IRS Trust Fund Recovery Penalty: What it is and How to Settle

When you have employees, you withhold their Medicare and Social Security contributions from their checks, and in most cases, you also withhold some income tax. These amounts are referred to as trust fund taxes, and you are obligated to send that money to the IRS. If you fail to make those payments, the government can charge a very serious penalty called the Trust Fund Recovery Penalty. But the IRS doesn't assess this penalty against the business – instead, it's assessed against individuals, which may include owners, shareholders, employees, or even third parties like payroll providers or accountants. 

Key takeaways

• Trust fund recovery penalty (TFRP) – worth 100% of a business's unpaid trust fund taxes (aka excise taxes or taxes withheld from employees' paychecks.
• Individual assessment – The IRS assesses the TFRP against individuals, not the business.
• TFRP investigation – the IRS uses Form 4181 to learn more about the business and Form 4180 interviews to learn more about responsible individuals in the business. 
• The IRS can assess the TFRP against any individual who is responsible and who acted willfully.
• If a TRFP is assessed against you, the IRS can come after your personal assets, but you have appeal rights if you reach out before the deadline on the proposed assessment letter. 

What is the Trust Fund Recovery Penalty (TFRP)?

The Trust Fund Recovery Penalty is the penalty you face if you withhold income tax, Medicare, and Social Security payments from your employees’ paychecks, but you don’t send the money to the IRS. It is one of the largest penalties charged by the IRS. The IRS takes it very seriously, and if you are deemed responsible for the missing deposits, the IRS will not hesitate to hold you personally responsible and recoup these monies from you. IRC 6672 provides the authority for the TFRP. It is a penalty imposed on individuals who are obligated to collect, account for, and remit taxes held in trust, who knowingly fail to fulfill these duties or intentionally attempt to dodge or prevent paying the taxes.

Trust Fund Recovery on Excise Taxes

The TFRP can also be levied when collected excise taxes are not paid. This includes taxes collected from consumers for aviation, communication, and indoor tanning. These taxes are considered trust fund taxes because they are collected from another party and placed "in trust" until they are delivered to the government. In contrast, the TFRP does not apply to excise taxes that aren't collected from other parties. Although the rest of this post focuses on trust fund recovery penalties for payroll taxes, the consequences and resolution options are the same as they are for excise tax TFRPs.

Who Can Be Responsible for the TFRP?

The IRS can and will levy this penalty on anyone who willfully fails to collect and pay trust fund taxes. That includes owners, CEOs, and directors, but it can also include employees, third-party payroll administrators, outside accountants, and bookkeepers. For corporations, shareholders can also be held responsible, and for non-profits, members of the board of trustees may be considered responsible.

Essentially, anyone in the organization who collects or pays these taxes can be held responsible. In addition, anyone who knows the taxes are not being paid can also be held responsible. The IRS can hold multiple people responsible simultaneously and pursue collection action against all of them to get the money.

To establish responsibility, the IRS has to prove that the individual in question was aware that the taxes were due and aware they weren’t being paid. The individual must have purposefully or willfully ignored the law. For example, if you or someone related to your organization took the money set outside for payroll and income taxes and used it to pay another bill, that’s a clear sign of willfulness. Learn more about who the IRS considers a responsible person for trust fund recovery penalty assessment.

What to Do If the IRS Thinks You're Liable for Your Employer's Trust Fund Recovery Penalty?

Employees and third parties who handle payroll need to be careful. If the IRS determines that you are responsible for these unpaid taxes, you can face serious penalties and even criminal charges. Agustin Arbulu has encountered situations where multiple individuals were held responsible. He notes, 'The RO takes a broad approach aiming to include as many individuals who play some role with the business as a potential “responsible person.”’ Check out this link to learn what to do if the IRS is threatening to hold you liable for your employer's or client's trust fund taxes.

How Much Is the Trust Fund Recovery Penalty Amount?

The Tax Fund Recovery Penalty is not small. In fact, it is equal to the amount of taxes that were unpaid. Once again, that includes any income taxes withheld from an employee’s paycheck plus the employee’s Social Security and Medicare contributions. Note that Social Security and Medicare contributions are also referred to as FICA (Federal Insurance Contributions Act) taxes. Any payments that were timely or designated as being for trust fund taxes only will be subtracted. 

To explain, let’s say you paid an employee $1,000. You noted on the paycheck stub that you withheld $100 for income tax plus the employee portion of $62 for Social Security and $14.50 for Medicare and the employer portion of $62 for Social Security and $14.50 for Medicare. However, you didn’t send any of that money to the IRS. In that case, the unpaid tax bill is $253.00. The employer owes the IRS $253.00. The responsible person owes $176.50 ($100.00 plus the employee portion of $62 for Social Security and $14.50 for Medicare). In summary, you as the employer owe $253.00 plus individually $176.00 as a penalty. 

With a single employee, that can be a lot over an extended period of time. With multiple employees, the numbers can be staggering.

What Happens If the IRS Assesses a Trust Fund Recovery Penalty?

If the IRS believes that a company hasn’t been paying its trust fund taxes, an officer from the IRS starts investigating to figure out who is responsible. As part of that process, the IRS requests multiple documents and lots of information from the company.

That includes bank signature cards, bank statements and canceled checks, but it also includes details about who has passwords for online accounts and who knows PINs for bank cards. The IRS wants to see who’s paying the bills, who controls the money, and where the money is going.

The IRS will likely also request articles of incorporation or partnership contracts to get a sense of the layout of power in the company. Then, when the IRS hones in on a potentially responsible party or parties, the IRS will request an interview with those people.

What Is the Interview for a Trust Fund Recovery Penalty?

There’s a lot to understand about the interview process. Whether you are the owner of a company or just someone the IRS thinks is responsible for the missing taxes, you may be summoned. You might be required to complete a Form 4180 interview to assess the full extent of your job duties and responsibilities. The IRS will determine responsibility based on whether an individual exercised independent judgment with regard to the business finances. If an employee simply pays creditors directed by their manager or boss, they generally won't be held responsible. Remember the 4180 interview is only the first step in determining whether or not to propose assessment of the penalty. Click the links for detailed information on the interview process and how to avoid an interview.

How Can You Settle the Penalty?

Like other types of tax liabilities, there are options to pay this penalty. If you, individually, don’t have the ability to make a full payment, you can apply for a payment plan or an installment agreement. Alternatively, you can try to settle the taxes owed for less than you owe through the Offer in Compromise program or through a partial payment installment agreement.

