What Does the CP71A Notice Actually Mean?
Think of the CP71A notice as a friendly (well, as friendly as the IRS gets) reminder. It’s basically the IRS saying, “Hey, remember that tax you owe? It’s still there.” The IRS typically sends this notice annually to taxpayers with an unpaid balance. Don’t panic if you receive one – it’s often a standard procedure, but it does require your attention. Receiving this notice doesn’t mean you are in immediate trouble but ignoring it could lead to penalties down the road.
Why Did I Receive a CP71A Notice?
The most common reason for receiving a CP71A notice is an outstanding tax balance from a previous tax year. This can happen for a variety of reasons, including:
- Underpayment: You didn’t pay enough taxes throughout the year. This can occur if your withholding from your paycheck was too low, or you didn’t make sufficient estimated tax payments.
- Tax Audit: The IRS conducted an audit and determined that you owe more tax than you originally filed.
- Unpaid Penalties and Interest: If you previously had a tax balance, you may have not paid the amount, and penalties and interest could have accrued on that. This is often why the amount owed on a CP71A is larger than originally expected.
What Information Does the CP71A Notice Contain?
The CP71A notice isn’t a blank slate. It’s packed with important details you should understand:
- Amount Owed: The total amount of unpaid tax, including any penalties and interest. It’s crucial to verify that the stated amount matches your records.
- Tax Year: The specific tax year for which you owe the balance. Sometimes it can be from several years ago.
- Payment Due Date: Typically, there isn’t a specific due date as the payment is past due.
- Payment Options: The notice will list several ways you can make payment.
- IRS Contact Information: Details on how to contact the IRS if you have questions or if you believe there’s an error with the notice.
- Account Information: Sometimes it will provide the specific account and tax identification used when the debt was originally incurred.
- Additional Information: Sometimes the IRS will include important information regarding payment plans, or other additional important details.
What Should You Do After Receiving a CP71A Notice?
Receiving this notice can feel overwhelming, but here’s a step-by-step approach:
- Verify the Information: Don’t just assume the information is correct. Compare the amount owed with your own tax records from the year mentioned in the notice. Ensure the tax year and tax types match. This is the most important first step in addressing the notice.
- Understand the Amount: If the amount is higher than you expected, take a look at the specific breakdown of tax owed, any interest or penalties, and the year this occurred.
- Don’t Ignore the Notice: Ignoring the CP71A notice won’t make the problem go away. The IRS will continue to send notices, and the amount you owe will increase due to penalties and interest. Ignoring this notice could lead to more severe collection actions down the road.
- Choose a Payment Option: The notice will provide various payment methods. Choose what works best for you. Here are some common options:
- Online Payment: The IRS has an online payment portal you can use to pay using your bank account, credit card, or debit card.
- Phone Payment: You can call the IRS and pay via debit, credit, or bank transfer.
- Check or Money Order: You can send the IRS a check or money order by mail. Be sure to include the notice and your social security number.
- Payment Plan (Installment Agreement): If you cannot pay the full amount, the IRS may be willing to work out a payment plan with you.
- Consider a Tax Professional: If you find the situation complex or overwhelming, consider getting help from a qualified tax professional, such as an Enrolled Agent, CPA, or tax attorney. They can help you understand your options and navigate the IRS process.
Payment Options Explained
Let’s dive into the payment options a bit deeper:
- Online Payment with IRS Direct Pay: This is a convenient way to pay. You’ll need your bank account details and routing information. It’s generally the fastest and safest payment method.
- Paying by Card: You can also use a credit card or debit card through a third-party processor. Keep in mind that these processors may charge a fee.
- Paying by Check or Money Order: When mailing a payment, be sure to include Form CP71A, your social security number, the tax year, and tax type (typically 1040).
- Setting Up an Installment Agreement: For those who need more time, the IRS offers payment plans, also known as installment agreements. You’ll need to apply for this, and you’ll need to pay a small setup fee, but it could be a life-saver to manage a larger tax debt. There are a few types of payment plans the IRS offers. You will have to agree to specific terms and requirements.
- Offer In Compromise (OIC): This is an offer made to the IRS to pay less than the total amount owed. The IRS does not generally accept offers in compromise. They may consider OIC based on financial hardship and inability to pay, which are very specific and strict standards.
Penalties and Interest
Keep in mind that unpaid tax balances accrue penalties and interest. The penalty is a percentage of the unpaid amount, and the interest is charged on the unpaid balance from the due date of the tax return until the date you pay it. The longer you wait to pay, the more these charges can increase.
What if There’s an Error?
It’s rare, but errors can happen. If you believe the CP71A notice is wrong, contact the IRS immediately. This is one of the only cases where you need to be sure to reach out to the IRS and resolve it. Be prepared to provide documentation to support your claim, such as copies of your tax return, or bank statements.
Avoid Future CP71A Notices
To reduce the chances of receiving a CP71A notice in the future:
- Accurate Withholding: Make sure your employer withholds the correct amount of taxes from your paychecks. You may need to submit a new W-4 to adjust your tax withholding.
- Estimated Tax Payments: If you have income not subject to withholding (like self-employment income), make quarterly estimated tax payments to the IRS.
- File On Time: File your tax return by the annual tax deadline, even if you can’t pay the full amount. This helps you avoid penalties for late filing.
- Keep Good Records: Keeping thorough records of all income and expenses is critical. This will help you file an accurate tax return and avoid unexpected tax bills.
Key Takeaways
The CP71A notice isn’t something to ignore. It’s a reminder from the IRS about unpaid tax obligations. Here are a few of the main points:
- It’s an annual reminder of an unpaid tax balance.
- The notice shows the amount owed, including penalties and interest.
- You have payment options, including online payment, payment by mail, and payment plans.
- Ignoring the notice will only make the problem worse.
- If you cannot resolve the tax debt on your own consider seeking professional assistance.
By taking proactive steps and understanding the notice, you can effectively manage your tax responsibilities and avoid potential issues with the IRS in the future. Remember, the IRS is not a monster, but they do expect you to meet your obligations. The CP71A is simply a tool they use to help ensure everyone pays their fair share.