What should you do after receiving an IRS balance due notice?
Receiving a balance due notice from the IRS is unsettling, but a clear, methodical response usually resolves the issue faster and cheaper than ignoring it. In my 15+ years as a CPA helping clients with IRS notices, the single best outcome comes from treating the notice as a time-sensitive task: read it, verify it, respond, and document everything. This guide gives practical, step-by-step actions you can take the day you get the notice, plus options if you can’t pay.
Quick checklist (do these first)
- Read the notice fully and identify the notice number and tax year.
- Verify the taxpayer name, Social Security number (partial SSN may be shown), and address.
- Note the amount claimed due and the deadline for response or payment.
- Compare the IRS’s figures to your copy of the filed return and payment records.
- Gather supporting documents (W-2s, 1099s, canceled checks, receipts, bank statements).
1) Identify the notice and why it was sent
The IRS sends different notices for different reasons (e.g., CP14 for unpaid balance after processing, CP2000 for mismatch notices, or a Letter 1058 for an intent to levy). The notice number and a short explanation on the first page tell you the basic cause. For official guidance on the variety of notices, see IRS – Understanding Your IRS Notice or Letter (external source).
Why this matters: the type of notice tells you the correct response route and whether you have the right to appeal before the IRS begins enforced collection.
Reference: IRS, “Understanding Your IRS Notice or Letter” (visit https://www.irs.gov/individuals/understanding-your-irs-notice-or-letter).
2) Verify the IRS’s math against your records
Before you pay or dispute, make sure the IRS’s calculation is accurate:
- Pull the original tax return (Form 1040) for the tax year listed.
- Compare the income, credits, and payments the IRS reports to the figures on your return and to your supporting documents.
- Check for any payment you made after filing (e.g., estimated payments, EFTPS payments, or checks) that the IRS might not have posted correctly.
Common causes of balance due notices:
- Unreported or underreported income (W-2/1099 differences).
- Disallowed deductions or credits.
- Math or transcription errors.
- Unapplied payments or identity mismatches.
If you find an IRS error, gather documentation proving your position. If you find an error on your return, prepare an amended return (Form 1040-X) as part of your response plan.
3) If you agree you owe the amount
If your review confirms the balance due, choose the best payment path based on the amount and your cash flow.
Payment options (high level):
- Pay in full: fastest, cheapest (stops additional penalties aside from interest that already accrued).
- Short-term payment plan (up to 180 days): no setup fee in many cases, interest continues to accrue.
- Installment agreement (monthly payments, often up to 72 months): may require a setup fee; interest and penalties generally continue to accrue.
- Offer in Compromise (settle for less than full amount): for qualifying taxpayers with limited ability to pay; complex to prepare and requires supporting financial details (see our Offer in Compromise overview for details).
Set up payments securely via the IRS: Direct Pay, Online Payment Agreement, IRS2Go, or by phone. Always use IRS.gov payment portals or a trusted third party; avoid sharing sensitive info in unsecured channels. Official IRS payment guidance: IRS – Payment Options.
Internal resources:
- Offer in Compromise (OIC): https://finhelp.io/glossary/offer-in-compromise-oic/
- Installment Agreements vs. Offers in Compromise: https://finhelp.io/glossary/installment-agreements-vs-offers-in-compromise-which-is-right-for-you/
Practical tip from my practice: if you can pay most but not all of the balance, consider a lump-sum partial payment plus an installment plan for the remainder. For larger balances, enrolling in an installment agreement quickly often prevents escalated collection like levies or passport restrictions.
4) If you disagree with the notice
Disputing the notice requires evidence and a formal reply:
- Collect documents supporting your position (corrected W-2 or 1099, bank statements, receipts, a corrected return).
- Draft a concise response letter referencing the notice number and tax year, explaining the discrepancy and listing the attached evidence.
- Mail the response to the address on the notice. I recommend certified mail with return receipt so you have proof the IRS received your response.
- Keep copies of everything you send; note the date you mailed it and the IRS contact name (if you call).
If the notice involves proposed changes (for example, CP2000), you will typically have 30 days to respond. Follow the instructions on the notice carefully: some notices include a packet to complete and return.
Practical example: a client once received a CP2000 claiming unreported 1099 income. We matched the IRS figures to a corrected 1099 and sent a one-page letter plus the corrected form; the IRS adjusted the account without further collections.
