IRS Notices
There are two different types of IRS notices, notices relating to assessments and deficiencies
and those relating to collections. Before the IRS can collect taxes, it must first assess the tax on
the taxpayer. The assessment can be made after an audit, or it may be ”self assessed” when you
file your tax return. The IRS may file a tax return for you if you are a non-filer, which is a substitute
for the Federal return or (SFR).
In reality, there are many types of notices that you can receive from the IRS regarding your income tax, however, there are only a few that are required under the law and these are worth mentioning. To facilitate the collection of tax, the taxpayer is given a notice of
assessment allowing 30 days to pay (30 day letter). When payment is not received, the taxpayer
is sent a mandatory notice of deficiency (90 day letter), giving the taxpayer 90 days to either pay
up or file a petition with the US Tax Court, challenging the assessment (Internal Revenue Code Section (IRC) 6212). If payment
is not received within the 90 days, the collection process begins.
The IRS will then send the first collection notice which is mandated by IRC 6303 that demands
payment within a limited period of time. This notice is required before the IRS can file a federal tax
lien (IRC 6321). If payment is not received, the IRS may send either a CP-501 or a CP-502
(reminder of tax due or notice of over due tax) to the taxpayer. Finally, if payment is not received,
the IRS sends a CP-504 notice (Urgent We Intend to Levy) which satisfies the statutory
requirement under IRC 6331(d) giving notice before levy. If payment is still not received, the IRS
will either send a letter notifying the taxpayer of a lien or levy action “Notice of your right to a
hearing” or send a letter stating “Final notice of intent to levy.” Each individual case is different
and the IRS may not send all these notices, the IRS may just send out the notices required by
law. A lien is the legal filing of notice that the IRS has a claim on your assets a levy is the action of
seizure on those assets.
It is important to understand that ignoring these notices can be tragic, and your best course of
action is to address the issue with the IRS immediately. It is not uncommon for a taxpayer, who
ignores the notices, to end up owing twice as much to the IRS years later than the original
assessment amount. It is also not uncommon for the taxpayer that allows their tax preparer to represent them to suffer the same fate. I would not allow your tax preparer to represent you before the IRS, this could be a monumental mistake. The reason, quite simply put, relates to the complex and unforgiving IRS administrative process, where most mistakes cannot be reversed. While volunteering for the Legal Aid Society of Palm Beach County, Florida several days a month, I see these tragic results time and time again.Victims of identity theft may have fraudulent tax returns filed in their name, so if your return is rejected by the IRS, make sure you obtain some type of report stating why the return was rejected.