IRS Notices CP501 and CP503: The Reminder Letters

What CP501 and CP503 are and why you received them

CP501 and CP503 are reminders rather than new assessments: the IRS sends the CP501 about five weeks after a CP14 that was not paid or arranged, and the CP503 about five weeks after that, each restating the same balance with penalty and interest recalculated to the date of the letter. The tax does not change; what changes is the failure-to-pay penalty, 0.5 percent of the unpaid tax for each month or part of a month under section 6651 of the Internal Revenue Code, and the interest, at the federal short-term rate plus 3 percent, compounded daily, under section 6621. You are receiving them because the CP14 went unanswered, or because the answer you sent has not posted yet; a payment mailed near the due date or a request sent on paper takes weeks to reach the account.

The deadline and what happens if nothing is done

Nothing is levied because of a CP501 or a CP503; the cost of letting the date on the notice pass is the next letter and a larger balance. Pay or arrange by the date on the notice and the sequence stops; let it pass and the next letter follows, the CP503 about five weeks after a CP501, and after the CP503 the CP504, the Notice of Intent to Levy under section 6331(d). The CP504 reaches a state tax refund and warns of a lien, but it is not the final levy notice. After the CP504 comes the Final Notice of Intent to Levy and Notice of Your Right to a Hearing, sent as an LT11, a Letter 1058 or a CP90, which permits a levy on wages and bank accounts 30 days later under section 6330. Under section 6651(d) the failure-to-pay penalty doubles to 1 percent a month ten days after the CP504 notice of intent to levy goes unanswered. The lien does not wait for the sequence: under section 6321 it has existed by law since ten days after the CP14, and the IRS can file a public Notice of Federal Tax Lien at any point after that.

What to do in the first 30 days

The first 30 days after a reminder are for confirming what the IRS has received from you, filing anything still missing, and putting a request on the account before the CP504 is printed. In order:

1. Compare the reminder to the CP14; it should be that balance plus five or ten weeks of penalty and interest.
2. Check your IRS online account before paying; if a payment or request you already sent has posted, the reminder is stale.
3. File any unfiled return, because no payment plan, hardship status or offer is approved while a required return is missing.
4. If the balance is wrong, write: a short letter to the address on the notice with the proof attached, such as the canceled check or the amended return.
5. If the balance is right and you can pay it, pay it by the date on the notice, then ask for first-time penalty abatement.
6. If you cannot pay in full, apply for the plan that fits before the date on the notice; a pending installment agreement request stops levy action under section 6331(k).

Your options at the reminder stage

The menu is the same seven options as at the CP14 stage, and the reason to choose one now is that each is approved on the numbers alone, with no hearing, no revenue officer and no levy to unwind.

• Pay in full. Online, by phone or by check with the voucher.
• Short-term payment plan. Up to 180 days, no setup fee, penalty and interest still running, and no more reminders.
• Installment agreement. Monthly payments under section 6159. Individuals who owe $50,000 or less in combined tax, penalty and interest, and businesses that owe $25,000 or less, can apply online; above that, Form 9465 with a Form 433-F. Once approved, the failure-to-pay penalty drops to 0.25 percent a month.
• Currently not collectible status. For a budget that cannot carry any payment under the IRS Collection Financial Standards. Collection stops, interest runs, and refunds are kept.
• Offer in compromise (OIC). A settlement under section 7122 on Form 656 with Form 433-A (OIC), accepted when the offer matches what the IRS could collect from your assets and future income.
• First-time penalty abatement. When the three prior years had no penalties and every return is filed, the IRS removes the failure-to-pay penalty for one period on request.
• Reasonable-cause abatement. A written showing under section 6651 of what kept you from paying, on Form 843 or in a letter, when first-time relief is not available.

Neither reminder carries a right to a Collection Due Process (CDP) hearing; that comes with the final levy notice under section 6330 and with a lien filing under section 6320.

