IRS Letter CP-503 - What it Means & What to Do

The IRS has a pretty standard collection process because of their ACS system or Automated Collection Process. If you fail to pay, file or both you will start to receive what are known as "Computer Paragraph Notices," or IRS Assessment letters. They typically will start with CP 501 and then move to CP 503 and CP 504 with the consequences getting worse with each notice.

A CP 503 notice is the second letter sent by the IRS to inform you of a balance due on your account or that you have unpaid IRS back taxes. The first notice is known as a CP 501. As you can imagine, this notice is more serious because you ignored the first one. If you receive a CP 503 notice you are getting dangerously close to the IRS taking more serious action and receiving CP-504 which often then leads to a tax levy and tax lien.

What Should I Do After Receiving a CP 503 notice?

This notice is telling you that you have to pay a certain amount. You should pay this balance in full as to avoid receiving another notice and further disciplinary action with days if capable. The IRS provides an envelope to ensure that your payment makes it to the right department. All you have to do is include your payment along with the bottom portion of the CP 503 notice.

How Much Time Do I Have To Reply to the IRS?

Since you already ignored the first notice to pay, you have to respond to a CP 503 notice without delay. The IRS usually expects a payment within 10 days of the date of the notice otherwise you will have additional interest and penalties added to your unpaid tax balance. If you wait too long there is a good chance that the IRS will send a Final Notice. Even if you cannot pay in full, you should contact the IRS to let them know where you stand. It is highly recommended as well to reach out to a tax resolution firm.

What If I Can't Make Payment On The Total Amount of Taxes Due?

If you find that the balance due is more than you can afford the IRS will allow you to setup an installment agreement. This gives you the ability to pay in monthly installments. Those who ignore a CP 503 notice, as well as the final one to follow, will be served with a Notice of Federal Tax Lien (if not issued already) and a Federal Tax Levy. A tax lien will become public in county clerks offices as well as be visible on your credit making it very difficult for you to obtain a credit card, get a mortgage, get a car loan, sell your house, etc. If the IRS proceeds with a tax levy, this gives the IRS the legal right to take your property to pay your tax liability. In other words, property like your wages or bank account may be garnished in order to repay the total tax debt you owe the IRS.

If you are faced with these letters and you need help it is highly recommend you work with a trusted tax firm that has a diverse tax team of tax professionals including tax attorneys, CPA, former IRS agents and the like who can facilitate the resolution process at a cost-effective price. Typically, with a professional, the outcome is much better than if you tried to take on the IRS yourself. But again, dealing with the problem yourself is definitely doable, just not optimal.

CP 503
Understand in more detail your next steps to resolving this serious IRS assesment letter or CP Notice.