The important thing is to contact a knowledgeable tax professional who can interface with the IRS to reach an acceptable arrangement before the IRS tries to garnish your wages or seize your assets. You cannot discharge these penalties in bankruptcy.

What Are Non-Trust Fund Taxes?

To get a better understanding of trust-fund taxes, you should understand non-trust fund taxes. Trust fund taxes have that name because employees trust their employers to send the funds to the government on their behalf. Basically, employers are supposed to keep that money in a trust fund until they send it to the IRS. They are not supposed to do anything with the funds.

However, there are also non-trust fund taxes. This refers to the matching employer portion of the employees’ Social Security and Medicare contributions. Those matching amounts are considered non-trust fund taxes.

The IRS typically holds the business responsible for the entire unpaid employment taxes and any withholding of income taxes from employee’s paycheck. Again, in contrast individuals responsible are liable for the employees’ Social Security and Medicare contribution plus income tax withholdings. However, the exact liability rules depend on your business structure. If you’re self-employed (Schedule C) or the sole principal of an LLC, you may be held personally responsible for both trust-fund and non-trust fund taxes.

What Forms Are Involved in the Tax Fund Recovery Penalty?

If the IRS thinks you are responsible, you will receive Letter 1153, the proposed assessment. This comes with Form 2751. If you sign this form, you are admitting liability. Follow the link for more information on these forms and what to expect. Again it is important to contact a tax professional before admitting liability, to explain the consequences and options available. 

What Is the Statute of Limitations on the Trust Fund Recovery Penalty?

If the IRS assesses a penalty, it has up to 10 years to collect it. During that time, the IRS will take your assets if you are responsible.

However, the IRS only has 3 years to assess the penalty. This clock starts ticking on April 15 after the year the trust fund taxes were due to be filed. For instance, let’s say a company was supposed to pay some trust fund taxes in October 2016. The IRS has three years from April 15, 2017 to assess the penalty. If the IRS doesn’t do anything by April 14, 2020, it can’t do anything. After that date, it’s illegal for the IRS to investigate or conduct interviews. 

This is the statute of limitations for auditing payroll tax returns as well. However, it's important to note that there are exceptions to this rule. For instance, if you don't file a return, the clock doesn't start for the statute of limitations. Additionally, the IRS also extended the statute of limitations for certain employer returns that claim the employee retention tax credit. In other words, you may face an ERC audit after the typical deadline, and if the IRS disallows your claim, it may levy penalties on your account. 

Why is the IRS asking me to extend the statute to assess the Trust Fund Recovery Penalty?

If you request a payment plan on payroll taxes and you cannot pay them off by the assessment statute expiration date, the IRS will ask you to sign a waiver to extend the assessment deadline for the Trust Fund Recovery Penalty. If you refuse to sign, the IRS may deny your request for a payment plan. Additionally, if the principals of the business refuse to sign this waiver, the IRS may assess the TFRP against them individually. 

The IRS does not require a TFRP assessment on the Simple Payment Plan, which gives qualifying businesses up to 10 years to pay up to $25,000 in trust fund taxes or up to $50,000 in the case of a sole proprietor who's no longer operating. 

Unpaid Payroll Taxes and the Road to the TFRP

The TFRP is used as a last resort when a business doesn't pay its payroll taxes. Although the exact process can vary, here's an overview of what often happens if a business gets behind on payroll taxes:

• FTD penalties – The IRS assesses failure-to-deposit penalties if a business pays its payroll taxes late. If the business files its returns late, it may also be subject to failure-to-file penalties.
• FTD alerts – If a semi-weekly depositor doesn't deposit payroll taxes or deposits significantly less than usual, the system generates an FTD alert.
• Revenue officer assignment – The IRS assigns all FTD alerts to revenue officers for investigation. 
• Field call – The revenue officer attempts to meet the business owner or other responsible party at their place of business. 
• Letter 5664 – If the owner is not present, the revenue officer will leave this letter for them.
• Letter 5857 – If the revenue officer can't make in-person contact, they'll send Letter 5857 to request a phone call. 
• FTD alert investigation – Either in person or over the phone, the revenue officer will attempt to learn why the deposits haven't been made or why they're lower than usual. 
• FTD case closure – The revenue officer will close the FTD alert case. They'll either note that the taxpayer is in compliance or that they owe taxes that need to be collected.
• TFRP investigation – If the payroll taxes continue to go unpaid, the IRS will start the TFRP investigation process to find responsible persons to assess the tax against. This investigation often starts with the revenue officer using Form 4181 (Questionnaire Relating to Federal Trust Fund Tax Matters of Employer) to collect info about the business's payroll tax payment processes. 
• Form 4180 interview – the IRS requests interviews with potential responsible persons to learn about the role they played in the unpaid taxes. 
• TFRP assessment – The IRS will assess the TFRP against responsible persons. You will receive Letter 1153 and Form 2751 at this point.
• Appeal options – You have appeal rights if the IRS proposes a TFRP assessment against you. 
• Payment or collection actions – If you don't appeal or if the appeal is unsuccessful, you must make arrangements to pay the tax, or the IRS will start involuntary collections against you.

Help with the Trust Fund Recovery Penalty & TaxCure

Here at TaxCure we have compiled a network of tax professionals from around the country with a wide variety of backgrounds resolving various tax problems. We have a unique ranking algorithm that can help taxpayers find the best professionals to help with particular tax problems. To see the top-rated professionals that can help with trust fund recovery penalties, visit this link here. You can see their backgrounds and reach out to them with details on your situation to get more information on how they can help you.

How to Avoid the Trust Fund Recovery Penalty Interview (4180)

If the IRS believes you are responsible for the trust fund taxes, the agency will request a Form 4180 interview with you. A critical part of the TFRP investigation, this interview is designed to help the IRS figure out if you are responsible for the unpaid payroll taxes and to get your help identifying other people who may be responsible. This interview is very serious – the IRS uses the results of this interview to determine whether or not to assess a Trust Fund Recovery Penalty against you. 

At 100% of the unpaid tax, the TFRP is one of the IRS's harshest penalties, and it gets assessed against individuals, not businesses. That means the IRS can go after your personal assets to collect the penalty – there's no protection from an LLC or corporate business structure, and unfortunately, even employees of a company (not just owners) can face this penalty. The IRS can only assess a TFRP against you if the following are true:

• You're a responsible person.
• You acted willfully.

Because so much is at stake, you may want to try to avoid this interview if possible. Here are some tips on how to do that, depending on whether you believe you're liable for the penalty, not liable, or you don't have any money to pay even if you are liable.

