All had been quiet on the IRS front.
Then you received a stack of IRS mail, and gathered the courage to open it.
And right there, in bold letters in the middle of the front page, you see it:
The IRS calculation of the amount you owe, with a request to pay.
You just received an IRS Annual Reminder of Balance Due, identified in the upper right hand corner as Notice CP71C.
Is this a wake-up call?
Chances are, nothing has changed between you and the IRS.
The annual reminder of balance due is just the IRS meeting their legal obligation to let you know how much you owe.
It gives the IRS no rights to come after you.
For example, the CP71C does not allow the IRS to:
- Levy your wages.
- Clean out your bank account.
- Seize and sell your house.
- Liquidate your retirement account.
- Take your car or other important property.
To take any action that could hurt you the IRS must send a different letter, called a Final Notice of Intent to Levy. The Final Notice is usually identified as a Notice LT11, CP90, or LT1058. That is not what you received.
It is also important to understand that your CP71C Annual Reminder of Balance Due letter came from an IRS computer. The IRS has computer algorithms that are used to program the mailing of collection letters.
There is no human on your file and no one watching over you.
If things were quiet before you received the CP71C, chances are they probably still are.
You may still be tempted to call the IRS and put this behind you and ease your mind. We can do that, too.
But before picking up the phone, it is important to understand that your call will likely mean telling the IRS about where you work, bank, the value of your house, retirement, and car. An IRS collector may also request you to itemize your monthly living expenses.
The IRS wants this because you owe them money, and they want to know how they can get paid. We need to make sure that call is worth it.
Here’s an example of a reason not to call: Let’s say your house is worth $150,000 and you owe $75,000 to the bank. You have $75,000 of equity. Right now, the IRS likely does not know anything about the value in your house. But if you call them you could be opening up a can of worms, with the result being IRS demands to sell or borrow your equity to pay them. All that from a letter that does not, standing alone, threaten you.
To be sure, there can be benefits from calling.
If you are unable to repay the IRS, they can place your account in currently not collectible status or give you an installment agreement. Currently not collectible is an agreement with the IRS that your economic situation does not allow you to repay them and that they will not come after you. An installment agreement can be for a small amount and does not need to pay the IRS back. Either would put your account into “good standing” with the IRS.
We also need to throw in the mix the IRS 10 year statute of limitation on collection. The IRS has 10 years to collect from you and when the time expires they must forgive the debt. Before receiving the CP71C, your account had been sitting quietly. Time was running down to the end. The IRS can give us the collection end dates, and we can use them to determine if calling or staying on the sidelines is in your best interest.
The CP71C may also give you ideas about trying to settle with the IRS. An offer in compromise is not a quick fix. Typically, it can take the IRS a minimum of 12 months to investigate and accept an offer. And if accepted, you will then have up to two years to pay the IRS the settlement. That can be three years to settle. We may find that the IRS collection will expire before a compromise is completed. And a compromise requires telling the IRS all about your finances.
An IRS annual reminder of your balance due can be a motivator to address your tax problem. But a careful review of your circumstances – including your finances, whether the IRS previously sent a Final Notice of Intent to Levy, and how much time they have to collect – should be considered before giving the IRS a call. Otherwise, you could make matters worse, not better, when all has been quiet on the IRS front.