5) When you can’t pay right now
If you cannot pay in full, don’t ignore the notice — contact the IRS and document the interaction. Options include:
- Installment Agreement: apply online or by phone. An online application is often fastest for balances under certain thresholds.
- Currently Not Collectible (CNC) status: if paying would cause undue hardship, the IRS may temporarily suspend active collection. Interest and penalties continue to accrue while in CNC.
- Offer in Compromise (OIC): may reduce the amount owed for those who qualify; requires detailed financial disclosure and is often easier with professional help.
Internal resources:
- Instructions for Form 656 and OIC options: https://finhelp.io/glossary/irs-form-656-offer-in-compromise/
Note on penalty abatement: if your failure to pay or file was due to reasonable cause (serious illness, natural disaster, etc.), you may qualify for penalty relief. The IRS evaluates reasonable cause facts case-by-case.
6) What to expect after you respond
- If you pay in full, your account should be updated; confirm balance and retain proof of payment.
- If you set up a payment plan, expect setup confirmation and monthly reminders. Make timely payments to avoid default.
- If you dispute the notice, the IRS will review your docs and reply in writing; processing times vary.
- If you apply for CNC or an OIC, the IRS may request additional financial information and can take months to decide.
Document the date you mailed responses and keep copies of all receipts and correspondence. If you talk with the IRS by phone, note the representative’s name, employee ID, and the call’s date/time.
7) Avoid scams and verify authenticity
Scammers often mimic IRS notices. Real IRS mailings:
- Come by U.S. mail (not by email) for initial collection notices.
- Include a notice/letter number and instructions to contact the IRS.
If in doubt, call the IRS at the number listed on IRS.gov or use the phone number on the printed notice itself. Never trust caller ID alone; fraudsters can spoof numbers.
Reference: IRS – How to report phishing and impersonation scams.
8) Practical templates and approach to writing your response
Keep your response letter short and evidence-based. Include:
- Your full name, address, and the notice number.
- A clear statement: “I disagree with the amount shown because…” or “I agree and propose the following payment plan…”
- A numbered list of attachments and a line-by-line reference to any corrected figures.
Sample opening line: “Re: Notice CP14 dated mm/dd/yyyy for tax year 20XX — I have reviewed my return and believe the following adjustments are necessary…”
Always reference the notice number and attach copies (not originals) of supporting documents.
9) Appeals and further review
If the IRS denies your dispute or OIC, you generally have appeal rights. The notice will explain next steps. Appeals can be technical; a qualified tax professional or tax attorney can help decide whether to appeal or negotiate further.
10) Records retention and statute of limitations
Keep records for at least three years after filing, or longer if the notice concerns issues that expand the statute (e.g., fraud). The IRS generally has 10 years from assessment to collect a tax debt; however, certain events can extend that period. If your account is assessed and an item is under dispute, keep all correspondence until the matter is fully resolved.
Common mistakes taxpayers make (and how to avoid them)
- Waiting to respond: act within the stated deadline.
- Responding emotionally: stick to facts and documents.
- Sending originals: always send copies and keep originals safe.
- Not keeping proof: send certified mail or use tracked electronic submissions.
Final professional tips
- Act quickly but prepare: a rushed but poorly documented response is worse than a measured, documented reply.
- Use official IRS portals for payments and confirm transactions in writing.
- When in doubt, get professional help — resolving incorrectly or late can cost far more than the fee for professional assistance.
Important disclaimers and sources
This article is for educational purposes and does not replace personalized tax advice. Tax law and IRS procedures change; verify details on the IRS website or consult a qualified tax professional for advice specific to your situation.
Primary authoritative sources used in this article:
- IRS, “Understanding Your IRS Notice or Letter” (https://www.irs.gov/individuals/understanding-your-irs-notice-or-letter).
- IRS, “Payment Options” and “Offer in Compromise” pages (search IRS.gov for the latest guidance).
Internal FinHelp resources referenced:
- Offer in Compromise (OIC): https://finhelp.io/glossary/offer-in-compromise-oic/
- Installment Agreements vs. Offers in Compromise: https://finhelp.io/glossary/installment-agreements-vs-offers-in-compromise-which-is-right-for-you/
- IRS Form 656: https://finhelp.io/glossary/irs-form-656-offer-in-compromise/