How to Avoid the 4180 Interview If You Are Liable

If the IRS requests a 4180 interview, the best way to get out of it is to pay the bill and cancel the interview. You can also admit to liability by signing Form 2751 (Proposed Assessment of Trust Fund Recovery Penalty) and then attempt to set up payments or apply for a settlement.

In particular, if the bill is under $25,000, the business can pay it back over a 24-month period through an in-business express installment agreement. In some cases, you can get longer to pay, but generally, the IRS will require you to extend the statute for TFRP assessment and provide financial details to qualify. Once the business sets up payments, you don’t have to worry about your personal assets being at risk – unless you refuse to sign the statute extension waiver.

How to Avoid the 4180 Interview If You Are Not Liable

If you are not responsible for the payment, you may argue your liability. This can be very difficult, and you should get a tax attorney or an experienced lawyer to help you. Don’t just hire any attorney. You need one experienced with this issue in particular. The lawyer needs to prove that you were not responsible for the unpaid tax even if you were involved with the company’s finances.

If you accidentally signed Form 2751 but you aren’t really liable, a lawyer can help as well. That professional can argue that you were intimidated into signing the form. In other cases, a lawyer can argue that the other employees ganged up on you.

How to Avoid the 4180 Interview If You Don’t Have Any Money

The IRS isn’t into chasing rainbows. If the agency believes that you won’t be able to pay the bill, it will look somewhere else for the funds. To prove to the IRS that you don’t have any money, you need to submit Form 433A.

This is the same form you use when you apply for a settlement on personal tax liabilities. To fill it out, you need all kinds of information about your personal finances. You also need a lot of backup documents (bank statements, mortgages, utility bills, credit cards, etc).

Keep in mind that uncollectibility is hard to prove. You may feel broke, but the IRS may disagree. The agency has no problem taking your personal assets or garnishing your wages as needed.

What If You Can’t Avoid the 4180 Interview?

In some cases, you may not be able to get out of the interview. If you have to go to the interview, it’s important to know what to expect. It is also a good idea to consult with a tax professional to help with the situation. Here at TaxCure we have a large network of tax professionals from around the country and only certain professionals can help with this type of issue. To see the top trust fund recovery penalty professionals, visit this link here which displays the top trust fund recovery penalty pros based upon your unique algorithm.

IRS LT 1058: Final Notice of Intent to Levy – What to Do

Letter 1058 from the IRS is your final notice of intent to levy for unpaid taxes. You have 30 days to respond by setting up payments or requesting a Collection Due Process (CDP) hearing. If you don't take action, the IRS will move forward with garnishing your wages, freezing your bank account, or even seizing physical assets. This is your last warning before those actions take place. Even if you have ignored every other IRS notice, you should pay attention to this one.

Key takeaways

• LT1058 – Final Intent to Levy and Your Right to Request a Hearing
• When it comes – Usually, it comes after Notice CP504. It's always preceded by other collection letters and comes after you have ignored multiple demands for payment.
• What to expect – If you don't respond within 30 days, the IRS will move forward with wage garnishment, freezing your bank account, or even seizing physical assets if the first two options don't cover your tax debt.
• How to respond – Set up payments or apply for relief from the IRS. Or request a Collection Due Process hearing within 30 days to appeal the levy and make payment arrangements. 
• What if you disagree – If you disagree with the IRS seizing your assets, request a hearing. If you disagree with the tax due shown on the notice, you can only appeal through a CPD hearing if you haven't had a chance to do so in the past. Talk with a tax pro if you disagree with this notice.

What Is IRS Letter-1058?

LT1058 is a Final Intent to Levy Notice With Your Right to a Hearing. That means it's the final notice the IRS sends before moving forward with wage garnishment or asset seizure. If you don't respond to this letter, you will wake up one day to a frozen bank account, garnished wages, or even worse, a padlocked business or the IRS seizing your real physical assets. This notice is generally issued by IRS Revenue Officers – in contrast, LT11 is a very similar notice sent by the IRS's Automated Collection System. 

The IRS must send this letter by certified or registered mail to your last known address, or they must hand deliver it to your known dwelling or place of business. Alternatively, they may hand it directly to you. As long as the IRS uses one of those options, they have met their legal requirements under the Internal Revenue Code. If you don't receive the letter for some reason, the IRS can still move forward with the levy.

What Does LT1058 Mean?

In short, this letter means that the IRS wants you to pay now, and if you don't, the agency is going to collect the tax debt without your cooperation (through tax levies and wage garnishments). The letter explains how much you owe, including interest and penalties. It also outlines payment options and explains how to appeal the collection actions by requesting a Collection Due Process (CDP) hearing.

What property can the IRS take?

Letter 1058 often features a list of the assets the IRS may seize. To put it bluntly, the agency can take about everything, including wages (except for a very small exempt amount), bank accounts, investment accounts, retirement accounts, certain types of pensions, Social Security income (not Supplemental Security Income or child's survivor's benefits, and they must leave you a small amount to live on), real or personal property, and other assets. If applicable, the IRS can seize business property ranging from the cash in your cash register to your inventory and equipment. 

There are very few exceptions to what the IRS can seize. The agency generally cannot take unemployment compensation, workers' comp, disability payments, school books, a small amount of personal effects, and certain tools of the trade. The agency generally does not take people's homes or primary vehicles, but there are exceptions where the IRS can seize homes and cars.

How To Appeal Letter 1058

If you don’t agree with the amounts listed in letter 1058, you have a legal right to appeal. To start that process, complete Form 12153, Request for a Collection Due Process or Equivalent Hearing. You must send the IRS that form within 30 days, or you forfeit the right to a CDP hearing. Note that the 30 days start on the date the letter was issued. They do not start the day you receive the letter. To help you, the deadline should be noted in the letter.

What to expect with a CDP hearing

The word "hearing" makes this process sound scarier than it is. If you request a CDP hearing, the IRS will schedule a meeting – usually on the phone – for you to talk with an IRS employee. During the meeting, you get to explain why the IRS shouldn't levy your assets, and you can also present payment options. For example, you can use this time to talk about IRS installment agreements (monthly payment plans), offer in compromise (settle for less than owed, based on limited income or assets), or other payment options. 

Can you appeal the tax due in a CDP hearing

You can only appeal the amount of tax due at the hearing if you haven't had a chance to do so in the past. By the time the IRS sends this letter, most taxpayers have had a chance to appeal the amount of their tax debt. If you can't appeal the tax debt but you disagree with the amount due shown on your notice, talk with a tax professional about your options. Depending on the situation, they may request an offer in compromise based on doubt as to liability, or they may suggest paying in full and then applying for a refund. There are other options as well.

