What to do when the IRS sends a balance due letter

An IRS balance due letter is a formal notification that the IRS believes you owe unpaid federal tax for a specific tax year. These letters range from friendly reminders (like the common CP14) to final bills that begin collection activity. The key is not panic — act quickly, follow a clear checklist, and document everything.

Below are step-by-step actions, timelines, and options I use in practice with clients to resolve balance due notices efficiently.

1) Read the notice carefully and note deadlines

  • Check the notice type, tax year, and the exact amount the IRS says you owe.
  • Look for the due date and the contact information on the notice. Always use the phone number or address printed on the notice when responding (or the general IRS line at 1-800-829-1040 if directions are unclear).
  • Important: most IRS notices include a deadline for response or payment; missing that can increase interest or prompt liens/levies (see IRS guidance on notices and bills: https://www.irs.gov/individuals/understanding-your-balance-due-notice).

In my practice I tell clients to write the date they received the notice on the top and open a folder labeled with the tax year and notice number for all related documents.

2) Verify the IRS calculation against your records

What to gather:

  • The tax return for the year in question (Form 1040, schedules, etc.)
  • W-2s, 1099s, K-1s, and any corrected slips
  • Records of any payments (bank statements, EFTPS receipts, cancelled checks) and correspondence with the IRS

Common reasons the IRS shows a balance due:

  • Math or transcription errors
  • Missing forms (e.g., a 1099 employers filed that wasn’t on your return)
  • Underpaid estimated taxes or insufficient withholding
  • Disallowed deductions or credits after an IRS review

If the IRS’s numbers match your records, the balance is likely correct. If you find a mistake, prepare documentation and follow the dispute steps below.

3) Decide whether to accept, dispute, or pay

Accept and pay: If your review confirms the balance is correct, pay or set up a plan promptly to limit interest and penalties.

Dispute: If you disagree, you can protest the notice. Typical dispute methods:

  • Reply in writing to the address shown on the notice with a concise explanation and supporting documents.
  • Call the number on the notice to discuss and request the notice be reviewed (record the agent’s name, date, and outcome).
  • If the IRS assessed the balance after an audit or exam, you may have appeal rights — request a Collection Due Process hearing if eligible.

If you file a protest, include copies (never originals) of your return, supporting documents, and a signed statement explaining why the IRS amount is wrong. The IRS notice page includes dispute instructions (https://www.irs.gov/individuals/understanding-your-balance-due-notice).

4) If you can’t pay in full, use IRS payment options

Pay now: Pay online using Direct Pay, debit/credit, or the Electronic Federal Tax Payment System (EFTPS). Paying quickly stops additional interest and some penalties.

Installment Agreement: If you can’t pay in full, apply for a monthly payment plan (installment agreement). The IRS has multiple types of installment agreements and online application options (https://www.irs.gov/individuals/payment-plans-installment-agreements). FinHelp has practical guides on applying and choosing the right plan, for example:

Partial-payment plans and offers in compromise are options when full payment or a normal installment plan isn’t feasible. These options require financial disclosure (Form 433-F or similar) and sometimes professional help to prepare.

5) Consider penalty relief and interest

Interest accrues on unpaid tax from the due date of the return until paid, and penalties (failure-to-pay, failure-to-file) may apply. Interest rates change quarterly and compound daily; check the IRS for current rates. You might qualify for penalty relief if you have reasonable cause (e.g., serious illness or natural disaster). Ask the IRS for abatement and include supporting documentation.

6) Protect yourself from scams

Scammers send fake IRS balance-due threats. Real IRS letters will:

  • Be mailed (not only emailed or texted) for initial notices
  • Include specific tax year information and a notice number
  • Provide instructions for payment or dispute and a contact phone or address

If you receive a call demanding immediate payment by unusual methods (gift cards, prepaid debit cards, cryptocurrency), it’s a scam. Verify the notice by calling the IRS number on the notice or 1-800-829-1040. See the IRS guidance on scams and imposters (irs.gov).

7) What happens if you do nothing

Ignoring a balance due can lead to increased interest, penalties, a Notice of Federal Tax Lien, and eventually levies (bank account seizure, wage garnishment). The IRS generally has 10 years from assessment to collect (collection statute expiration), after which the debt may be uncollectible; but do not rely on this without professional advice.

8) When to call a tax professional or tax attorney

Call a CPA, enrolled agent, or tax attorney if:

  • The amount is large or involves multiple years
  • You suspect identity theft or fraudulent filings
  • You need a formal Offer in Compromise or low-income application
  • The IRS has started collection actions (levy or lien)

In my 15 years advising clients, early professional involvement often prevents escalation. For example, asking for a short-term installment agreement or providing missing documentation within the IRS deadline frequently stops a lien from being filed.

9) Sample dispute letter (short template)

[Date]
Internal Revenue Service
[Address from notice]

Re: Notice number [CP#], Tax year [YYYY], SSN/EIN ending in [XXX]

I am writing to dispute the balance claimed in your notice dated [date]. Enclosed are copies of my [return, W-2, bank statements, corrected 1099, etc.] which show [brief statement of why the IRS amount is incorrect]. Please review and adjust your records accordingly. I request written confirmation of any changes.

Sincerely,
[Your name]

(Always include copies, not originals, and keep a full paper trail.)

10) Document everything and keep records

  • Keep copies of the notice, your return, proof of payments, and all correspondence.
  • If you call the IRS, note the agent’s name, badge number, date, and a summary of the call.
  • Keep receipt of any certified mail you send.

Where to learn more and next steps

FinHelp resources:

Disclaimer: This article is educational and not individualized tax advice. For specific guidance, consult a qualified tax professional (CPA, enrolled agent, or tax attorney). Information is current as of 2025 and may change; always verify details with the IRS.