The IRS will send millions of letters this month to taxpayers it believes have underpaid the IRS. It’s important to pay attention to this letter — called a CP14 — because ignoring it could lead to fines, according to Jackson Hewitt’s Chief Tax Information Officer Mark Steber.
The IRS issues about 9 million of these letters annually, Steber said. This year the letter is unusual as the agency has stopped sending many types of notices and letters due to the pandemic. The IRS announced in February that it would stop sending more than 10 types of letters related to things like failing to file a tax return to under-tax.
The IRS sends a CP14 if it calculates that a taxpayer has a balance of more than $5 in their account, which could be related to a number of issues, such as not reporting a certain income or not paying a balance in full. The CP14 tells you how much you owe and asks for payment within 21 days, according to the Taxpayer Advocate Service, which notes that the letter is one of the most common notices sent to taxpayers.
“The CP14 is a balance of taxes due, and therefore they are not suspended,” Steber said. “It’s in the taxpayer’s interest to know that they owe money so that those fines and interest don’t mount up.”
The IRS is required to send CP14 notices within 60 days of the IRS assessing a tax debt, meaning people who filed their taxes ahead of the mid-April tax deadline can get the letters in June.
What happens if I don’t pay?
First, if you pay the full amount on the due date listed on the CP14, the IRS says you won’t charge interest. After that, the interest on your balance starts to accrue.
Steber recommends taxpayers read the letter carefully and take steps to address the balance owed to avoid additional charges and problems.
The IRS charges 0.5% per month in unpaid taxes, up to a maximum of 25% of the total balance owed, which can add up. However, if you don’t pay the amount owed within 60 days, the IRS can move to collect the balance and even place a lien on your property, such as your home or your car.
“The IRS is good at a lot of things, and one of the things they’re really good at is they get their money’s worth in the end,” Steber said.
What should I do if I can’t afford it?
The IRS says it will work with taxpayers to set up a payment plan. The IRS can set that up through an online application.
The IRS says taxpayers facing financial difficulties can also request a temporary deferral of collection until they’re back on their feet (See the IRS’s website for more information on applying for deferment.)
What if I think the CP14 letter is wrong?
If you believe the notice is incorrect, contact the IRS. But be prepared to document your case, such as through payment receipts, if you’ve already paid the taxes owed by the IRS, Steber said.
The CP14 letter lists a number to contact the IRS, but he noted that the agency was difficult to reach by phone. You can also email the IRS using the contact information that will be included in the letter, along with your documentation.