What if you miss the deadline to request a CDP hearing?

If you miss the deadline, the IRS will move forward with levying your assets, and once you're dealing with a frozen account or a wage garnishment, those actions can be hard to reverse. However, you still have the right to request an equivalent hearing. The deadline for an equivalent hearing is one year after the notice was sent. This is similar to a CDP hearing, with one major exception – you can appeal the results of a CDP hearing but not an equivalent hearing.

How to Make Payment

If you are making a full or partial payment, make a check or money order payable to the United States Treasury. Then, mail the payment to the address on the letter. Put your Social Security number (SSN) or Employer Identification Number (EIN) on the memo line so the IRS knows where to apply the payment.

The Risks of Ignoring Letter 1058

If you don’t respond to letter 1058, the IRS may move forward with more serious collection activity. That includes seizing funds from bank accounts, levying personal assets (cars, automobiles, houses, etc), and garnishing wages.

The IRS may also issue a Notice of Federal Tax Lien. That tells creditors that the IRS has the legal right to put a lien on your current or future assets. When a federal lien appears on your credit report, it’s virtually impossible to take out a loan.

What If You're Unable to Pay the Balance

If you can’t pay the balance, you should contact the IRS about making alternative arrangements or reach out to a tax professional on TaxCure using the "find a local tax pro" button at the top of the page. A licensed tax professional can represent you and can help you set up a payment arrangement or submit an offer in compromise.

Depending on your situation, a tax professional may be able to help you appeal the amount that is due, reverse penalties and late fees, and set up a tax resolution. If you have ignored every other notice from the IRS, this is the one you need to pay attention to—fill out the form at the top of the page to get help today. 

How Does the IRS Have the Right to Seize Assets?

I.R.C. § 6331 outlines the IRS's legal rights to seize assets for unpaid taxes. This part of the tax code says that the IRS must give you a 30-day warning before seizing your assets. Letter 1058 serves as this advance warning. This statute also explains that the IRS does not need to provide advance warning if dealing with a jeopardy levy where the collection of the tax is in jeopardy.

What to Do If the IRS Has Already Levied Your Assets

If you received Letter 1058 a while ago and the IRS has already started to levy your assets, there are a variety of ways that the levy can be stopped even after it has started. Every person has a unique situation, and there are methods to stop a levy depending upon your situation.  If your physical property has been seized, you have a limited window of time in which you can buy it back, plus collection costs and interest. For more details on stopping a tax levy after it has already started, please refer to this guide on stopping or releasing a tax levy. If you are dealing with an IRS bank levy, you can read more about ways to stop or release one. To connect with a tax professional who has experience preventing tax levies, visit these search results. 

How to Get Help With IRS Letter 1058

Do not ignore this notice. The final intent to levy notices are the most serious IRS notices, and even if the IRS has done nothing yet, the agency is getting ready to take action now. The IRS has more collection power than any private creditor, and if you ignore its letters, you will face serious consequences. Get help from a tax professional now – using TaxCure, you can search for a pro who has the exact experience you need to move forward from your tax problems. 

IRS Notice CP22A: What This Notice Means and What to Do

What Is a CP22A Notice?

CP22A is an official letter that the IRS sends as confirmation of changes to your tax return. In some cases, the IRS sends this notice when you have requested changes, and in other cases, this notice comes after the IRS has made updates to your return.

What Does the CP22A Notice Mean?

The notice simply explains which changes were made to your tax return and how much you owe (similar to a CP14 notice) as a result of those changes. Typically, CP22A notices deal with changes to your filing status or the number of dependents.

For instance, if you claimed a dependent that the IRS believes you were not entitled to claim, you may receive a CP22A notice.

What If You Don’t Agree with the Amount Owed on a CP22A Notice?

If you don’t agree with the CP22A, you can contact the IRS directly over the phone. Make sure to have the letter and your tax return with you so you can answer any questions.

You also have the right to appeal. Note you must start the appeals process within 60 days.

What If the CP22A Assessment Is Correct?

If the letter is correct, you should update your personal tax records accordingly. That ensures you have an accurate copy of the finalized return that has been submitted to the IRS.

Then, you should send payment to the IRS by the due date specified on the letter.

What If You Can’t Afford Your Tax Payment?

Even if you don’t have the funds to pay the bill, you should contact the IRS by the due date. Failure to contact the agency will result in a late penalty.

However, if you notify the IRS in time, you can avoid the penalty and set up a payment plan. Interest will accrue on the balance as you make payments. If you cannot afford a payment plan with the IRS you can also consider other types of settlements that are available.

What If You Need to Make Additional Changes to Your Return?

If the CP22A doesn’t cover all of the changes you made on your return, you can make additional changes. Simply, file Form 1040X, Amended Individual Income Tax Return.

If you want help appealing a CP22A notice, reach out to a licensed tax professional that has experience with appealing IRS decisions. 

IRS Notice CP297 Intent to Levy: What this Means and What to Do

The CP297 notice is a formal notification that the IRS can levy your assets in 30 days. This notice is almost exactly the same as the CP90 Notice. However, the CP297 is for businesses, while the CP90 is for individuals.

What To Do If You Receive a CP297

You should not ignore this notice. After sending this notice, the agency the legal right to take your assets. To avoid that risk, you should respond or pay within 30 days.

How to Appeal a CP297

If you don’t agree with the notice, you can appeal using Form 12153, Request for a Collection Due Process or Equivalent Hearing.

To appeal, you must be prepared to argue that you do not owe the balance due. You must have a legitimate tax-based reason for the argument, rather than just a general objection.

Unable to Pay a CP297

If you can’t pay your tax bill, you also must respond within 30 days. You may be able to set up a payment plan—keep in mind interest will continue to accrue on the balance while you make payments.

In other cases, you may be able to make an offer in compromise. That is when you settle the bill for less than you owe.

Risks of Ignoring CP297

Ignoring CP297 is not a good idea. The IRS can legally start taking your assets within 30 days. That can include property, vehicles, and income. In most cases, you are only allowed to hold onto essential tools for your trade (up to a certain value). Personally, you can usually keep essential clothing, furnishings, and a primary vehicle.

If the IRS plans to levy your Social Security benefits in particular, you may receive notice CP298. Note that the agency can take 15% of your payments, but it cannot take supplemental Social Security payments.

What is a Tax Levy?

A levy is imposed by the IRS, permitting the seizure of property to cover the tax liability owed. The IRS can impose a levy to garnish wages, seize bank account funds, withhold refunds, seize real estate, and more. 

