The envelope sits on the counter for three days before anyone opens it. That is the normal reaction, and it is also the single most expensive thing you can do — because almost every meaningful right you have against the IRS runs on a deadline printed somewhere in that letter.
Here is what the notices mean and what can still be done.
Read the notice number first
The code in the upper right corner tells you where you are in the process.
- CP14 — the first balance-due notice. Nothing has been enforced yet. This is the cheapest possible moment to act.
- CP501 / CP503 / CP504 — escalating reminders. CP504 is a notice of intent to levy state tax refunds and a warning that broader levy action is coming.
- Letter 1058 or LT11 — Final Notice of Intent to Levy and Notice of Your Right to a Hearing. This is the important one. It starts a 30-day window to request a Collection Due Process hearing. A timely CDP request generally stops levy action while the hearing is pending and preserves your right to appeal to the U.S. Tax Court.
- Notice of Federal Tax Lien filing — a public claim against all your property. It affects credit, property sales, and business financing. There is also a 30-day window to request a hearing after the filing notice.
- Notice of Deficiency (“90-day letter”) — you have 90 days to petition the U.S. Tax Court. This is the only way to contest the liability before paying it. The deadline is not extendable.
- Examination or audit letter — a request for documentation. How you respond here shapes everything downstream.
Miss the 30-day and 90-day windows and you do not lose everything, but you lose the best procedural leverage available to you.
Liens versus levies
A lien is a claim. It attaches to your property, appears in public records, and clouds title. It does not take anything today.
A levy is a seizure. It takes bank funds, garnishes wages, intercepts accounts receivable for a business, or reaches retirement accounts. Bank levies are typically subject to a 21-day holding period before funds are turned over — which is often just enough time to resolve the matter if you move immediately.
Wage garnishment by the IRS is particularly severe. Unlike most creditors, the IRS leaves you only an exempt amount based on filing status and dependents, and takes the rest.
Resolution options
Installment agreement. Monthly payments over time. Streamlined options exist for balances under certain thresholds with minimal financial disclosure. Larger balances require full financial statements and negotiation over what your actual ability to pay is — which is where a representative earns their fee.
Offer in Compromise. Settlement for less than the full balance, based on reasonable collection potential — essentially your net equity in assets plus your future income stream over a set period. Real offers get accepted every year. The advertisements promising to settle any debt for pennies are marketing, not law; the calculation is formulaic, and an offer submitted without running the numbers first is usually rejected after months of delay.
Currently Not Collectible status. Where paying anything would prevent you from meeting basic living expenses, collection can be suspended. The debt does not vanish, but enforcement stops and the collection statute keeps running.
Penalty abatement. Penalties frequently make up a large share of the balance. First-time abatement is available to taxpayers with a clean compliance history, and reasonable cause relief is available for serious illness, natural disaster, reliance on a professional, or records destroyed by casualty.
Innocent spouse relief. If a liability arose from your spouse’s or former spouse’s income, errors, or omissions and you did not know and had no reason to know, you may be relieved of responsibility. This is one of the most underused provisions in the Code, particularly after a divorce where one spouse handled everything financial.
Audit reconsideration. If an assessment was made because you never responded — a substitute return prepared by the IRS on your behalf, with no deductions and no dependents — the assessment can often be reopened and reduced substantially by simply filing an accurate return.
The collection clock
The IRS generally has ten years from the date of assessment to collect. That period is suspended during bankruptcy, while an offer in compromise is pending, during a CDP hearing, and in other defined circumstances. Knowing where your account sits on that timeline changes the entire strategy — an account with 14 months remaining is negotiated very differently from one with eight years.
California’s Franchise Tax Board operates on a substantially longer collection period than the IRS, which is one reason state balances should never be treated as the lesser problem.
California agencies are separate, and they are aggressive
Franchise Tax Board — state income tax. Has its own lien, levy, and garnishment authority, and its own installment agreement and offer programs on different terms than the IRS.
CDTFA — sales and use tax. Business audits here frequently turn on markup analysis and observation tests, and the assessments can be large.
EDD — payroll taxes and worker classification. An EDD audit that reclassifies contractors as employees creates liability for back payroll taxes, penalties, and interest — and often triggers a parallel wage-and-hour exposure.
Resolving a federal matter does not resolve the state one. They must be handled together.
If your business owes payroll taxes, act now
Unpaid payroll trust fund taxes are the most dangerous balance in the tax code. The IRS can assert the Trust Fund Recovery Penalty against owners, officers, bookkeepers, and anyone else deemed a responsible person who willfully failed to remit — making the liability personal, surviving the business entity and generally surviving bankruptcy. Businesses that fall behind here rarely recover without intervention.
A note on settlement proceeds
If you have received or expect to receive a legal settlement, the tax treatment is not automatic. Recoveries for physical injury or physical sickness are generally excluded from income; recoveries for emotional distress without physical injury, lost wages, and punitive damages generally are not. Property loss recoveries may qualify for involuntary conversion treatment that defers gain when proceeds are reinvested. Attorney’s fees can create taxable income even where they are paid directly to counsel.
These allocations are far easier to handle correctly while the settlement is being drafted than in April. Because we handle both litigation and tax matters, we can look at both sides of that question at the same time.
Bring us the notice
Personal and small business tax returns. Tax planning. Liens and levies. IRS representation in disputes and audits. State Franchise Tax Board hearings. Full tax representation.
Bring the notice, any prior correspondence, and your last two years of returns to the first meeting. Most of what matters is in those documents.
Kamarian Law, Inc.
210 N Glenoaks Blvd, Suite D, Burbank, CA 91502
818.859.7090 · info@kamarianlaw.com
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This article is provided for general informational purposes only and does not constitute legal or tax advice. Reading it does not create an attorney-client relationship with Kamarian Law, Inc. Tax procedures, thresholds, and deadlines change frequently. Prior results do not guarantee a similar outcome. Consult a licensed attorney or tax professional about your specific circumstances before responding to any notice.