Almost everyone calls me in a panic after receiving a collections notice from the IRS threatening to levy on their bank account, attach their wages, or put a lien on their house. They all think it will happen immediately: “Please call me back ASAP because the IRS gave me a deadline of tomorrow/next week/10 days!!” Um, no. Chances are, you’ve got many months, if not years, until the IRS pursues aggressive collections action.
You need to take immediate action in response to an IRS collection notice only (1) when you’ve already received 2-4 prior notices over the course of 4-12 months, (2) if it’s been sent by certified mail, (3) if the notice gives you the option to file a Collections Due Process Hearing, or (4) the IRS has already levied you regarding the tax year at issue.
Actions IRS Must Take Before Levying Wages/Accounts or Imposing Liens
By law, before the IRS can levy on wages or bank accounts or file liens, it must make repeated attempts to gain voluntary compliance from taxpayers owing back taxes. Specifically, the IRS must: (1) mail 3-4 collections notices to the taxpayer, including at least one by certified mail, to ensure the taxpayer received the notice (important when a taxpayer has recently moved); and (2) provide the option of a Collection Due Process Appeal/Hearing to the taxpayer. Few IRS collections notices meet these criteria.
Implication? The vast majority of IRS collections notices sent are toothless: the taxpayer has many more months to either pay what’s owed, get into a payment plan or challenge the amount owed. This isn’t to say collections notices should be ignored – they should be assessed for their threat level, at minimum. Most collections notices suggest the taxpayer is on the IRS’s radar, which means truly threatening notices are likely in the future. But some notices aren’t collections notices, but rather “balance due” or “annual account” statements that are often better to ignore (explained below).
Distinguishing Threatening IRS Collections Notices from Benign Ones
So, how can taxpayers tell a relatively harmless collection notice from a highly threatening one? The key difference is this: notices that offer the taxpayer the right to request a Collection Due Process Appeal/Hearing (which differs from a Collections Appeals Hearing!) are serious, threatening and immediate: if you don’t respond within 30 days, expect a lien or levy within 45 days.
But all other notices are much more harmless. Here’s the most common Collections Notices and their “threat” levels.
Not Worrisome: Balance Due IRS Notice CP14
IRS Notice CP14 is often the first correspondence a taxpayer receives from the IRS, and typically is mailed if you filed your tax return but didn’t full pay any taxes owing on the return. Note: the IRS NEVER calls first; only scams purporting to be the IRS will phone or text you. A CP14 details the tax debt owed for a specific tax year, accrued penalties and interests, and a due date for the first payment, as in this example. It will contain a demand for payment, but won’t threaten liens or levies; it is putting the taxpayer on notice that they owe and for what.
Usually Not Worrisome: IRS CP71C – Annual Reminder of Amount Due
While this example of a IRS Notice CP71C doesn’t say it’s an IRS Annual Reminder of a balance due, that’s what the CP71C notice is. And, if you haven’t received notices from the IRS about the balance on a tax year previously, then the CP71C isn’t something to worry about. That’s because the CP71C was generated by an IRS computer, not an IRS Revenue Officer. The IRS has computer algorithms used to automatically mail collection letters, such as CP71Cs. They do not give the IRS the legal right to seize or attach property because they do not give the taxpayer the right to file a Collection Due Process appeal/hearing, and because they weren’t preceded by prior collections notices.
In contrast to the CP71C, if you’ve received correspondence from or that lists an IRS Auditor or Revenue Agent assigned to your account, then you’re squarely in the cross-hairs of the IRS and any letters should be taken seriously and addressed.
“Mildest” Collection Notices: IRS CP501 and IRS CP502
IRS Notice CP501 is the first of the actual IRS Collections Notices (unlike the CP71C which is a balance due notice), and is typically followed by CP502 if you made no payment following receipt of the CP501. The difference between the two is that there is usually a larger balance due amount on the CP502 because interest has continued to accrue daily on the tax owed sent with the original CP501. Both are “toothless” notices because they do not offer the taxpayer a Collection Due Process Hearing, and thus they do not give the IRS the legal right to follow up immediately with a levy.
(Here’s a distinction within lien notices: the IRS can file a Notice of Federal Tax Lien against property at any time, but it must give Collection Due Process Appeal/Hearing Rights when filing.)
Moreover, since CP501 and CP502 are the first two in the series of the collections notices the IRS must send before taking aggressive collections actions (liens or levies), they also contain the mildest language. The next set of notices (CP503-504), for example, use more threatening phrases such as “Notice of Intent to Levy.” If you receive a CP501 or CP502 notice, you are still at least six months away from an IRS lien or levy.
Resist the Urge to Call the IRS Unless You Have To
All notices from the IRS, even the initial ones, can feel intimidating. Many people don’t like the stress of owing the IRS money, and want to call the IRS and “deal with it.” But sometimes it’s better to resist that urge. Here’s why. No IRS employee has “seen” you yet with the early notices; they are all computer-generated only. However, when you call the IRS, you will reach an IRS agent whose job it is to get back taxes paid. That means the agent answering the phone is going to ask you about your job, your salary, your bank accounts, the value of your house, car and retirement accounts. They will immediately go to work figuring out how much you can afford to pay monthly on the taxes you owe. If you have $100,000 in equity in your home, the IRS agent may demand you refinance to repay the IRS. The CP71C or the CP501 notices you were sent would never have done that: you needed to reach a live IRS employee to make that happen. Don’t put a live IRS agent on your track if it can be avoided. That means ignoring the early notices, if you cannot pay, and are willing to let interest accrue on the balance you owe, or pay on your own schedule. Why?