Stopping a Levy

If the IRS has already started to levy your assets there are a variety of ways that the levy can be stopped even after it has started. Every person has a unique situation and there are methods to stop a levy depending upon your situation.  For more details on stopping a tax levy after it has already started, please refer to this guide on stopping or releasing a tax levy.

Getting Help With Unpaid Taxes & TaxCure

If you have received a CP297 notice, consider contacting a licensed tax professional for help. TaxCure can help match you with qualified tax professionals based on your unique situation. We have a unique ranking algorithm that can help you find the top tax professionals that can assist with various problems. To see the top tax professionals that can help with unpaid taxes and potential tax levies, start your search here to be assured you talk with the best professional. 

Qualifying and Requesting IRS First Time Penalty Abatement Waiver

First-time penalty abatement (FTA) is when the IRS removes penalties from your taxes owed. That includes penalties for failure to file, failure to pay, and failure to deposit. The IRS also removes interest related to those penalties. It applies to the tax periods ending after December 31st, 2000, and it is sometimes called one-time forgiveness. In March 2023, the Internal Revenue Manual was updated with changes to the FTA program (discussed below), and starting in 2026, the IRS began offering automatic first-time penalty abatement to tax returns from tax years 2025 and moving forward.

Key takeaways

• First-time abatement applies to failure to deposit, failure to file, and failure to pay penalties.
• The IRS offers FTA automatically for qualifying individual and business taxpayers, as of filing season 2026.
• To qualify, you must not have incurred any penalties the three previous tax years. 
• If you don't qualify for automatic FTA, you may want to apply for penalty relief based on reasonable cause. 

Which Penalties Does the First Time Penalty Abatement Cover?

The FTA erases failure-to-file penalties for 1040s (individuals), 1065s (partnerships), and1120-Ss (S-Corps). The penalty is 5% of your balance per month and can get up to 25% of your balance.

The FTA also eliminates the failure-to-pay penalty for 1040s (individuals). This penalty is 1/2 percent (.5%) of your outstanding taxes owed per month. It increases to 1% of your balance after a certain period of delinquency and drops down to 0.25% monthly if you set up an installment agreement. This penalty can also get up to 25% of your balance. 

 If you have failure-to-pay or file penalties related to an audit, you may be able to get rid of those as well (but not accuracy-related penalties).

Finally, the FTA also erases penalties related to a Failure to Deposit (941s) regarding payroll taxes (employment taxes).  This would include things such as the deposit wasn’t made timely, for the correct amount, or in the correct manner.

How to Qualify for the First Time Penalty Abatement (FTA)

FTA is offered automatically as of 2026, but to qualify for this penalty abatement, you must meet three basic criteria:

1. You incurred no penalties or penalty abatements for the three prior tax years to the year you are requesting an FTA for. If you incurred penalties for underpaying estimated tax in previous years, don’t worry. The IRS does not take those penalties into account. You can still qualify for the first-time penalty abatement. If you were only required to file this type of return for fewer than three years, the IRS will only take that time period into account. 

2. You have filed an original return for the year you are requesting an FTA for and the 3 prior years.

For business taxpayers, the IRS also considers whether you've incurred four or more failure to deposit waiver codes in the last three tax years and whether you've incurred a failure to deposit penalty for EFTPS avoidance. If so, you will not qualify for FTA.

Eligibility for First Time Penalty Abatement Tool

This quick tool walks you through a few simple questions to help you determine whether you may qualify for FTA based on IRS guidelines. If you are eligible, you should receive automatic relief, but if not, you can use TaxCure to find a local professional who can help with the request. If you are not eligible, we will show you the next steps you can take to get there.

How to Apply for a First Time Penalty Abatement

Before the IRS started offering automatic first-time relief, taxpayers could apply for first-time penalty abatement online, in writing–check out this sample abatement letter, or over the phone. In most cases, if you don't receive relief automatically, you can make the request over the phone but you can leverage Form 843.  

In some cases, if you qualify, the IRS removes the penalties on the spot. In other cases, the IRS agrees to remove the penalties, but it does not do so until the tax owed is paid in full. To get an FTA, the taxpayer has to have an outstanding balance or the RSED (refund statute expiration date) for the FTA year in question cannot be expired.

If the IRS refuses to remove the penalties right away, you will continue to see the penalties growing. As long as you qualify for the abatement, you don’t have to worry about that. The penalties will be removed eventually.

How Much Can Be Abated

The IRS only removes penalties incurred in the first year. There is a monetary limit on the number of penalties that can be removed. The agency has not published a limit, but it appears to be up to $10,000 for most phone calls. Taxpayers can get an FTA over $10,000 but generally requires the request in writing. Furthermore, the IRS allows the FTA once every four years.

Abatement for Penalties More Than a Year Old

If you have tax penalties that extend back more than a year, or you intend to abate other types of penalties (e.g. Accuracy Related Penalty) the IRS will only remove them if you show “reasonable cause.” That means that you had a serious reason for not paying or filing your taxes. To qualify, the situation must be out of your control. However, you must also show that you took steps to get past the issue. Basically, the IRS wants to see that you really tried to comply, but that it truly wasn’t possible. In most cases, you will want to leverage Form 843 and attach a letter explaining the circumstances showing why you were unable to comply.

Examples of Reasonable Cause

There are a number of situations that can constitute reasonable cause. Here are some of the most common reasons accepted by the IRS:

• Records destroyed by flood, fire, or natural disaster
• Inability to calculate the amount owed due to a lack of records
• You were in Rehab or Prison
• You were held hostage in another country
• A close family member (spouse, child, etc) died
• A civil disturbance such as a mail strike prevented you from making payment
• You received bad information from a tax professional
• Bad advice from an IRS representative

In many cases, you may want to appeal or have a tax professional appeal on your behalf if a penalty abatement request is initially denied. Some important questions to consider: 

• Do you have good reason that relates to why you were unable to comply?
• Do the dates and times coincide?
• If business related, can you show documentation that shows that business care or prudence was used?
• Have you abated tax penalties in the past and what is your compliance history?

In some cases, you can even receive an abatement for an error. However, you need to demonstrate that the error was made in good faith. The IRS may also accept other reasons. You should show that the issue created a situation where you truly couldn’t pay or file on time.

The IRS offers first-time penalty abatement and abatement for reasonable cause for other years or other types of penalties. However, many taxpayers don’t even know about these programs.

If you are looking for assistance with a tax professional who has penalty abatement experience, start a search below. Or keep reading to learn more about common reasons the IRS abates penalties.

FAQs About First-Time Penalty Abatement

Do you have to apply for first-time penalty abatement?

