IRS CP 501: Reminder of Balance Due – Meanings & Actions Needed
Taxpayers who owe a balance to the IRS will receive a notice in the mail notifying them of the balance due. This notice is called the CP 501 Notice and it is one of most straight forward correspondences you will get from the IRS. The CP 501 is basically a notice from the IRS reminding the taxpayer of a balance due on outstanding taxes. It is very important to understand the importance of this notice and what to do if you receive it in the mail.
What Does It Mean?
Each year, taxpayers file their income tax return with one of three things happening. Either the tax payer receives a refund due to overpayment of taxes throughout the year, the taxpayer breaks even or a tax liability is owed to the IRS. When a tax bill is owed to the IRS payment in full is due by the April 15th (or 18th in 2011) tax deadline. Failure to pay the balance in full will result in an outstanding balance which is subject to penalties and interest. The IRS will send a notice (CP 501) to the taxpayer stating the amount owed, the tax year, a Caller ID and directions for payment. In short, the CP 501 is simply a bill from Uncle Sam for taxes owed.
What Do You Do If You Receive CP 501?
If you are the recipient of a CP 501 Notice from the IRS, it is important to act immediately to resolve the issue. As long as there is a balance owed, interest and penalties will continue to accrue on the account. The first thing to do if you receive this notice is verify the information is correct. If you do not agree there is a balance owed, or the amount of the balance owed, contact the IRS immediately to discuss your concerns. If you agree the information is correct, the best option is to pay the balance in full per the directions on the CP 501 Notice. There will be directions on the form stating who to make the check payable to, where to mail the check and when the payment is due to avoid additional penalties and fees.
What if You Can’t Pay the IRS in Full?
If you are unable to pay the balance in full, contact the IRS immediately to discuss other options. Below are some common options for individuals that cannot pay in full
- IRS Installment Agreement: This is the most common method to pay taxes if you cannot pay in full. An installment agreement allows you to pay off the taxes owed in manageable monthly payments. There are a few different types of installment agreements and the one you used will be determined by your financial situation.
- IRS Hardship: If an individual can prove that paying the taxes owed would cause financial hardship then the IRS may put a temporary stop on IRS collections. When the IRS puts a temporary stop on collections this is considered IRS hardship, currently uncollectible, or status 53.
- Offer in Compromise: An offer in compromise allows you to settle the taxes owed for less than the total amount. This type of settlement is rare and is only available to those individuals that meet the strict requirements to qualify.
Understand that even those who make payment arrangements will still see interest and penalties applied to the remaining balance until it is paid in full. Regardless of how you pay the balance, the longer it remains, the more it will cost you in the end, therefore immediate action is necessary.
What if You Don’t Pay?
If you choose to ignore this notice, please know it will not go away. The IRS can and will use aggressive collection methods to collect back taxes, including the use of liens and levies on your wages or property.