The first IRS letter that you will receive when you owe back taxes demands money – all of it -right now! It is guaranteed to ruin your day, but we can help. We know the IRS because we were the IRS for many years.
The First Collection/Balance Due Demand Letter is CP501/CP502 and it is scary for most people.
Taxpayers receive Notice CP501/CP502 when they owe taxes to the IRS. Usually, incorrect deductions or credits, or excluding certain income on a return can lead to a tax debt. The notice provides information on taxes owed (including penalties and interest) and instructions for payment.
What the Notice Contains
The notice has information about the taxes owed, including penalties, interest, and the total amount due. The notice specifies the due date for the tax liability. If the amount is not paid in time, the IRS charges additional penalties and interest. The notice also includes the notice date, the IRS contact number, and the tax year for which the balance is owed.
How to Pay
The simplest method to pay the amount owed is through the IRS Direct Pay, or using your debit or credit card. You may use the IRS payments page to access these payment options.
If you make the payment by check or money order, make it payable to the United States Treasury. Include the following with your payment or correspondence:
• Your social security number
• The tax year for which taxes are due
• The form number for which taxes are due (e.g. 1040)
If You Cannot Pay
If you cannot pay the full amount due, you may consider these IRS payment plans: Installment Agreement and Offer in Compromise. There are various kinds of Installment Agreements, each designed to suit different financial limitations.
An Installment Agreement allows you to pay your taxes in fixed monthly installments. Penalties and interest continue to be charged on the taxes due, but making a larger payment initially can bring them down significantly. However, if you cannot pay the full amount due, you may consider applying for an IRS tax debt reduction plan called the Partial Payment Installment Agreement.
The Offer in Compromise is a tax debt reduction plan open to individuals that cannot afford to pay their full balance. Typically the IRS will require the taxpayer to provide them with a financial statement, itemizing expenses and assets. This is done to determine the taxpayer’s ability to pay. When attempting a tax debt reduction, it is advisable to use the services of a tax professional.
We at RMS Tax Consulting are Enrolled Agents licensed directly by the IRS to help you. Call Richard Schickel at 520-448-3531 today and get your free evaluation.