IRS collection efforts resuming: CP501, CP503 and CP504 letters now being sent
IRS collection efforts are resuming from where they 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 quiet, as they were at the beginning of the pandemic.
Expect the CP500s as the first wave of more aggressive IRS action to come.
Let’s start with a little background on COVID’s initial impact on IRS collection efforts.
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 to collect.
All collection letters and levies were put on hold as the IRS did not want to find itself in the uncomfortable position of:
- Aggressively demanding payment from taxpayers who had sent in payment but the IRS had not opened the mail, or
- Levying a taxpayer’s wages, bank accounts, or property when payment had been made but was not processed, or
- Taking levy action 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.
In other words, 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 in order and are caught up on processing mail.
They want to get paid, and with the CP500s, they are now letting you know about it.
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 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:
- CP501, “You Have a Balance Due on Your Tax Account.”
- CP503, “We Have Not Heard From You and You Still Have an Unpaid Balance on One of Your Accounts.”
- 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. Harmless, believe it or not.
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 collection efforts start 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 action they want to take before the 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 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.
None of these letters state that the IRS is about to levy your wages, bank accounts, business assets or personal assets.
Standing alone, the CP500 letters pose no threat to your job, bank account, or property.
The CP500s tells us the IRS is awake, and knows you are out there. But more is required to take anything other than your state income tax refund.
Be Careful: The IRS May Have Already Sent the Final Notice of Intent to Levy
To get nasty, the IRS must 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 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.
You may not recall if they did, may not have kept a copy, or even had the right address to receive it.
Just because you have a harmless CP501, CP503 or CP504 does not mean the IRS did not years ago already send you the dangerous Final Notice of Intent to Levy.
That puts you in a dilemma.
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.
And 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.
Fortunately, the IRS will tell us about their notice history, and whether the Final Notice of Intent to Levy has been sent. They 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 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 bear.
After falling behind from the impact of COVID-19, the IRS collection efforts have been restarted. Demands for payment are now being made with the CP501, CP503, and CP504 letters. But the CP500 letters can have a bark that is worse than the bite. The CP500 letters do not allow the IRS to levy your wages, accounts and property. 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.