Quick overview

Receiving an IRS collection notice can be stressful. The IRS uses a series of letter and notice codes—commonly CP (computer paragraph) and LT (letter) series—to communicate status, deadlines, and next steps. The sequence usually starts with a billing notice and can escalate to a final notice of intent to levy if you don’t respond or resolve the balance. (Source: IRS — “What to Do if You Get a Collection Notice” and “Understanding Collection Notices”).

Typical timeline and common letter codes

Below is a practical sequence you may see in everyday cases. Timelines can vary depending on the issue, the taxpayer’s response, and IRS workload.

  • CP14 (Balance Due Notice): Often one of the earliest notices after a return is processed with a balance due. It explains the amount, due date, and ways to pay. (IRS)
  • CP501 (Past Due Notice): A reminder that a previously billed amount remains unpaid. This typically follows nonpayment after the initial bill.
  • CP503 (Second Notice): A stronger demand for payment; the IRS warns of potential collection steps.
  • CP504 (Final Notice of Intent to Levy): This is a final demand before enforcement actions such as wage garnishment or bank levy. It usually warns that a levy is possible soon.
  • LT11 (Final Notice of Intent to Levy and Notice of Your Right to a Hearing): Sent when the IRS intends to levy property or rights to property. This notice gives you 30 days to request a Collection Due Process (CDP) hearing; it is often sent by certified mail.

Note: The IRS also uses other codes (CP90, CP297, LT105, etc.) in related situations. The exact code and its consequence depend on the underlying tax period, type of tax, and previous IRS contacts. For authoritative definitions, see the IRS collection notices pages referenced at the end of this article.

Step-by-step actions to take when you receive a notice

  1. Read the notice carefully and note deadlines. Every IRS notice includes a date and a deadline for response or payment. Missing that window can reduce your options.
  2. Verify the notice matches your records. Compare the amounts to your tax return, account transcripts, and payment history.
  3. Confirm the notice is legitimate. Scams mimic IRS letters. The IRS will not demand immediate payment by cash methods like gift cards, and genuine collection notices reference your tax year and a specific IRS contact. If in doubt, call the IRS at the number on your official notice—not numbers from emails or texts. See IRS guidance on scams for more details. (IRS — Understanding Collection Notices)
  4. Don’t ignore it. Even a short delay can add penalties and interest, and may reduce relief options.
  5. Contact the IRS or engage a tax practitioner. If the bill is correct but you can’t pay, the IRS often allows installment agreements or other options. If you disagree with the notice, you have appeal rights. In my practice, early contact regularly prevents escalation to liens or levies.

Options to resolve or pause collections

  • Pay in full: The quickest way to stop further collection action and limit interest and penalties.
  • Installment Agreement: A monthly payment plan that spreads payments over time. The IRS allows streamlined and longer-term plans depending on the balance. (If you already have a plan, verify that automatic payments are in place to avoid default.)
  • Offer in Compromise (OIC): A potential option when you can’t pay the full amount and you meet strict eligibility rules. An OIC can settle tax debt for less than the full amount you owe. See our detailed guide: “Offers in Compromise (OIC): How They Work and When to Consider One” and the application checklist. Offers in Compromise — How They Work | Offer in Compromise Application Checklist
  • Currently Not Collectible (CNC) status: If you can’t pay anything after basic living expenses, the IRS may suspend active collection and designate your account CNC. Interest and penalties continue to accrue, but enforced collections are paused.
  • Appeal and Collection Due Process (CDP) Hearing: If you receive a Final Notice (for example LT11), you typically have 30 days to request a CDP hearing. A CDP can halt levy actions while the dispute is reviewed. (IRS — What to Do if You Get a Collection Notice)

Practical examples from practice

  • Missed CP501 becomes CP504: I’ve seen taxpayers treat CP501 as routine and delay payment. When the matter moved to CP504, penalties and collection fees pushed the balance higher and reduced available relief options. Early payment or a quick call to set up a short-term instalment plan would have limited escalation.
  • LT11 and CDP hearing: A client received LT11 and contacted our firm immediately. Filing for a CDP hearing stopped the levy long enough to submit financial documentation and negotiate an installment agreement that fit their cash flow. Without that timely response, wage garnishment would have begun.

Common mistakes to avoid

  • Ignoring the notice: This is the most frequent and costly error. Notices escalate and lead to liens or levies.
  • Using unofficial phone numbers or links: Always use the phone number or web portal shown on the physical notice for contact.
  • Assuming a payment plan is automatic: If you agreed to a plan but miss payments, the IRS can default the agreement and resume collections.
  • Not documenting communications: Keep proof of mailed responses, payments, or calls (date, time, rep name) so you can show good faith if needed.

When you should hire a professional

Hire a tax professional if:

  • You’re facing a Final Notice (LT11) or immediate levy threat.
  • You need help preparing an Offer in Compromise or substantiating financial hardship.
  • You’re unsure whether penalties, penalties on payroll taxes, or trust fund recovery considerations apply.

In my 15+ years working with taxpayers, having representation can open communication channels with the IRS and often reduces stress and collection risk. A practitioner can also file an appeal or request a CDP hearing within required timeframes.

Documentation to gather before you call or respond

  • The notice itself (all pages)
  • Recent tax returns and any IRS account transcripts
  • Records of payments made (bank statements, cancelled checks)
  • Proof of current income and regular monthly expenses (paystubs, rent/mortgage statements)
  • Bank statements and a list of assets if you plan to request relief or file an OIC

How the IRS calculates penalties and interest

Penalties and interest accrue from the due date of the tax. Common components include failure-to-pay penalty and monthly interest on unpaid balance. Exact calculations depend on statutory rates, which the IRS updates periodically. The fastest way to limit extra charges is to pay what you can and set up an appropriate agreement.

Scams and identity protection

The IRS will not threaten imprisonment, demand immediate payment by non-traditional methods (gift cards, cryptocurrency), or call to demand verbal payment without first sending a mailed notice. If you suspect a scam, compare the letter’s details with your IRS account online and report suspicious activity to the Treasury Inspector General for Tax Administration (TIGTA). (IRS — Understanding Collection Notices)

Helpful IRS pages and additional reading

Related resources on FinHelp

Final checklist — respond within 48 hours if you see any of the following

  • The notice is marked LT11 or “Final Notice of Intent to Levy”.
  • The IRS threatens levy or lien within 30 days.
  • You cannot produce records to substantiate the IRS amount.

If any of the above apply, call the IRS at the number on the notice or contact a tax professional immediately. In my practice, timely outreach (often within days) prevents enforced collection in most cases.

Professional disclaimer

This article is educational and does not replace personalized tax advice. For guidance tailored to your facts, consult a qualified tax professional or attorney. Official IRS guidance is the primary authority for procedures and deadlines.

(Referenced IRS material current as of 2025: “What to Do If You Get a Collection Notice,” “Understanding Collection Notices,” and Topic 105: Collecting Unpaid Taxes.)