Due to COVID-19, on May 9, 2020, the 500 series notices were suspended. Now, it seems, the Internal Revenue Service (the “IRS”) has begun to issue the 500 series notices to taxpayers once again. What is a 500 series notice and what is the importunate of the IRS reissuing these notices you may ask?
The 500 series notices include three different types of notices that alert taxpayers about various stages of nonpayment – (1) the CP501, (2) the CP503 and (3) the CP504.
The CP501 Notice alerts taxpayers that they have a balance due to the IRS and their payment options.
The CP503 Notice alerts taxpayers that the IRS has not heard from the taxpayer about the unpaid balance and that the taxpayer’s property may be subject to a lien if they fail to pay.
The CP504 Notice alerts taxpayers that their remains and unpaid balance and that if not immediately paid, the IRS will levy the taxpayers state income tax refunds.
Regardless of the type of 500 series notice you receive, it is imperative that you follow the directions set forth in the notice to dispute the amount owed or to pay the balance due. If you do not successfully dispute the amount owed and you fail to pay the balance due, a penalty will be assessed, and the outstanding balance and penalty will continue to accrue interest until paid. Furthermore, once the IRS has levied your state income tax refund, if there is still a balance outstanding, the IRS will likely send you a notice of its intent to levy your other property, including: wages, bank accounts, business assets, personal assets, and social security benefits.
Now, all is not lost if you receive a 500 series notice, because there are options afforded to you that can reduce or eliminate the penalty and/or balance owed in part or even entirely. If, based on all the facts and circumstances in your situation, there exists reasonable cause for failure to pay the taxes when due, you will generally qualify for relief from penalties. Though lack of funds, in and of itself, is not a reasonable cause for failure to pay, the reason for the lack of funds may meet the reasonable cause criteria. Sound reasons, if established, may include: fire, casualty, natural disaster, pandemics, death, serious illness, incapacitation, and other reasons which establishes that you used all ordinary business care and prudence to meet your obligations. Regardless of the reason, the following facts need to be established in order to determine if the cause was reasonable:
• What happened and when did it happen?
• What facts and circumstances prevented you from paying your tax during the period you did not pay your taxes timely?
• How did the facts and circumstances affect your ability to pay your taxes?
• Once the facts and circumstances changed, what actions did you take to pay our taxes
• In the case of a business or estate, did the affected person or member have sole authority to make the payment?
If you have been financially impacted by COVID-19, you may satisfy the reasonable cause exception and have the penalty waived.
If you have received a 500 series notice and believe that the amount does not accurately reflect what you owe or if you have been impacted by the pandemic, or any other reason, the attorneys of Vandenack Weaver can assist you.
VW Contributor: Justin A. Sheldon
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