Is Tax Topic 151 an Audit? What to Do About This Notice
Is Tax Topic 151 an audit? Clarify this IRS notice regarding tax liabilities, understand your options, and manage future tax obligations effectively.
Tax Topic 151 is not an audit notice. This communication from the Internal Revenue Service (IRS) signals an intention to initiate collection action, specifically a levy, due to an unpaid tax liability. It serves as a formal notification that the IRS plans to seize assets if the outstanding tax debt is not addressed. This notice typically follows previous attempts by the IRS to collect a delinquent tax amount. This article clarifies what Tax Topic 151 means and outlines the necessary steps to resolve the underlying tax issue.
Understanding Tax Topic 151
Tax Topic 151 refers to IRS Notice CP504, which is a “Notice of Intent to Levy and Notice of Your Right to a Hearing.” This document informs a taxpayer that the IRS intends to seize property or rights to property to satisfy a tax debt. An IRS levy is a legal seizure of a taxpayer’s property, such as wages, bank accounts, or other financial assets, to satisfy a tax liability.
The IRS issues Notice CP504 after sending several prior notices regarding an unpaid balance, such as Notice CP14 (Balance Due) and Notice CP501 (Reminder of Balance Due). Receiving Tax Topic 151 indicates that the IRS has not received full payment or a satisfactory response to their previous communications.
This notice is a significant step in the IRS collection process and is distinct from an audit. An audit examines a taxpayer’s financial records to verify the accuracy of a tax return. In contrast, Tax Topic 151 focuses solely on collecting an already established and unpaid tax debt.
Steps After Receiving Tax Topic 151
Upon receiving a Tax Topic 151 notice, carefully review the document. Verify the tax period and the specific amount the IRS claims is owed. Compare this information with your own records to ensure accuracy and understand the scope of the debt.
Several options are available to resolve the tax liability. The simplest resolution is to pay the balance in full if financially possible. Full payment immediately stops further collection actions and closes the specific tax issue. If immediate full payment is not feasible, taxpayers can explore various payment alternatives.
One common option is to set up an Installment Agreement with the IRS. This allows taxpayers to make monthly payments over a period, typically up to 72 months, to pay off their tax debt. Another possibility is an Offer in Compromise (OIC), which allows certain taxpayers to resolve their tax liability for a lower amount than what they originally owe. An OIC is generally considered when there is doubt about the collectibility of the tax, doubt about the liability itself, or if paying the full amount would cause significant financial hardship.
If you believe the amount stated on the notice is incorrect, or if the tax has already been paid, you have the right to dispute the liability. This involves contacting the IRS directly, typically by calling the number on the notice, and providing documentation to support your claim. Timely communication with the IRS is important to prevent an actual levy from occurring. Engaging with a qualified tax professional or the Taxpayer Advocate Service can also provide valuable assistance in navigating complex situations or disputes.
Preventing Future Tax Topic 151 Notices
To avoid receiving future Tax Topic 151 notices, consistent tax compliance practices are important.
Filing tax returns accurately and on time for all applicable tax periods is a fundamental step. This ensures the IRS has correct information and that any tax due is properly reported. Even if you cannot pay the full amount owed, filing on time can prevent penalties for failure to file.
Paying taxes by the due date is equally important. If you anticipate owing tax, make estimated tax payments throughout the year to cover your liability. Adjusting your tax withholding with your employer can also prevent underpayment by ensuring enough tax is remitted from each paycheck. This helps align your tax payments more closely with your actual tax obligation.
Maintaining accurate and organized records of all income, deductions, and tax payments is beneficial. Good record-keeping simplifies tax preparation and provides necessary documentation if the IRS has questions about your return. Promptly responding to all IRS correspondence, even if it appears minor, is also a proactive measure. Ignoring IRS letters can escalate issues and lead to more serious collection actions like Tax Topic 151 notices.