Immediately following tax season, the IRS is not very active in collecting. They have a lot of work to do, after all. But by the end of June or beginning of July, prepare for the IRS to start getting in touch with you regarding any unpaid taxes or any queries they may have over the matching of information returns with tax returns.
If there is an outstanding debt for the previous tax year, the IRS will issue you Form CP14 as the first in a series of letters. The IRS responds, “We sent you this notice because you owe money on delinquent taxes,” when asked what the notification is about. If you get an irs notice CP14, carefully read it. The notice will outline your rights if you disagree with the IRS's assessment of your debt as well as when and how to make payments.
The most typical IRS notification given to taxpayers is the CP14, which asks for payment within 21 days and is mandated by law to be issued within 60 days of the IRS assessing a tax due. There are several reasons why taxpayers have a balance due, including failing to declare certain income or failing to pay a balance in full. Penalties and interest would be imposed back to the tax return's due date if a taxpayer did not pay what was due by the CP14 notice's due date.
For each month or portion of a month that the tax bill remains unpaid, the IRS imposes a failure-to-pay penalty of 0.5 percent, up to a maximum of 25 percent of the outstanding balance owed. The IRS won't be so sympathetic if the taxpayer doesn't pay the amount owed within 60 days; it can start collection efforts by filing a Notice of Federal Tax Lean or levy.
Before beginning an enforced collection, the IRS may send taxpayers a series of reminder letters, or the “collection notice stream,” requesting payment.
Just because you receive a notification doesn't imply you automatically owe the extra sums indicated by the IRS. This may be the result of a number of factors, such as late payments or unpaid credits. If all of the payment indicated on your return is accounted for, make sure to check the notice. You will need to submit proof of payment and a prompt response to the IRS if, for whatever reason, a payment is missing or was incorrectly posted by the IRS.
According to the Taxpayer Advocate Service, taxpayers who disagree with the warning should contact the IRS at the toll-free number on their CP14 notification's top right corner. When calling, those who object should be prepared with their documentation, such as canceled checks and an amended return.
Taxpayers who do not protest to the sum due on their CP14 but are unable to pay the amount have the following options:
Get an extension to pay in full: Taxpayers can work with the IRS to obtain an extension-to-pay agreement if they require a little more time than what is specified in their CP14 notice. The IRS offers a free extension of up to 180 days to pay the outstanding sum. It's referred to as a short-term payment agreement by the IRS.
Enter into a payment arrangement with the IRS: For most taxpayers, this is the best course of action after receiving a CP14 notice. The cost to join a payment plan varies depending on your financial situation and preferred monthly payment schedule.
A temporary not collectible status or a tax settlement known as an Offer in Compromise are two more choices for taxpayers who are in financial difficulty and cannot afford to pay in full right away, with an extension, or from a payment plan.