What Brotman Law does with a CP501 or CP503

At the reminder stage our work is to stop the sequence with a request the IRS will approve, and to get the penalty off the account while it is still cheap to do. We file Form 2848, the power of attorney, so the IRS deals with us, and we pull the account transcripts, which show whether something you already sent has posted, whether other years carry balances, and when the ten-year collection statute runs for each. If the balance is wrong, we send the written response with the proof, and if you have unfiled years we get them filed first. Then we call the Automated Collection System (ACS), the IRS phone unit for accounts without a revenue officer, with a proposal built on your numbers: a streamlined installment agreement where the budget allows it, currently not collectible status where it does not, or an offer in compromise where the math supports one. We ask for first-time penalty abatement on the same call, and we watch the account until the agreement posts, because a request that does not post is how a CP504 arrives on top of a plan you thought you had.

Do you need a lawyer for a reminder notice?

Usually not: a reminder for a balance under roughly $50,000, with no revenue officer, no levy or lien and no business payroll tax, can be handled with an IRS payment plan you set up yourself, and the steps above are the whole method. Confirm the balance online, file anything unfiled, apply for the plan, and ask for first-time abatement. We would rather tell you that on the free 15-minute call than take a fee for it.

Our monthly engagement fits when a revenue officer is assigned, when a levy or a Notice of Federal Tax Lien is in play, when the balance is large, or when the debt is business payroll tax, where the trust fund recovery penalty under section 6672 can follow the owners personally.

How the monthly flat fee works here

Many matters like this one run as a monthly flat-fee engagement: one number, agreed up front, that covers agency contact, deadlines, document responses and strategy until the matter resolves. Here that means the power of attorney, the transcript review, any unfiled returns, the penalty abatement request, the financial statement and the payment plan, hardship or offer filing, and the CP504 if it crosses in the mail.

Documents to gather

Seven items cover almost every question.

• The CP14, the CP501 and the CP503, with their envelopes.
• The return for that year as filed, and any amended return.
• Proof of every payment for that year.
• A copy of anything you already sent the IRS in response.
• For unfiled years, Forms W-2 and 1099, bank statements and business books.
• For a payment plan or hardship status, three months of bank statements and pay stubs and your monthly living expense figures.
• For reasonable-cause penalty relief, the paper behind the reason.

Can the IRS levy my wages or bank account after a CP503?

Not on a CP503. A levy on wages, a bank account or other property requires the Final Notice of Intent to Levy under section 6330 and a 30-day window to request a hearing, and that notice comes after the CP504.

What is the difference between CP501 and CP503?

Only the place in line. The CP501 comes about five weeks after the CP14 and the CP503 about five weeks after that, both carrying the same balance with penalty and interest brought forward; the CP503 is the last letter before the CP504.

Will the IRS file a lien while I am getting reminder notices?

It can, because the lien has existed by law since ten days after the CP14. In practice the filing comes later and for balances over $10,000, and it arrives with a Letter 3172 that carries a 30-day right to a hearing under section 6320.

I sent a payment but still received a CP501. What happened?

The payment and the notice crossed: reminders go out on a schedule, and a payment mailed near the CP14 due date can post after the CP501 is printed. If the online account does not show it, send proof of the payment to the address on the notice.

Does a payment plan stop the reminder letters?

Yes. A pending request stops levy action under section 6331(k), and once the agreement is approved the reminders end, an annual statement takes their place, and the failure-to-pay penalty drops to 0.25 percent a month. A missed payment brings a CP523 default notice before the agreement is ended.

What if I owe for more than one year?

All the years go into one agreement, and the combined balance is what the online thresholds measure. Unfiled years come first, because no plan is approved while a required return is missing.

Related pages

The other letters in the sequence:

• IRS collections attorney, the parent page
• IRS Notice CP14, the first bill
• IRS Notice CP504, Notice of Intent to Levy
• Final Notice of Intent to Levy, LT11 and Letter 1058
• IRS revenue officer assigned
• Notice of Federal Tax Lien filed, Letter 3172
• IRS bank levy and wage levy
• Trust fund recovery penalty, Letter 1153
• IRS passport certification, CP508C
• IRS Form 433 financial statement