IRS CP504, CP518 & Letter 1058
When it comes to the Internal Revenue Service‘s enforcement procedures, they seemingly have a CP Notice or Letter for every sticky situation a US Taxpayer may find themselves in. Three of the most common types of notices that a taxpayer may receive are a CP504 Notice (Final Notice of Unpaid Debt); CP518 Notice (Final Reminder of No Tax Return on Recorded), and Letter 1058 aka LT11 Notice (Intent to Seize). When a taxpayer has failed to properly comply with the Internal Revenue Service’s requirements for payment and/or failing to enter into a payment plan, they may receive one or more of these types of enforcement letters. If a taxpayer does not respond to these letters, it may result in a levy against their wages or bank accounts or a Notice of Federal Tax Lien (NTFL) – or possibly even a seizure, although seizures usually only occur in more extreme situations in which the IRS believes the taxpayer is going to go on the run or hide their assets. Let’s take a brief look at these forms.
When a taxpayer receives a CP 518 notice, it means that the IRS does not have the taxpayer’s tax return on record. It is important to note that it does not necessarily mean you did not actually file the return — rather, it could mean that amidst the chaos of the past few years, the Internal Revenue Service did not properly process or record receipt of the tax return. It is important that you respond to this notice and file any necessary documents that have not been filed (even if you know you filed it timely at the outset).
CP15 Penalty Notice
The CP15 notice typically serves as a catalyst for subsequent notices, such as a CP504 Notice and/or Letter 1058. The CP15 notice is used to notify the taxpayer that a penalty has been issued. In our neck of the woods where we focus exclusively on international offshore tax reporting and compliance, this is usually the result of not properly filing Form 3520, Form 5471, or Form 8938. Typically, the taxpayer has 30-days to respond to the CP15 notice and lodge a protest letter at the IRS in order to dispute the penalty. It is important to not miss the deadline if part of the taxpayer’s strategy is to protest.
After a taxpayer receives a penalty notice (such as a CP15) and during the time it takes the taxpayer to seek to abate or remove the penalty, it can drag on for a significant amount of time. Therefore, in the meantime, the taxpayer may receive a CP504 notice for a final reminder of the unpaid tax. A taxpayer may receive several of these notices before receiving the subsequent letter 1058. In general, taxpayers are able to place the enforcement action on hold (usually up to nine weeks) to determine how they want to proceed in terms of an appeal, Collection Due Process Hearing (CDP) — or submitting payment, filing a refund claim, and pursuing federal litigation. Some agents may be less inclined to offer to place the matter on hold for the full 9-weeks.
Letter 1058 (Levy or Lien)
The letter 1058 is essentially the “final straw” for the IRS in dealing with penalties/tax liability. With this type of letter, the IRS is putting the taxpayer on notice that unless the matter is resolved, they are going to place a levy on the taxpayer’s bank accounts, wages, etc. Whereas the 504 letters are nasty (but do not result in an actual lien or levy), the failure to respond to the IRS Letter 1058 will result in the IRS taking action against the taxpayer. Generally, in order to avoid a lien or levy, the taxpayer will either enter into an installment agreement or pursue a Collection Due Process Hearing request before a Settlement Officer (SO) — the latter of which then provides the Taxpayer a good path to Tax Court if the CDP hearing does not bear fruit.
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