No, for tax years 2025 and on, the IRS plans to automatically apply first-time abatement for qualifying taxpayers. For returns related to tax years prior to 2025, taxpayers had to ask for abatement by calling the IRS, writing a letter, or sending in Form 843.

What if you don't qualify for first-time abatement?

Then, you should look into other options for penalty abatement. The IRS may waive penalties if you have reasonable cause, which is when a serious issue out of your control prevents you from paying or filing taxes on time. The IRS also offers penalty waivers if you paid, filed, or deposited late due to erroneous advice from the IRS. 

Can you only get first-time abatement once?

No, you can get first-time abatement multiple times, but only every four years. To qualify, you cannot have any penalties during the last three filing years. Although this type of relief is available periodically, the IRS uses the phrase "first-time" and tax relief companies often refer to it as "one-time" forgiveness, leading to even more confusion.

 

 

The Benefits of Paying Taxes In Full

Paying tax liabilities in full simply means that you pay your tax balance with a single payment. If you can afford to do this, it is the best option. If you have the funds, the IRS will require you to take this route whether you want to or not.

Even if you don’t have the money on hand, you may want to consider taking out a bank loan or borrowing from friends or family. Paying taxes in full offers numerous benefits. However, be careful when making the payment. Whether you pay online or through the mail, make sure you correctly mark the payment for the tax year you're trying to pay — otherwise, the IRS may apply the payment to the current tax year or to a previous year where you owe a tax liability, and it can be hard to fix payments made to the wrong year.

If none of the options work for you below and you cannot pay in full, there are more options for those that can't pay taxes. 

Avoid Interest and Fees

Penalties

The main benefit of paying overdue taxes in full is that you avoid interest and penalties. That can save a lot of money. The failure to pay penalty is 0.5% of your balance every month. That equates to more than 6% interest per year. That penalty also increases to 1% per month if the IRS issues an immediate demand for payment due to a jeopardy assessment or 10 days after a notice of intent to levy notice.

Interest Charges

In addition, unpaid taxes accrue interest on a daily basis. The interest rate is 3% plus the current short-term federal funds rate.

If you take out a low-interest loan to pay your tax bill in full, you will save money. Of course, if you can obtain an interest-free loan from your friends or family, you will save even more money.

If you can only pay the taxes in full by using a credit card, you may want to avoid that unless you are sure you can pay off the balance quickly – here's what to consider if using a credit card. To decide, compare the interest rate on the card to the fees and interest you face from the IRS. For example, if your credit card interest rate is only 4%, slap the taxes owed on plastic. On the other hand, if your rate is 19%, it makes sense to explore other options.

Sidestep Installment Plan Fees

Entering into an installment plan or a payment plan also involves extra fees, and if you pay late taxes in full, you avoid those fees. As of 2017, fees for new installment agreements are between $31 and $225. Plus, while you make the payments, interest and penalties continue to accrue on the taxes owed.

No-Risk of Defaulting on Agreement

If you decide to enter an installment agreement, the IRS is not flexible about late payments. If your check doesn’t make it on time or if the check bounces, the IRS terminates your agreement, and you have to pay anywhere from $43 (low income) to an $83 reinstatement fee to get back on the plan.

A lot of people use direct debit for their installment payments, but that approach can also be problematic. The IRS doesn’t send out monthly reminders, and if you forget to have the money in your account and the payment doesn’t go through, your installment plan goes into default.

When you pay taxes in full, you avoid the risk and expenses associated with defaulting on a payment agreement. In most cases, if you’re paying a lender or a family member instead, you get a bit more flexibility on your payment schedule.

Prevent a Lien

If you owe over $10,000 or if your tax bill is seriously delinquent, the IRS puts a lien on your assets. This is called a Notice of Federal Tax Lien, and it has a very negative effect on your ability to obtain credit. Even though they no longer show on your credit report, lenders still have ways to find out if the IRS has placed a lien on your assets. To put it into perspective, it’s as bad as repossessions or judgments.

With a tax lien filed against you, it’s very hard to obtain car loans, mortgages, credit cards, and other types of financing. If you can find a lender to approve a loan, you will be classed as high risk and subject to a high-interest rate.

If you pay in full, you don't have to worry about a lien being filed. In addition, if there’s already a tax lien filed, the IRS removes it within 30 days of receiving your payment. You can also get liens removed with payment plans, but there are a few more hoops to jump through.

Easier Process

It’s significantly easier to pay in full than to deal with any other arrangement. There is no paperwork or website forms to worry about. You just make the payment, and it’s done.

Future Access to Installment Plans

Paying off your taxes in full also opens the door to being approved for an installment plan in the future.

Generally, if you owe less than $10,000 and you apply for an installment plan, the IRS automatically approves the request. However, if you have a history of filing late returns or if you have used an installment plan in the last five years, your request will not automatically be approved.

Even if you don’t plan to pay future taxes late, you may want to pay in full now to be on the safe side. That way, you can save your “free chance” for an installment plan for another year.

Access to Refunds

Finally, having taxes owed prevents you from receiving refunds. If you become eligible for a refund, the IRS just keeps the money and applies it to your outstanding taxes.

If you can get the funds, paying your taxes in full is your best option. That said, most people aren’t that lucky. If you’re dealing with taxes owed, look at the top professionals in our network that help with unpaid taxes (and apply a filter for a state issue if you have one as well).

IRS Form 656-B: Instructions for Requesting an Offer in Compromise

When you cannot pay your taxes owed in full, but you do have some resources from which to make payments toward your taxes owed, you may choose to apply to the IRS for an Offer in Compromise (OIC).

You can also apply for an Offer in Compromise if paying your entire tax amount owed would cause you economic hardship, would be unfair or inequitable, or because you have insufficient assets and income to pay the full amount of the taxes owed.

An Offer in Compromise allows you to settle your taxes owed with the IRS for an amount that is less than the full amount that you owe.

Basic Guidelines for Requesting an OIC

To request an Offer in Compromise from the IRS, you must fill out and submit IRS Form 656-B. It is highly recommended you work with a tax professional as the process is not easy.  The IRS OIC booklet includes Form 656, Form 433-A (OIC) which is for individuals, and Form 433-B (OIC) which is for businesses. This is when your offer is based on doubt as to collectibility or effective tax administration.

To complete your application on the former basis, you must pay a $186 non-refundable application fee as well as a payment toward your taxes. The amount of your initial payment may vary. You have the option of paying either:

• 20% of the initial offer amount with your application, with the offer amount to be paid in full once the IRS accepts your offer, or
• initial monthly payment, which you continue to pay each month while the IRS considers your application, as well as after the IRS accepts your offer. Generally, the payment period is from 6 to 24 months or when the CSEDs expire, whichever comes first.

