On average, about 25% of Americans wait until the last two weeks before tax day to begin worrying about their returns. Unfortunately, many of those taxpayers will never get around to filing their taxes, or if they do file, they cannot afford to pay. If you’ve recently joined that statistic, then you might have received an IRS CP503 notice in the mail.
It’s important that you fully understand what receiving this notice means so that you can make an informed decision on how to handle your ongoing tax debt situation. Find out more about the CP503, what it means, your options for resolving your situation, the consequences of ignoring the letter, and how our tax resolution attorneys can help below.
Everything You Need to Know About IRS Notice CP503
When you get a CP503 notice in the mail, it shouldn’t come as a surprise. That’s because this notice is supposed to be your second warning regarding your past-due debt. You should have already received at least one notice about your delinquency already. Usually, the IRS sends CP14 and CP501 notices before the CP503.
Despite that, receiving a CP503 notice can still feel intimidating and jarring if you know you don’t have the funds to pay off what you owe.
It’s necessary for you to respond to this notice. Even if you can’t pay off your tax bill, you still need to get in touch with the IRS about your situation so that they don’t decide to pursue further collection efforts. Before you get in touch with the agency, though, you need to come up with a plan on how you’ll deal with your debt. Below, we’ll help give you some guidance and ideas on how you can move forward under the circumstances.
What to do if You Receive a CP503 Notice
So, how should you handle your IRS CP503 letter to ensure that your rights are upheld and your options are kept open? Below, we’ll go over how to handle your notice step-by-step.
Step One: Read the IRS Notice Thoroughly
First, read through your IRS notice completely as carefully as you can. Ensure you understand everything outlined in the letter, including how much you owe, when your payments are due, and what your options are if you don’t have enough money to pay off your tax bill immediately.
This notice should outline what you need to do to remain compliant with the IRS and make a payment either online or via mail. Once you understand everything that’s outlined in your letter, you can make a more informed choice on how to handle the situation.
Step Two: Consider, Are the IRS’s Claims Legitimate?
While going through your letter, take note of all the identifying information in the notice. Is your name spelled correctly? Are the address, phone number, and other distinguishing details listed correctly? While it’s rare, it could be the case that the letter was sent in error or was meant for a different taxpayer with a similar name or tax number.
Also, be sure to check the amount of the past due tax balance to make sure that it sounds reasonable and legitimate. The IRS could have made a mistake when processing your return or estimating how much you owe in taxes from unfiled returns or during an audit.
If you don’t agree with the IRS’s claims in the letter or you’ve discovered errors in your identifying details, then reach out to the IRS to speak with an agent about your case. Even better, consider consulting with a tax attorney who will speak to the IRS on your behalf.
Step Three: Get Informed About Your Options
Next, you need to get informed about the options available to you based on your unique financial situation. The letter you received might briefly outline a few of your options, like setting up a payment plan with the IRS, but it’s far better to get in touch with a tax lawyer who can help you better understand which options are best suited for your situation. Some payment and relief options might not be available to you if you aren’t current with all of your tax returns, and there are likely more relief options available to you than are listed on your notice. Don’t make a decision on how to move forward with your debt until you’re fully informed.
Unpaid Tax Debt: What Are Your Options?
So, what are your options when it comes to getting back on good terms with the IRS when you have an unpaid tax debt? While it makes the most sense to simply pay off your debt in full, that’s rarely an option for most taxpayers who have received a CP503. For the most part, taxpayers who can pay off their bill in full do so when they first receive it. Luckily, the IRS has other relief options.
Below, we’ll go over a few options available to you to get back on good terms with the IRS.
180-Day Short-Term Payment Plan with the IRS
If you can’t pay off the whole balance you owe in one lump sum payment, then your next best option is to make a payment plan with the IRS. If you owe less than $100,000 in tax debt, penalties, and interest, then you might qualify for a short-term payment plan.
This type of agreement gives you 180 days or less to pay off your balance in full. The benefits of agreeing to this type of payment plan include not getting hit with further collection efforts from the IRS and avoiding excessive fees and interest accumulation over time. Once you agree to this payment plan, the IRS will see you as being compliant unless you miss a payment later.
However, in most cases, once you receive the CP503, your bill is likely to be more than six months delinquent, meaning this may not be an option in your situation.
Negotiate an Installment Agreement with the IRS
Do you owe less than $50,000 in combined tax debt, interest fees, and penalties? Do you think it will take you longer than 180 days to pay off your balance in full? If so, you should consider arranging a streamlined installment agreement with the IRS. Installment agreements are essentially monthly payment plans that help you pay off your full balance over time. A streamlined installment agreement is a special payment plan the IRS offers that does not require you to disclose your financial information to the IRS, and qualification is generally automatic. Keep in mind that this type of long-term payment plan arrangement will mean that interest will continue to accumulate on your tax balance until you pay it off.
