What is the IRS CP71D Notice and Why Did I Get One?
Imagine getting a letter in the mail that reminds you of something you’d rather forget – that’s what a CP71D notice from the IRS is like. It’s not a new bill or a scary demand for more money. Instead, it’s an annual reminder that a federal tax lien is still active against you. This can seem confusing, so let’s break it all down.
Understanding the Basics: What is a Federal Tax Lien?
Before we dive into the CP71D, let’s understand what a federal tax lien actually is. Think of it as the IRS putting a claim on your assets because you owe them money. When you don’t pay your federal taxes, and the IRS has assessed the tax, sent a notice of demand for payment, and you still don’t pay, they can place a legal claim—a lien—on all your property. This property can include your house, car, investments, even your business assets.
The tax lien gives the IRS a legal right to your property to recover the taxes you owe. It’s a serious matter because if you try to sell or refinance your property, the IRS gets paid first. They’re essentially first in line to claim your assets if you fall behind on payments, which can be problematic.
Why You Received a CP71D Notice
Now, the CP71D isn’t the notice that tells you about the tax lien for the first time. Instead, it’s an annual reminder to keep you informed about an existing tax lien. Think of it as the IRS checking in, ensuring you are aware of the fact that the lien is still active. It’s like a yearly status report on your tax debt.
It’s important to know that a federal tax lien remains in effect until the debt is paid, the time for collection has expired (usually 10 years), or the IRS releases the lien. The CP71D notice ensures you don’t forget that the lien hasn’t gone away on its own.
Key Information in a CP71D Notice
The CP71D notice isn’t usually complicated. It’s designed to be straightforward, so you can easily understand it. Here’s what you’ll typically find in the notice:
- Your Name and Address: To make sure it’s going to the right person, the IRS will have your name and address clearly displayed.
- Date of the Notice: The date the letter was sent. This can be important for record-keeping.
- Reference to the Federal Tax Lien: The notice will explicitly state that it’s about a previously filed federal tax lien and that this lien is still valid.
- Information About the Unpaid Tax Debt: The notice usually includes the amount of tax you still owe, though it might not have the most up-to-date figures. It’s a good reminder of the original tax debt that resulted in the lien.
- IRS Contact Information: The notice will provide contact information so you can reach out to the IRS if you have questions or want to discuss your situation.
What to Do When You Receive a CP71D Notice
Getting a CP71D notice can be concerning, but here’s how you should react:
- Don’t Panic: Receiving the notice means the IRS is just reminding you of a lien already in place, not taking any new action.
- Review Your Tax Situation: Gather your tax records and understand what led to the initial lien. Do you remember not paying your taxes? Determine the amount you originally owed, if the current figure in the notice seems outdated. It is very possible that penalties and interest are still accruing on the debt.
- Verify the Information: Ensure the lien’s details are accurate. If you believe there is an error, you’ll want to contact the IRS to clear it up.
- Contact the IRS: Reach out to the IRS to discuss options for paying off your tax debt. The contact information should be on the notice itself.
- Consider a Payment Plan: The IRS offers installment agreements for taxpayers who can’t pay the debt all at once. This can help you manage the debt and avoid further penalties.
- Seek Professional Help: If your tax situation is complex or you feel overwhelmed, consult a tax professional, such as an Enrolled Agent, CPA, or tax attorney. They can guide you through the process and help you make the best decisions for your situation.
The Importance of Addressing the Tax Lien
Ignoring a CP71D notice can have severe consequences. The lien can affect your credit score, making it difficult to borrow money, and prevent you from selling or refinancing property.
- Credit Impact: A federal tax lien is public record, and credit bureaus can pick up on this. This could lower your credit score, making it harder to get loans, mortgages, or even rent an apartment.
- Property Transactions: If you have a tax lien, you can’t sell or refinance your property until the tax debt is resolved. Any attempt to do so will usually require the lien to be addressed. The IRS will get paid first if there is not enough proceeds to fully cover both the tax liability and your lender.
- Continued Interest and Penalties: Keep in mind that interest and penalties continue to accrue on your unpaid tax debt until it’s paid in full. This can quickly increase the total amount you owe.
Common Mistakes and Misconceptions
- Mistaking it for a New Lien: As mentioned earlier, the CP71D notice is not a new lien, but a reminder of an existing one.
- Ignoring the Notice: Ignoring the notice won’t make the lien go away. It’s crucial to address the issue head-on.
- Thinking the Lien Will Automatically Expire: Although tax liens usually expire after 10 years, the IRS can extend them. Don’t assume the lien will just disappear.
How to Remove a Federal Tax Lien
The primary way to remove a federal tax lien is to pay your tax debt in full. Once your tax debt is paid, the IRS will release the lien, typically within 30 days. If you’ve made an error, or there is some other extenuating circumstance, you may also try to have the lien released or subordinated.
- Payment in Full: The easiest way to get rid of a lien is to fully satisfy the tax debt, plus any penalties and interest.
- Lien Release: You can request a lien release after paying off your tax debt. Once the payment has been processed and verified, the IRS will record a release of the lien with the same agencies that were notified of the lien.
- Withdrawal of Lien: In very specific circumstances, the IRS will withdraw the notice of federal tax lien. This is essentially a “do-over,” where the lien is removed as if it never existed. There are several different reasons that the IRS might do this, including an egregious error by the agency.
- Subordination of Lien: In some cases, the IRS may agree to subordinate its lien. This means the IRS will agree to move into a secondary (or later) position, allowing another lender to get paid first (like when you try to refinance your home).
- Offer in Compromise (OIC): This allows you to settle your tax debt for a lower amount than what you owe. If your OIC is accepted, the tax lien will be released.
Final Thoughts
The CP71D notice is an important reminder that a federal tax lien still exists and you should take it seriously. Instead of being scared by it, take it as a call to action to resolve the matter. By understanding what the notice means, addressing your tax debt, and taking appropriate steps, you can work towards resolving the issue and avoid further problems. Don’t hesitate to seek professional help if needed—a tax professional can make the process much easier for you.