However, if you meet the Low-Income Certification guidelines of the IRS, you will not need to pay the $186 application fee or make an initial monthly payment until the IRS accepts your offer. After the IRS accepts your offer, you must then begin making payments toward your compromised taxes.

Completing Form 656

In order to complete Form 656, you will need to gather certain information about the taxes, interest, and penalties that you owe, as well as the tax years or periods for which you owe those taxes.

Section 1: Your Contact Information

This section of Form 656 asks for basic contact information for you, your spouse and/or your business, including names, addresses, social security numbers, and employer identification numbers.

Section 2: Tax Periods

Choose the type of tax, tax return(s), and tax period(s) that you are including in your application for an Offer in Compromise. If you need more room than provided on the form, you can attach an additional page or pages, which you should title “Attachment to Form 656 dated ____________.”

Section 3: Reason for Offer

Select one of the following two options as the reason for your Offer in Compromise:

• Doubt as to Collectibility (insufficient assets and income to pay)
• Exceptional Circumstances (paying taxes owed would cause economic hardship or would be unfair and inequitable)

If you choose the “Exceptional Circumstances” option, you must include a written statement explaining your exceptional circumstances to the IRS. You also should attach any documentation of your circumstances. For instance, if you have a serious illness that impairs your ability to work and causes you extensive medical expenses, you could attach medical reports and bills in order to help prove that you have a serious illness.

Section 4: Low Income Certification (Individuals Only)

Only individuals, not businesses, can complete this section of Form 656. You must evaluate your family size, geographical location, and your applicable monthly gross household income in order to determine whether you qualify for low-income certification.

If you qualify for low-income certification according to the IRS guidelines, then you will not have to pay the Offer in Compromise application fee, and you may not have to make a payment toward your taxes while the IRS is in the process of considering your application.

Section 5: Payment Terms

In this section, you first must provide the IRS with the amount of your total offer of payment toward our taxes owed. You then have two different payments options from which to choose:

• Payment Option 1 – Payment of offer in five or fewer monthly payments
  • You must include a check for 20% of your offer amount, unless you are an individual and eligible for low-income certification.
  • You also must fill in the dates and amounts of your future payments.
• Payment Option 2 – Payment of offer in more than five monthly payments
  • You must include a check for the amount of one monthly payment, unless you are an individual and eligible for low-income certification.
  • You also must fill in the amount of your monthly payment, the day of the month on which you will make your payment, and the total number of months that you will make payments in order to pay off your order amount.
  • You must continue to make the monthly payments while the IRS is considering your application for an Offer in Compromise.

Section 6: Designation of Down Payment and Deposit (Optional)

This section of Form 656 is optional for you to complete. If you wish, you can have the payment included with your application applied to a specific tax amount from a specific tax year. You can also pay more than your required initial payment, and have that amount designated as a deposit on your Offer in Compromise.

Section 7: Source of Funds

In this section, you must describe the source of the funds that you will use to make payments toward your taxes owed, whether it is money that you have borrowed from family or friends, a bank loan, or the proceeds from selling your property.

Section 8: Offer Terms

There is no information for you to provide in this section of Form 656. Rather, this section sets forth all of the terms and conditions of making an Offer in Compromise. More specifically, this section details all of your rights and responsibilities with respect to making an Offer in Compromise and the consequences of failing to meet the requirements of an Offer in Compromise.

Section 9: Signatures

In this section, you must sign and date Form 656 under oath. If you are filing an Offer in Compromise jointly with your spouse, he or she must also sign and date the form.

Section 10: Paid Preparer Use Only

This section is to be completed only if you are using a paid preparer for your Offer in Compromise application.

Section 11: Third Party Designee

In this section, you can authorize the IRS to discuss your Offer in Compromise application with another person whom you designate.

Submitting Form 656 to the IRS

Once you have completed Form 656, you must submit it to the IRS with the rest of your application packet, including Form 433-A or Form 433-B, your application fee, and your initial payment fee. The IRS then will consider your Offer in Compromise application and determine whether you are entitled to pay your offer amount rather than the full amount of your taxes.

Getting Help with IRS Form 656

Completing and getting form 656 accepted is not an easy task for someone without experience. It is suggested to consult with an OIC tax professional when doing this type of filing to increase your chances. A tax professional can also analyze your situation and make a determination if you are a good candidate for an offer in compromise. If you are, they can help with the filing.

If you aren't, they can suggest other alternatives such as applying for separation of liability if your ex-spouse was responsible for the issue. Here at TaxCure, we have a unique ranking algorithm that allows you to find the top professionals based upon specific problems and solutions you are looking for. To see the top-rated tax professionals that can help with an offer in compromise, visit this link here for top-rated IRS offer in compromise experts, or start your search below.

IRS CP501: Reminder of Balance Due – What Happens Next

IRS Notice CP501 is a demand for payment – the IRS wants you to set up payments on your unpaid taxes. If you ignore this notice, the IRS will add more interest and penalties to your account. The agency will also seize future tax refunds from the IRS or the state. However, at this point, you still have some time – the agency must send you additional notices before seizing assets or garnishing wages. 

To get help with your unpaid taxes, use TaxCure to find a local tax professional. Or, keep reading to learn more about this notice.

Key takeaways

• CP501 – You have unpaid taxes; make arrangements with the IRS.
• When it comes – This is typically the second collection notice. 
• What to expect – More interest and penalties, risk of wage garnishment or asset seizure after additional notices.
• How to respond – Contact the IRS to set up payments or apply for a settlement.
• What if you disagree – Contact the IRS ASAP if you disagree with the balance due or other details on the notice.

To get a sense of what the CP501 looks like, take a look at . Then, keep reading to see what you should do with this notice.

What Is IRS Notice CP501? 

CP501 is a demand for payment. It's usually the second notice taxpayers receive when they owe money to the IRS. The notice states how much you owe, including penalties and interest. It outlines how to respond in different scenarios and explains what happens if you ignore the letter. It also tells you how to contact the IRS. Here's a sample CP501 notice.

What Should You Do If You Receive CP501?

The main options are to pay in full, contact the IRS for payment arrangements, or dispute the notice.  You can also ignore this notice if you've already paid in full or in certain other situations. Here are more details on each of those options:

Pay in full

If you can afford to pay the entire balance, merely detach the payment stub, write a check or money order to the United States Treasury, and mail the payment to the address on the notice. Make sure to put your Social Security number, the tax year, and the tax form you filed on the check. You can also pay online. The new notices for CP501, which started going out in November 2023, now have a QR code that you can scan and make a payment right from your phone.

