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IRS Resumes Enforcement Efforts: CP501, CP503 and CP504 Notices Now Being Sent

Updated: Jan 13

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IRS collection efforts are ramping up from where the agency left off when COVID-19 first hit.

The IRS has started sending their CP500 collection letters demanding payment.

The IRS is making it clear that they are not going to remain hidden, as they were at the beginning of the pandemic.

Expect the CP500s as the first wave of more aggressive IRS action to come.


COVID’s Initial Impact on IRS Collection Enforcement:

When COVID began, the IRS closed its offices, including all of their collection Service Centers. The Service Centers are where the IRS processes mail, including your payments and letters.

The result was piles of unopened mail, sitting for months waiting for IRS agents to open and process.

Until the mail was processed, the IRS made a decision to suspend sending enforcement letters and stopped levy action (#IRSgarnishment) to collect.

All collection notices and levies were put on hold as the IRS did not want to find itself in the uncomfortable position of: 1. Aggressively demanding payment from taxpayers who had sent in payment but the IRS had not opened the mail, or 2. Levying a taxpayer’s wages, bank accounts, or property when payment had been made but was not processed, or 3. Ordering a tax levy when they were legally prevented from doing so. For example, if you filed a collection due process appeal, it could have been sitting in an stack of mail at an IRS Service Center for months. This filing prevented the IRS from levying, but they may not have known that from the delays in processing. The IRS needed to get caught up with their mail before they could get caught up with you. This was an show of good old-fashioned common sense from an agency not always known for it.

The mailing of the CP500s means the IRS is now comfortable that they now have their house somewhat in order and are caught up on processing mail.

As we have written in previous articles, the IRS has two goals. Collect money and close files. Sending out the CP500s is the agency's first action to achieve one of their goals. Explanation of CP500 Letters and What They Mean to You

The IRS collects the majority of its tax debts by using computer programs and their Automated Collection Service. The IRS computer sends you a letter, and you responded by calling an 1-800 number to speak with an agent at a massive IRS Automated Collection Service call center.

The CP500s are a sequence of computer-generated billing letters designed to prompt you to contact to the IRS Automated Collection Service (ACS) call centers. Like most every IRS collection letter, the CP500s are coded with a combination of letters and numbers. The CP500 coding appears in the upper-right hand corner of your IRS collection notice.


There are three letters in the CP500 series, as follows: a. CP501 - “You Have a Balance Due on Your Tax Account.”

b. CP503 - “We Have Not Heard From You and You Still Have an Unpaid Balance on One of Your Accounts.” c. CP504 - “You Have an Unpaid Amount Due on Your Account. If You Do Not Pay the Amount Due Immediately, the IRS will Seize (Levy) Your State Income Tax Refund and Apply it to Pay the Amount You Owe.” The CP500 letters start “soft” with the CP501. The CP501 simply lets you lets you know that you have a balance due. Believe it or not, it's quite harmless.

The CP503 notice comes next, usually about six weeks after the CP501. The language is a reminder that they sent the CP501 and did not hear back from you. Still not a threat to you.

The IRS then starts to get serious, sending the CP504 with a threat to levy your property. Specifically, the CP504 the IRS states an intent to take your state income tax refund.

The IRS has to tell you about the enforcement action they want to take before they do it. In IRS terminology, this is called collection due process. Collection due process requires the IRS to give you notice before they can levy (garnish) your wages, bank account, business assets, or personal assets, like your house or car.

The CP501, CP503, and CP504 gives you notice only that you owe money and could lose your state income tax refund. That’s it in a nutshell. Standing alone, the CP500 letters pose no threat to your job, bank account, or property.

The CP500's alerts us that the IRS is awake, and knows you are out there. But more is required to take anything other than your state income tax refund.

Now is the time to be Careful: The IRS May Have Already Sent the Final Notice of Intent to Levy

When it gets real serious, the IRS will send you a Final Notice of Intent to Levy with Rights to a Collection Due Process Hearing.

The Final Notice of Intent to Levy, not the CP500s, is required before a levy (wage garnishment or bank levy) can be placed on your wages, accounts, or property.


The IRS uses three letters for the Final Notice of Intent to Levy, coded as either the LT11, LT1058, or CP90.

The problem is the IRS may have sent you the Final Notice of Intent to Levy years ago. They only have to do it once. The IRS is under no obligation to ensure you receive any notice. The IRS is only obligated to mail it out.

Just because you have a harmless CP501, CP503 or CP504 does not mean the IRS did not years ago already send you the "enforcement hammer" (Final Notice of Intent to Levy).

The CP500 tells us that the IRS collection division is in active pursuit of you, but you may not know if they can back it up by having previously sent a Final Notice of Intent to Levy.


SEEK PROFESSIONAL ADVICE. HERE'S WHY:

If the Final Notice of Intent to Levy has not been sent, you may want to hold tight and not dial the IRS. Strategically, contacting the IRS when a Final Notice has not been sent could make matters worse. Your call could result in the IRS filing a tax lien against you, or discovering the Final Notice has not been sent, and sending it. Waking up the IRS when you may not need to could also impact your ability to let the IRS 10 year statute of limitations on collection run.


Should you choose to become a client of Flat Fee Tax Relief, our Tax Attorneys can shield you from enforcement actions.


When we contact the IRS to inform them of our representation, the agency will tell us about their notice history, and whether the Final Notice of Intent to Levy has been sent. The IRS will also tell us how much time they have remaining on the 10 year statute of limitations on collection. The IRS has a information line for attorneys and professionals to access information about their clients and to gather records. The information line – known as the Practitioner Priority Line – is not affiliated with the IRS collection division and is not staffed by collection agents. The information is gathered in a low-key manner that does not wake the sleeping giant.

If you are looking at a CP500 series letter, before dialing the IRS up, it is important to know if they have first sent you the letter that counts, the Final Notice of Intent to Levy. Should be decide to "Do It Yourself" and try to handle your tax liability problem, know this, the IRS will start asking you questions that you must answer. It's always better to have a tax professional handle your tax debt issue.


This article is brought to you by the tax professionals at Flat Fee Tax Relief. Our teams are strategically located in Clearwater, Florida, and San Diego, California which allows us to be available from 8 A.M. Eastern to 6 P.M. Pacific time.



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