If you have a federal tax bill you have forgotten to pay, you owe taxes that you can’t afford to pay, or you have unpaid federal taxes for any reason, you may receive a CP501 – Standard IRS Bill (1st Notice). The IRS usually sends these bills via certified mail, signature required. You do not want to ignore a bill from the IRS.
However, there’s no need to panic if you receive a CP501 IRS Bill, either. Don’t ignore it. Reach out to the IRS immediately to take care of your back taxes before interest and penalties start building up, making a small bill unmanageable.
As with many other creditors, if you don’t pay your bill after receiving a CP501, you’ll receive a CP502 Balance Due Reminder Notice. A CP502 is a friendly reminder from the IRS that you owe unpaid taxes.
The CP502 tax bill will be higher than the CP501, due to additional interest that has accrued since you received the first notice. You will also notice a deadline on the bill; it’s important to pay the bill by the deadline or you’ll face additional interest charges and, potentially, penalties and late fees.
Take the following steps if you receive form CP501 / CP502 from the IRS.
The IRS offers several options to pay a tax bill. You can pay online through your bank account for free, or you can use a debit or credit card. There may be additional charges for paying by debit or credit. Either way, making an electronic payment immediately can help you avoid additional penalties and interest charged on your back taxes.
Remember, if your tax returns show that you owe federal taxes, the deadline to pay was April 15, 2019 (or April 17 for taxpayers in Maine and Massachusetts). Your tax bill started accruing interest and penalties every day after that date.
Taxpayers who can’t pay their back taxes immediately have many choices. A back tax assistance company or tax attorney can help you determine the best course of action for your financial situation.
You may be able to file an offer in compromise, which could reduce the total amount you owe and eliminate IRS fees and penalties. You can file for an installment agreement, which will give you more time to pay your back taxes. Finally, you could consider filing for Currently Not Collectible (CNC) status, which will put tax collections efforts on hold until your financial situation approves.
Whether you determine a payment plan, offer in compromise, or CNC status is the best choice for you, an IRS professional can help you gather the evidence you need to negotiate with the IRS and file the right paperwork to apply for back tax assistance.
You can even apply online for a payment plan with the IRS. Understand that there may be fees and interest associated with a payment plan, but if you don’t have the money right now, it might be your best option.
It doesn’t happen often, but the IRS could make a mistake on your tax bill. If you don’t agree with the assessment or the CP501 notice, call the IRS at the number listed on the form. You may need to provide evidence that you paid the bill in question or that you don’t owe the amount listed on the form. A tax accountant or tax attorney can help you make your case to the IRS.
Your CP501 and CP502 notices from the IRS clearly list the due date and the amount you owe. The worst thing you can do is ignore the notices.
If you do, the IRS can file a Notice of Federal Tax Lien on your property. A lien could make it harder to sell your property, since the IRS could seize it. The IRS can also take any money derived from the sale of your property.
A lien shows up on your credit report and can make it harder to open a credit card or take out a loan. Your creditors will be publicly informed that the IRS has priority to seize your property before other creditors.
Even if the IRS chooses not to file a Federal Tax Lien, interest and penalties will accrue on unpaid back taxes. A small tax bill could end up costing hundreds, or even thousands, of dollars if you don’t take care of it promptly.
The IRS is typically willing to permit a payment plan for taxpayers to take care of their unpaid back taxes.
If you’re unsure what steps to take upon receiving a form CP501 Standard Tax Bill or CP502 Balance Due Reminder, Solvable can help you find a tax professional to help.