CP71 Notice: Annual Reminder of Balance Due

What Does a CP71 Notice Mean for You?

Okay, let’s talk about the dreaded CP71 notice. Nobody likes getting mail from the IRS, right? Especially when it’s about money you owe. If you’ve ever received a CP71 notice, you might feel a little confused, maybe even a bit worried. But don’t panic! It’s simply an annual reminder from the IRS about an outstanding tax balance. Think of it as a gentle (or maybe not-so-gentle) nudge to take care of your past-due taxes. Let’s break this down so you know exactly what’s going on.

What is the Purpose of a CP71 Notice?

The IRS sends out a CP71 notice to taxpayers who have a balance due from a previous tax year. It’s not a new bill. It’s a reminder that you haven’t fully paid your taxes from prior years. The IRS keeps track of this, and when there’s still an outstanding amount, they send you the CP71 to ensure you’re aware and have a chance to fix it. It’s like getting a friendly reminder from the library that you have an overdue book, except this is about taxes.

Understanding the Components of a CP71 Notice

When you get a CP71, it’s important to take a close look at the details. It’s more than just a simple “You owe us money” note. The notice will typically include:

• The tax year in question: This is important because it tells you which year’s tax return has the outstanding balance. You might not even remember that specific year at first glance.
• The original amount you owed: The initial balance due from your tax return.
• Penalties: If you didn’t pay your taxes on time, you’ll likely see penalties added to your balance. These are the extra charges the IRS imposes for late payments.
• Interest: Interest is charged on both the unpaid tax balance and any accumulated penalties. This amount can keep growing over time, making it important to address the debt quickly.
• The total amount now owed: This is the sum of the original balance, penalties, and interest. It’s the final amount the IRS expects you to pay.
• Payment options: The CP71 will provide different ways to pay the amount, such as paying online, via phone, or mailing in a check or money order.
• Contact information: How to reach the IRS if you have any questions or believe the notice is incorrect.

How to Respond to a CP71 Notice

So, what should you do when you receive a CP71 notice? Here’s your step-by-step action plan:

1. Don’t Panic: Getting a notice from the IRS can be stressful. Take a deep breath and realize that it’s a solvable issue.
2. Verify the Information: Check all the information on the notice carefully. Make sure your name and address are correct. Double-check the tax year and amount due to ensure it’s accurate. If you think the information is wrong, don’t ignore it.
3. Review Your Tax Records: Dig out your tax returns from the tax year mentioned in the notice. See if the amount owed matches your records. This will help you identify any potential errors or understand why there is a balance due.
4. Pay the Amount Due: If everything on the CP71 notice checks out, pay the amount as soon as possible. The IRS provides several ways to pay, such as:
   • Online: Through the IRS website or via the IRS2Go mobile app. This is typically the quickest and most convenient option.
   • Phone: Using the IRS payment line to pay by credit or debit card.
   • Mail: Sending a check or money order to the address listed on the CP71 notice. Make sure to write the tax year and your Social Security number on the check to ensure it’s correctly applied to your account.
5. Set up a Payment Plan: If you can’t afford to pay the full amount right away, don’t ignore the notice. The IRS may offer installment agreements, also known as payment plans. You can apply online or call the IRS.
6. Contact the IRS If You Have Questions: If you’re unsure why you owe the money or if you suspect an error, contact the IRS. Use the phone number provided on the notice. Keep a record of your call, including who you spoke with, the date, and the time.
7. Keep Detailed Records: Keep copies of the CP71 notice and any payment confirmation. This will be essential in the future if any issues arise.
8. Act Quickly: Don’t delay addressing your CP71 Notice. Late payments can result in additional penalties and interest which can quickly add up over time. Ignoring the notice can also lead to more serious actions from the IRS, like liens or wage garnishments.

What Happens if You Don’t Respond to a CP71 Notice?

Ignoring a CP71 notice is not a good idea. The IRS will continue to send you notices and might take further action to collect the debt. Here’s what could happen:

• Additional Penalties and Interest: These will continue to accumulate on your outstanding balance, making it even harder to pay off.
• More Aggressive Collection Notices: The IRS may send you more threatening notices if you fail to respond to a CP71.
• Tax Lien: A tax lien is a legal claim against your property. This makes it more difficult to sell your home or obtain loans because it is a public record of your tax debt.
• Wage Garnishment: The IRS can order your employer to withhold part of your salary to pay your tax debt.
• Bank Levy: The IRS can seize funds directly from your bank accounts.
• Seizure of Property: In extreme cases, the IRS can seize and sell your assets to satisfy your tax debt.

Key Takeaways: CP71 Notice

A CP71 notice is a reminder from the IRS about unpaid taxes from a previous year. It’s not a penalty or a punishment; it’s simply an alert for you to take action. By understanding the notice, verifying its accuracy, and taking prompt steps to pay the amount owed or set up a payment plan, you can avoid more serious consequences. Don’t ignore it – deal with it as quickly and efficiently as possible.

Tips for Avoiding a CP71 Notice

• File on Time: Filing your taxes on time reduces the chance of owing a balance.
• Pay Your Taxes in Full: If you owe taxes, pay the full amount by the deadline to avoid penalties and interest.
• Adjust Your Withholdings: If you consistently owe taxes each year, adjust your tax withholdings so that your employer takes out more taxes during the year. This may mean a smaller refund, but you’ll avoid having to pay a large sum all at once.
• Pay Estimated Taxes: If you’re self-employed or have income that’s not subject to withholding, you should pay quarterly estimated taxes. This keeps you from owing a large sum during tax time.
• Keep Good Records: Maintain records of your income and expenses. This makes it easier to accurately file your taxes and avoid errors.
• Seek Tax Advice: If you have a complex tax situation, consider consulting with a tax professional or financial advisor.

Common Misconceptions About CP71 Notices

• It’s a New Tax Bill: The CP71 is not a new bill. It’s a reminder of taxes you already owed from a previous year.
• It’s a Scam: Although scam artists may try to pose as the IRS, a legitimate CP71 notice will always be sent by mail and will include specific information.
• It Can Be Ignored: Ignoring a CP71 notice can lead to more serious actions by the IRS.
• You Will go to Jail: A tax debt will not lead to jail time. There is a difference between tax debt and tax fraud.

By understanding what a CP71 notice is, and taking the right steps to address it, you can protect yourself from potential tax headaches. Remember, the IRS isn’t out to get you. They just want to make sure everyone pays their fair share.