You’ve received an IRS Notice CP14. What does this mean and how should you respond? Here is what you need to know.
Most letters from the IRS don’t bode well – but IRS Notice CP14 is an exceptionally notorious example, as it means that the IRS has found that your tax account currently has a balance due with the federal government. In other words, you have a tax debt to settle due to unpaid taxes.
This is not an indictment. Even on the IRS’s part, simple mistakes and miscalculations can lead to a small tax debt. If you owe unpaid taxes, then your first steps should be to take a deep breath and read on.
How could this have happened?
There are a few reasons a taxpayer may incur a tax debt with the IRS, even after sending in their quarterly checks or getting their taxes withheld on every paycheck. Mistakes on your tax return, for example, can lead to more taxes than you might have expected to pay.
Thankfully, Notice CP14 is not a last warning letter from the IRS. Most of the time, your IRS Notice CP14 will include a few key bits of information that are critically important:
The date your tax debt was assessed.
The exact amount due.
The due date for you to cover said amount.
What Will the IRS Do Next?
It will wait for a response.
For the IRS, the best-case scenario is that a taxpayer receiving the notice will pay their due balance. You can do so via a mailed check, by visiting an IRS office, or, most conveniently, over the internet. No fuss, no muss, and you’re avoiding any potential penalties or interest rates that might otherwise be headed your way.
If you ignore the IRS Notice CP14 or wait too long, the IRS will begin applying pressure on your account by raising your debt with monthly penalties. The monthly penalty for failing to pay the full amount of your owed taxes by the due date is 0.5 percent, up to a cumulative 25 percent after fifty months. If you’re late by even a few days, that first 0.5 percent will apply.
In addition to penalties, your balance owed will begin to incur interest. The interest rate for a debt with the IRS depends on a quarterly rate change, which can be reviewed online via the IRS’s newsroom page.
What Is A CP14 Notice?
A CP14 notice is a letter sent by the Internal Revenue Service (IRS) informing you that you owe money on unpaid taxes.
This is the most common notice sent to taxpayers, and it’s a formal letter letting the taxpayer know that they owe the IRS $5 or more. The notice will usually contain a detailed explanation of any interest and penalties that have accrued to date and how they were calculated. The CP14 notice will outline how much is owed to the IRS as well as how to pay and payment plan options.
If you receive a CP14 notice, you should either pay the amount you owe, establish a payment plan, or call the IRS if you disagree with the amount. If you miss the deadline specified in the notice, the IRS may take further actions.
How You Should Respond to IRS Notice CP14
As your debt grows, the IRS may resort to increasingly invasive collection efforts. Because these collection efforts can severely hamper your ability to gain financing and indirectly affect your credit, not to mention lead to future bank levies, it’s usually advised to work with the IRS (through an experienced tax professional) to pay off your debt as soon as possible.
With assistance, you can seek financing to pay off your IRS balance. Under most circumstances, banks offer lower monthly interest rates than the federal government does.
Ignoring the IRS Notice CP14, or taking too long to respond, is a bad idea. If you feel that the IRS made a mistake, and if you can prove (or wish to prove) that you do not owe additional taxes, speak with a tax professional as soon as possible.
You do have the option of appealing your debt with the IRS in an independent appeals process, and if that fails, you can still take the IRS on in US tax court.
Note that litigation is not a preferred method for dealing with the IRS, especially if the debt is insignificant or if the details of the situation are rather straightforward. But if you feel a mistake has been made, discussing it with the IRS via a tax attorney or tax advocate may lead to the elimination of your debt.
Alternatively, you should enter into a payment plan with the IRS as soon as you can. Entering into a payment plan with the IRS reduces your interest rate and monthly penalties and can even lead to a tax lien release (if the IRS has placed one federal tax lien on you).
Payment plans with the IRS are either:
An immediate pay-now plan;
A short-term payment plan, lasting less than 120 or 180 days (after extension – paid in multiple lump sums);
A long-term payment plan lasting more than 120 or 180 days (after extension – paid via monthly installments).
If you have not previously been in debt with the IRS, and have never defaulted on an installment agreement or IRS payment plan, then you can seek to get your penalties written off as a first-time courtesy. This way, the remaining balance of your debt is reduced to what it was originally on the IRS Notice CP14.
Note that you can technically owe money to the IRS several times if you missed payments or made mistakes on your return on multiple occasions. You can consolidate these debts into one payment plan by speaking with the IRS.
If you are also late with your tax returns or have missed several tax returns, the IRS will inform you that you must file these as soon as possible before being allowed to enter into a payment plan.
Do not make the mistake of failing to file your return because you cannot pay your back taxes. Even if you’re in debt with the IRS, you need to continue to file your tax returns to be eligible to qualify for a payment plan.
If your tax debt continues to grow and becomes unmanageable – or if a massive financial setback has you in dire straits, without the means to pay the government what you owe – then you’ve found yourself in a truly desperate position.
Thankfully, there are ways to negotiate for a reduced debt with the IRS. The first is to work with a tax expert to write up an offer in compromise.
This is a payment plan drafted by the indebted taxpayer to the IRS, based on what they are financially capable of paying monthly until the tax debt reaches its statute of limitations (10 years after the tax filing and assessment date, plus tolling periods).
You can also use an IRS pre-qualifying tool to determine if you might be eligible. Note that this is no guarantee that the IRS will accept your offer. Your tax debt will continue to grow while the IRS deliberates your offer.
If you need an immediate reprieve from the IRS’s collection efforts, you can also consider filing as currently not collectible. If eligible, the IRS will halt any levies filed against you until your financial situation improves. Your tax debt will not age during this time (but will continue to accumulate penalties and interest).
If you have received an IRS Notice CP14, contact the professional tax attorneys at Rush Tax Resolution today.