What to Expect If You Receive IRS Notice CP501

Notice CP501 is typically the second reminder that most individuals receive if they don’t pay their taxes. At this point, the IRS is assessing interest and penalties on your account, but generally, you will receive other notices before the agency starts enforcing collection actions. 

However, that doesn’t mean you should ignore this notice. The longer you wait to pay your tax bill, the worse the situation can get. To get help now, contact us today. 

At the W Tax Group, our tax attorneys work closely with our clients to help them get the best resolution possible for their tax issues. If you’re receiving notices, you are on the IRS’s radar, and to protect yourself, you should make arrangements to take care of your tax liability as soon as possible. 

What Does Notice CP501 Mean?

IRS Notice CP501 means that you owe money to the IRS. The IRS sends this notice to people who have failed to respond to the IRS’s other notices.

The CP501 notice shows how much you owe in tax, interest, and penalties. It also outlines your options for resolving the tax debt. 

CP501: The Start of the Automated Collection Service

CP501 comes from the IRS’s Automated Collection Service (ACS). This indicates that a specific agent has not been assigned to your account. Instead, the agency is sending you notices automatically, and if you call in, you’ll be routed to an employee in a call center. 

Dealing with the ACS can often be more frustrating than dealing directly with an IRS agent. Unfortunately, the staff at the IRS call centers often have the least training, and they may not understand all of the best options for resolving your tax debt. 

Typically, you receive CP501, CP 503, and CP504 through the automated system. If you don’t pay, you will usually receive CP90 (Final Notice of Intent to Levy). This notice may come from the automated system or from a revenue agent. 

What If You Don’t Agree With the Tax Debt on CP501

If you don’t agree with the information on CP501, there are a few different steps you can take. Here are the main options based on what you disagree with. 

• If you already paid the tax bill — The IRS may have sent this notice before it credited the payment to your account. Contact the IRS directly. Also, make sure that the payment cleared your bank. 
• If you disagree with the tax liability — You have the right to appeal if you disagree with the tax liability shown on your notice. However, the appeals process has strict rules and deadlines, and if you don’t contact the IRS immediately, you may lose your chance to appeal.
• If you disagree with the penalties — You can qualify for penalty abatement if the penalties were assessed incorrectly. You may also qualify if these are first-time penalties or if you can prove that you had a reasonable cause for paying or filing late. 
• If you think only your (ex)spouse should owe the tax — If the tax due is related exclusively to actions your spouse took without your knowledge, you may qualify for Innocent Spouse Relief. This program gives you relief from your spouse or ex-spouse’s portion of the tax liability.

What If You Agree With the Tax Liability on CP501

If you agree with the tax bill, you can pay it in full by returning the payment voucher that comes with the notice. Alternatively, you can make a payment online. Here are the main options if you can’t afford to pay the bill in full:

Request a payment plan

The IRS offers streamlined installment agreements to individuals who owe less than $50,000. If you owe over that threshold, you may have to complete a Collection Information Statement. To qualify you must be able to make monthly payments until the outstanding balance is paid in full.

Apply for a settlement

Through the offer-in-compromise program, the IRS settles tax debts for taxpayers who can’t afford to pay their full liabilities. If you qualify, you get to pay off your tax bill for less than you owe.

Ask for IRS hardship status

If you prove that you can’t pay your tax bill, the IRS will mark your account as currently not collectible, and the agency will temporarily pause all collection actions against you.

Contact a tax professional for help

To learn about other options, contact us directly. The IRS is willing to work with taxpayers, and there are a lot of different relief options. Generally, as long as you make payment arrangements on your back taxes, the IRS will not pursue any collection actions against you. However, the agency may still issue a tax lien, and interest will continue to accrue on the unpaid balance.

However, it’s important to note that you may also need help with tax planning to ensure that you don’t get into this situation again. If you set up a payment plan or an offer in compromise, you typically have to stay compliant with tax filing and payment requirements. Otherwise, you may lose your payment arrangements.

What If You Don’t Respond to IRS Notice CP501

If you don’t respond to this notice, the IRS will add additional penalties and interest to your account. The failure-to-pay penalty can get up to 25% of your balance. For instance, if you owe $10,000, you can incur up to $2,500 in penalties, and interest also accrues on your account.

The agency will also continue to move forward with the collection process. If the IRS hasn’t issued a federal tax lien yet, the agency will do so after it sends this notice. Typically, the IRS files federal tax liens against anyone who owes $10,000 or more in unpaid taxes.

This also opens the door to tax levies. If you don’t pay your taxes, the IRS can garnish your wages and take the money from your bank account. The agency can also levy real and personal property.

What Happens After You Receive CP501?

After CP501, you will receive CP503. This is your last “friendly” reminder before the IRS starts collection actions. The next notice CP504 is called the final notice and intent to levy. If you don’t respond to this notice, the IRS may seize the funds in your bank account, levy your assets, or garnish your wages. This typically happens after you receive CP504, but the timeline for garnishment and other types of levies can vary based on the situation.

Typically, the IRS sends notices on a six-week cycle. The notices don’t necessarily start six weeks after you file your tax return or six weeks after the IRS assesses taxes during an audit. However, once the IRS starts sending notices, you should expect them to arrive about every six weeks or so. Notices mean that the IRS has noticed your unpaid tax debt, and the agency is looking for ways to collect it. 

Get Help With Unpaid Taxes

We can help you deal with your CP501 notice. If you have an outstanding balance, you may not be able to pay your taxes immediately. The IRS understands this so it offers several different payment options. We can help you find the best option for your situation.

If you’re experiencing financial hardship, we can also help you apply for relief on your unpaid balance. Don’t let the IRS issues tax liens, seize your bank account, garnish your wages, or take other actions against you. Instead, protect yourself by contacting the tax attorneys at the W Tax Group today.