The IRS has begun mailing out CP14 notices to millions of taxpayers who have an unpaid balance for the last tax year. If you receive IRS Notice CP14 read it carefully. The notice will tell you how much the IRS says you owe, when the IRS expects you to pay, and what to do if you disagree.
Many of these notices begin to arrive in June or July. But these kind of notices can show up year-round. The CP14 notice typically requests that a payment be made within 21 days. If the taxpayer does not pay the amount due within 60 days, the IRS can proceed with collection activity.
Understand that starting the day after the tax is due, interest will start to accrue on any unpaid tax debt. If you fail to pay the full amount of tax you owe on the due date, you will also be charged a late payment penalty. The interest and penalties that have already accrued and how they were determined are often fully explained in the CP14 Notice. It may be useful to read IRS Notice 746, Information About Your Notice, Penalty and Interest.
What if you don’t pay the balance?
The IRS failure to pay penalty is 0.5 percent for each month or part of a month that the tax balance goes unpaid, up to a maximum of 25 percent of the remaining amount due.
If you disagree with the notice you should call the IRS at the toll free number on the top right corner of the CP14 notice. Get an extension to pay in full. If you need a little more time than what is included on the CP14 notice you can arrange for an extension to pay agreement of up to 180 days.
If you ignore a CP14 letter you receive in June, the IRS will keep in touch with you throughout the summer and step up enforcement in September. Look into your choices for payment and penalty reduction right away so you can take advantage of the summer. You can also enlist the aid of a tax specialist who can advise you on the best course of action and even deal with the IRS on your behalf.
Other options if you can’t pay right away
If you cannot afford to pay in full or with an extension, there are other options to consider, including temporary not collectable status or a tax settlement called an Offer in Compromise.
You must take action if you receive a CP14 notice. Penalties will accrue if you do nothing, and the IRS will begin sending more urgent warnings for payment as time goes by.
Confirm that the amount the IRS claims you owe is accurate
This is also a good time to review your return again to check for any omitted deductions or credits. If so, you can file an amended return to pay less in taxes.
If the letter is accurate, you have a number of payment alternatives and even a chance to reduce penalties. What you need to know is as follows:
You might be able to simply request more time.
You can call the IRS and only ask for an extension if you require a little bit more time (up to 120 days) to collect all the necessary funds to pay the IRS. In order to avoid having any balances at the end of the 120-day period, make sure to request the complete payback amount from the IRS.
Depending on your circumstances, the IRS provides many possibilities. What happens if you are unable to pay at all or in full within 120 days? Be mindful of the balance. There are several payment plans (known as installment agreements) and additional choices, such as deferred payment (known as temporary not collectible status) or settlement (known as offer in compromise), for persons in difficult financial situations.
Keep in mind that choosing the appropriate agreement is essential to preventing liens and levies. Levies deduct money from your paycheck or bank account, and liens appear on your public records. Your tax expert can assist in choosing the best course of action for your circumstances.
Penalties might be lowered or eliminated
A failure-to-pay penalty was also sent to you if you received a CP14 notice. You might be entitled to request a first-time penalty abatement if this is the first time you’ve received the penalty in the last three years. You can ask for this penalty abatement by calling the IRS. However, the anticipated tax penalty is not eligible for the first-time penalty reduction. Your tax expert can assist in coming up with an exemption.
Did you get a CP14 Notice by mistake?
No one ever wants to hear from the IRS. But they absolutely don’t want to open the mail and see a detailed bill for federal income taxes that they paid already.
Many know they sent the money by the tax deadline. But they’re looking at a bill that spells out “What you owe” for taxes, penalties and interest. There’s even a warning that says if you don’t pay by the due date the penalties could add up.
CP14 Notice are automated and some are being sent in error in light of the IRS backlog.
Sometimes taxpayers do owe money when they receive a CP14 Notice because somehow they underpaid the federal government. Maybe back taxes are owed or there’s another more complicated issue, such as unpaid payroll taxes for a side business that has employees.
Don’t throw out the notice and make sure to review your own situation. Get your documentation in order. Talk with your tax professional. Make sure you have proof to show that the tax bill was paid. Keep the letter on file, as well as the documentation.
While nobody enjoys paying IRS fines or receiving IRS collection letters, it doesn’t need to be as horrible as it sounds..