Consider an Offer in Compromise
Are you worried that you won’t be able to pay off your tax debt in full due to your current financial situation? If so, then you might be eligible to apply for an offer in compromise agreement. This type of arrangement helps you settle your tax debt for less than the full amount you owe when you’re struggling with reduced income, excessive expenses, and an inability to pay the IRS. When you offer to pay the IRS a generous lump sum, they have an incentive to agree to the deal rather than continue to invest in pursuing various collection efforts.
In order to qualify for this type of plan, you’ll need to meet certain criteria. For one, you’ll need to make sure you’ve filed all your past tax returns and made any required estimated tax payments. You also can’t be going through the bankruptcy process. For more information about whether you qualify for this type of solution, contact a tax attorney.
Temporary Hardship
Would attempting to pay off your balance in full cause a temporary hardship for you? You should never have to choose between paying off your taxes and buying essential items like food or paying rent. If paying your taxes will cause this type of undue burden on you, then consider your option of filing for currently not collectible (CNC) status.
If you take this route, the IRS will analyze your financial situation carefully. If they determine that you genuinely can’t pay, then they will file you under CNC status. This is a temporary delay of collection efforts, but it won’t completely forgive your tax debt. If you later start earning a substantial income or attain valuable assets, then the IRS might revoke your account’s CNC status and restart collection efforts.
Frequently Asked Questions About IRS Notice CP503
Do you have more questions about your CP503 notice, how to handle it, and what type of tax professional to consult in your circumstances? Find out answers to some of the most frequently asked questions below.
What Will Happen if I Don’t Respond to the CP503 Notice?
Your IRS CP503 notice is the IRS’s second attempt to contact you about your tax debt via mail. If you get this letter and still choose not to reach out to the IRS or make payment arrangements, then the IRS might decide to file a Notice of Federal Tax Lien. The IRS often sends a CP504 Notice after the CP503 notice, which serves as a notice of intent to levy certain assets.
This type of collection effort is a public notice to all of your creditors that informs them that the IRS has a legal right to your current assets and future assets. This notice will limit your opportunities and ability to seek out credit. Depending on how you respond to that notice, further collection efforts could follow.
Can I Face Criminal Charges Over My Taxes?
Yes. It is possible to face criminal charges over your tax situation, but it’s relatively rare. Tax evasion, for instance, is a criminal offense that’s described as attempting to file a false tax return that omits income or claims deductions for which the taxpayer is not entitled. Tax fraud is also a crime where the taxpayer intentionally tries to defraud the IRS. The penalties for these types of crimes can be quite substantial, with fines going up to $100,000 and a potential jail sentence of up to five years. Serving jailtime for just having unpaid taxes is extremely unlikely.
What is the Late Penalty on Unpaid Taxes?
For every month that you do not pay your tax burden, you’ll get charged one-half of one percent. This percentage can go up to as high as 25% of the overall amount of unpaid tax balance. You could face additional fees, like a failure to file penalty, as well as accumulating interest on unpaid taxes, too.
Will the IRS Remove Penalties and Fees?
It is possible for the IRS to remove penalties and fees from your account through the penalty abatement process. To be eligible for relief, you generally need to prove that you were unable to comply with paying what you owe due to circumstances beyond your control.
What if I Do Not Agree With the IRS’s Assessment?
If you do not agree with the IRS’s assessment of your tax situation or you believe the agency has made an error with your returns, then contact the IRS immediately to discuss your concerns. In this situation, it might make the most sense to consult with a lawyer and have your attorney discuss the matter with an IRS agent.
Do I Need a Lawyer’s Help to Deal With a CP503 Notice?
It’s not necessary for you to hire a tax attorney to help with a CP503 notice, but leaning on a lawyer’s knowledge, experience, and expertise can help you make better, more informed decisions on how to handle your tax situation. A tax attorney can help give you advice on how to handle future tax matters, too.
Are You Looking for an Experienced Tax Attorney?
If you received a CP503 letter in the mail and are still unsure how to handle your situation, then it might be a good idea to speak with an experienced tax attorney. The right lawyer will help you understand your obligations and your rights as a taxpayer. They’ll also help you analyze your current financial situation to determine what type of tax resolution strategy might work best for you.
If you’re experiencing tax issues with the IRS, Georgia Department of Revenue, or another state taxing authority, then our team at Wiggam Law can help. Schedule a consultation with our experienced tax attorneys today to learn more about how to navigate your complicated tax situation.