Here’s the reality: the IRS doesn’t have sufficient revenue agents to go after every taxpayer who owes, especially not with the DOGE and current administration reducing the federal workforce. I have clients with back taxes from as long ago as 2015 who have never been threatened with serious collection action. They’ve only ever received the computer generated notices. The IRS has a 10-year statute of limitations on collecting taxes. Implication? The IRS may never get around to assigning a revenue agent to hound you for what you owe. Why poke the bear? Ignore the IRS until you can’t anymore. How do you know when you should stop ignoring their notices? When you get Letter 1058, LT II Notice, CP90, or you have a live IRS agent regularly mailing you. Read on.
“Mild” Collection Notices: IRS CP503, CP504 and CP504B
These are the Collection Notice that most often has a client or potential client call me about in a cold sweat – most likely because of the “Final Balance Due Reminder – Notice of Intent to Seize (Levy) Your Property or Rights to Property” plastered across IRS Notice CP504 or because of the “you must pay your balance immediately/by February 10, 2022 in this example of CP504. The language has gotten more threatening since the initial CP501 and CP502 notices, but IRS Notice CP503 and CP504 are also relatively harmless.
For example, neither CP 503 nor CP504, were sent by certified mail (although they occasionally can be), and we know that because the IRS always prints “CERTIFIED MAIL – Return Receipt” on the first page of all collections notices it sends via certified mail. Most importantly, neither notice mentions the taxpayer’s right to file a Collections Due Process Appeal/Hearing. Instead, they offer the confusingly similar sounding Collections Appeal Program. But the two are very different.
In the “fluff” Collections Appeals Hearing, a taxpayer asks an IRS Appeals Officer to consider whether IRS actions are justified. This process will not consider or alter the amount of tax owed, and it doesn’t necessarily stop collection action. The finding is almost always that the IRS collections actions are justified because Congress and case law says the federal government has a right to collect taxes from us. In short, the Collections Appeal Program is kind of stupid – it has no function except to allow taxpayers to vent, but without relief from the essential reality that the IRS has the right to tax us and pursue us until it gets what’s owed.
But both the CP503 and the CP504 sound quite threatening: there’s dates, talk of levy, all on the first page in prominent typeface. Why? Especially if this isn’t a hugely “serious” collection notice? The IRS creates a due date and mentions that it may levy because it hopes the taxpayer will be scared into quick payment or contacting the IRS to establish an Installment Agreement payment plan. And many taxpayers are scared into at least some action — this is when I get those panicked calls: “Please call me right away because the IRS is about to levy!”. Um, again, no they’re not. But the IRS certainly wants you to think they are, so that they get paid fast and fully. The job of the Collections Division of the IRS is to collect taxes that were properly and accurately assessed (by the other half of the IRS – the Assessment Division). In its quest to collect as much tax debt outstanding as it can, IRS collections agents will stretch the truth – such as in the Collections Notice threatening imminent liens and levies.
Ticking Time Bomb Collection Notices: IRS Letter 1058, LT II Notice, CP90
IRS Letter 1058 or NTII Notice and a CP90 are the ticking time bomb/red alert, most threatening IRS collections notices. If you get one of these, deal with it immediately: you have at most 60 days before the IRS levies or files liens. This is the time to call the IRS for an Installment Agreement, Uncollectible Status or an Offer-in-Compromise. Alternatively, if you don’t agree with the amount of the tax, file that request for a Collection Due Process Hearing. This stops levies cold.
This letter 1059 was mailed certified, gives a specific date of 4/18/24 for payment/CDP request, and offers access to a Collection Due Process Hearing, all on the first page. With these three things, the IRS fulfilled the legal requirements to levy/lien on the taxpayer if they do not reply. If the IRS fails to hear from the taxpayer within 30 days, then the IRS WILL levy or lien within another 30 days. That means the recipient of this letter has at most 60 days from receipt of this letter to needing to pay at least a partial payment, to avoid liens/levies.
Collection Due Process Hearing
This letter also contains Form 12153, for the taxpayer to request a Collection Due Process Hearing. This is an appeal to the IRS Independent Office of Appeals, challenging the amount of tax the IRS claims the taxpayer owes. A CDP hearing request also stops all collection actions until the hearing occurs. If the Collection Due Process outcome is not to the taxpayer’s liking, then the last avenue of appeal is to sue the IRS in U.S. Tax Court. However, if the taxpayer has no legitimate basis on which to challenge the tax assessed, the CDP Hearing is the last chance to at least postpone collection actions. If they fail, then they are looking at an Installment Agreement, Uncollectible Status, Offer in Compromise or bankruptcy as the alternatives for dealing with the tax debt.
Confused? Not Sure Of the Threat Level of the IRS Notice You Just Received? No One Outside of the IRS Could Possibly Know the Actual Seriousness of Most of These Notices. If you receive an IRS Collection Notice, Call Me. I’ll Take a Look, Let You Know How Much Time You’ve Got, and Help Determine the Best Way to Deal with Back Taxes Given the Specifics of Your Finances. 818.889.8080
March 14, 2025