Make payment arrangements or apply for relief

If you can’t pay the balance in full, contact the IRS immediately to discuss other options. Here are the main payment and relief options:

• IRS Installment Agreement: An installment agreement lets you pay off your taxes in manageable monthly payments. There are a few different types of installment agreements, but if you owe under $50,000, you can generally set up payments online.
• IRS Hardship: If you can prove that paying the tax would cause financial hardship, the IRS will put a temporary stop to all collection activity. This agreement is called an IRS hardship, uncollectible, currently not collectible (CNC), or status 53. Mostly, you have to show the IRS that you can’t afford to cover the tax owed and your essential living expenses.
• Offer in Compromise: With an offer in compromise, you settle the taxes owed for less than the total balance. You have to meet strict income and asset requirements to qualify for this arrangement. Consider working with a professional, as most offer-in-compromise applications are rejected by the IRS.

In addition to the ideas above, you should request penalty abatement. The IRS often waives penalties if taxpayers have a history of compliance or if they had reasonable cause for paying the tax late.

Dispute the tax due or other errors

If you disagree with the tax due, the penalties assessed, or any other information on the notice, contact the IRS directly at the number provided on the form. When you speak to an IRS agent, they will let you know your options. Contact a tax resolution specialist to help you if you want assistance in dealing with the IRS – an experienced tax pro is critical if you want to dispute the amount owed.

Ignore the notice

If you receive a CP501 notice and any of the following are true, you can disregard it:

• You have paid your balance in full in the last 21 days.
• You are already making payments on that tax amount through an installment agreement.
• You're on currently not collectible (CNC) status, and the IRS has suspended collections against you.
• You are in the midst of filing bankruptcy, and a stay has been issued to your creditors.

However, to be on the safe side, you should check your IRS account and make sure that the IRS received your payment, your installment agreement or CNC status is still active, or that the IRS has been notified about your bankruptcy case.

What If You Ignore Notice CP501?

If you ignore this notice because you've already paid in full or already set up payments, nothing will happen. Again, however, in those situations, you may want to contact the IRS to make sure they got your payment. If you ignore this notice and you haven't made arrangements for your tax debt, here's what can happen:

• Additional collection notices – The IRS will typically send the CP503 notice about six weeks later. If you ignore that notice, the agency will continue the collection process as follows.
• Refund offset – If you file a federal or state tax return showing a refund, the IRS can seize the refund. The agency may send a CP504 about the refund offset, but the agency doesn't need to give you advance warning.
• Loss of passport – The IRS can take your passport if you have a seriously delinquent tax debt – $65,000 or over as of 2025. Typically, the agency sends CP504B about this.
• Tax levies – The IRS can eventually freeze your bank account, garnish your wages, or seize physical assets if you don't pay your taxes, but they must first send you a Final Notice of Intent to Levy.

When you don't pay taxes, the IRS can issue tax liens that attach to all of your assets, and the agency can go after assets more easily and more extremely than almost any other creditors. Additionally, interest and penalties will continue to accrue on your account.

 If you try to sell or transfer assets, the lien will appear on the title search and complicate the asset transfer. Generally, you will not be able to get the proceeds from any asset sales – instead, the proceeds will be sent to the IRS before the title can transfer.

When Is the Due Date for Notice CP501?

Generally, payment is due within 21 days of the notice issue date, but if your balance is over $100,000, it is due within ten days. The due date is near the bottom of the first page on the detachable payment stub.

What Are the Penalties for Ignoring Notice CP501?

If you don’t pay, the IRS will continue to assess interest and the failure to pay penalty on your account. The penalty is 1/2% of your total balance every month, up to a total of 25% of the balance. For instance, if you owe $10,000, the monthly penalty is $50, and the IRS can add penalties worth up to $2,500. Interest accrues on top of these penalties. Eventually, your failure-to-pay penalty can increase to 1% of your balance per month. For instance, if you owe $10,000, your monthly penalty rises to $100. 

How to Get Help With Unpaid Taxes

To get help, reach out to a tax professional on our site who has IRS experience. You can find them here. 

CP 88 Notice: Delinquent Return Refund Hold – Meaning & Actions Needed

As a general rule, individuals who fail to file their tax returns as required often find themselves in hot water with the IRS. Although the negative consequences of not handling your taxes properly may not be felt immediately, sooner or later, the IRS will catch up with individuals who have failed to file tax returns in the past. Whether your failure to file was intentional or you inadvertently made mistakes when filing past returns, the IRS has the right to hold future refunds until issues from the past are resolved.

How do you know if there are issues with your refund?

If you have filed your tax return and are expecting a refund, you may be surprised when you do not receive it. Some taxpayers are aware of situations that may result in the garnishment of tax refunds, such as prior tax bills that are still owed or past child support issues. If you are unaware of any such issues, you might not understand why you are not receiving your refund as anticipated.

What is a CP-88 Notice?

When the IRS holds a tax refund, they do not do so without notifying the intended recipient of their actions. If your refund is being held by the IRS as a result of past filing issues, you will receive Notice CP-88 from the IRS.

What does this letter mean?

Basically, anyone receiving a CP-88 Notice from the IRS is being notified that the IRS has processed your tax return and your refund is being held due to your failure to file the taxes for the previous tax year.

What steps need to be taken next?

Once you have received the CP-88 Notice, you will have to gather past documents that are missing and file any past due tax returns. If you have filed all past returns, you may be wondering why you have received this notice. In this situation the IRS may not have received all the documents making your previous returns unable to be processed. In any event, you will have to contact the IRS to determine what information is missing if you want to receive your refund. Understand that once your past returns are processed, any tax liabilities owed may be deducted from your return.

Is there a time frame in which to respond?

The notice you received may not provide a deadline for response. This is because there is no set time frame in which you are required to reply, however the longer it takes to resolve the issue, the longer it will take to receive your refund. In addition, any tax liabilities that may be owed will continue to accrue interest and penalties until resolved. For these reasons, it is in your best interest to respond as soon as possible to find out what you have to do to square up with the IRS.

Where do I find contact information?

All contact information regarding this notice will be printed at the top of the letter. Using the contact information provided, call the IRS as soon as possible to learn what steps must be taken to resolve this issue. If you have already addressed these issues in the past, you may have to explain this to the IRS representative who might refer you to the Office of Taxpayer Advocate for further arbitration.

You can find a list of qualified licensed tax professionals who can resolve your tax problems here or can start a new search by visiting our homepage.