is suspended, the clock effectively stops for a period and the IRS may receive additional time to collect.
This is one reason taxpayers should be cautious about taking actions solely because someone told them their “10 years is almost up.”
Before making a collection decision, it may be necessary to obtain IRS account transcripts and determine the CSED for each tax period.
Different tax periods can have different assessment dates and therefore different collection expiration dates.
What Should You Do When You Receive an IRS Collection Letter?
First, open it immediately.
IRS notices contain dates, tax periods, balances, explanations, and sometimes legal deadlines. Waiting several weeks before reading the letter can cause a taxpayer to lose valuable options.
Second, determine exactly what the IRS is asking for.
Look at:
- The notice or letter number
- The tax year or period
- The amount due
- The response deadline
- Whether the IRS is threatening a lien or levy
- Whether the notice provides appeal or hearing rights
Third, determine whether the amount is actually correct.
Do not automatically pay a bill you believe is wrong—but do not automatically ignore it either.
Finally, if the balance is correct but cannot be paid in full, determine which collection alternative is appropriate.
IRS Collection Options When You Cannot Pay in Full
Depending on the taxpayer’s financial circumstances and compliance history, possible resolutions can include:
Installment Agreement
An installment agreement allows qualifying taxpayers to make monthly payments toward the tax debt.
Different types of installment agreements have different requirements, and the appropriate arrangement can depend on the amount owed, collection statute, taxpayer’s finances, and other factors.
Offer in Compromise
An Offer in Compromise (OIC) may allow a qualifying taxpayer to settle a tax liability for less than the full amount owed.
However, an offer is not automatically available simply because a taxpayer cannot pay the entire balance immediately. Eligibility and acceptable offer amounts depend on IRS rules and the taxpayer’s specific circumstances.
Currently Not Collectible Status
If paying the IRS would prevent a taxpayer from meeting necessary living expenses, the IRS may determine that the account is Currently Not Collectible (CNC).
CNC status does not normally eliminate the tax debt. Interest and applicable penalties can continue, and the IRS may review the taxpayer’s financial circumstances later.
However, it can temporarily stop active collection when the taxpayer meets the requirements.
Don’t Wait Until the IRS Takes Your Money
One of the biggest mistakes taxpayers make is waiting for a bank levy, wage levy, or other collection action before seeking help.
The earlier a collection problem is addressed, the more time there generally is to understand the account, evaluate available alternatives, prepare financial information, and respond before critical deadlines expire.
If you receive CP14, CP501, CP503, CP504, CP90, Letter 11/LT11, Letter 1058, Letter 3172, or another IRS notice involving a lien, levy, or hearing deadline, do not ignore it.
Read the notice carefully and take action.
Need Help With an IRS Collection Notice?
If you owe the IRS—or you have received a notice that you do not understand—the first step is determining exactly where you are in the collection process.
A tax professional can help review IRS notices and account transcripts, identify important deadlines, evaluate collection alternatives, and determine the appropriate next steps based on your circumstances.
Most importantly, do not assume that receiving an IRS collection notice means you have no options.
You may have options.
But deadlines matter, and those options can become more limited when IRS correspondence is ignored.
Have you received an IRS collection letter? Contact our office to have your notice reviewed and discuss the next steps before an important deadline passes.
ralphp@lptaxandbookkeepingpros.com
www.lptaxandbookkeepingpros.com
Disclaimer: This article is for general educational and informational purposes only and is not intended as legal or tax advice. IRS collection procedures, deadlines, and available resolution options depend on the facts and circumstances of each taxpayer’s case. Taxpayers should consult an appropriate tax professional or legal adviser regarding their individual situation.