IRS Notice CP171: What It Is and What To Do

IRS Notice CP171 is a notice sent by the IRS to employers who have an outstanding tax balance.

It’s similar to the Notice CP71 issued to individuals for the same reasons.

Here is a sample CP171 notice that the IRS issued to one of our clients for overdue payroll taxes.

IRS Notice CP171 At a Glance

IRS Notice CP171 Explained, Part by Part

Here’s a full run through of the Notice CP171, explained part by part.

Part 1: Reminder & Billing Summary

Notice CP171 opens with the primary reason as to why the letter was sent, i.e. to remind you about overdue taxes.

This opening line also includes the date the taxes were due to be paid by, with the total amount due presented in bold.

Just below this is a breakdown of the total tax bill, including the original amount owed as well as any applicable penalties, interest or deductions.

In this example we can see a liability of just over $200 with interest to the tune of $252.

This section also states that the IRS is required by law to send this notice to inform you of taxes due, in this case, from IRS Form 941 (Employer’s Quarterly Federal Tax Return).

Part 2: Payment Coupon

The final part is the payment coupon that the IRS includes, which you will attach to your payment if you decide to pay by mail.

When the IRS Sends Notice CP171

The IRS sends Notice CP171 to employers in order to remind them of their unpaid tax bill.

If you receive a Notice CP171, you can choose to pay the balance in full, contact the IRS to discuss alternative payment options, or formally disagree with the liability and contest the amount due, if you’re in disagreement.

Part 3: Your Next Steps

This part covers what action you need to take, depending on your situation.

First of all, if you’re already communicating with the IRS and working on making your payments, then you don’t need to take any further action as a result of this notice.

However, if you (1) agree with the amount owed as described above, and (2) are not already working with an IRS representative, the IRS wants you to either pay the amount in full or visit this web page in order to learn more about installment and payment agreements that you may qualify for.

The IRS also provides a number you can call in order to discuss your payment options.

If you can’t pay your IRS bill in full, then you’ll want to consider exploring whatever alternative payment options are available to you.

Finally, the IRS recommends that if you disagree with the given liability, in part or in full, you should call them on the number shown to review your account.

Part 4: If You Don’t Respond

Whatever route you choose to take from the options given in the previous section, it’s vital that you do something rather than sit on it, forget it, etc.

In this part you’ll be given a deadline to pay your balance, otherwise you’ll be at risk of further interest and/or penalty charge.

It further states that annual reminder notices will be sent if you fail to either pay or contact the IRS to make alternative payment arrangements, such as installment agreement or offer in compromise.

Finally, if there has already been a lien placed against you, the IRS is reminding you here that this makes it very difficult to be approved for new loans, plus it can tank your credit score since a federal lien goes on public record.

Part 5: Interest Charges

The next section covers interest charges on your account, and opens with some general information regarding how the IRS calculates interest.

Generally speaking, interest begins to accrue on your account from the original due date of the tax return in question, until the amount is fully paid off.

For penalties, interest can either begin to accrue from the due date of the tax return, or from the date the IRS notifies you of the penalty.

The IRS calculates interest rates by adding 3% on top of the current short-term federal rate.

You can find more information about current IRS interest rates here.

In this section the IRS provides a table reflecting the relevant quarterly interest rate changes that were applied to your account.

For a more detailed calculation of the interest you are being charged, you’ll have to call the IRS at the number given.

Finally, for business owners of a C corporation, note that the IRS will charge an extra 2% interest (on top of the typical interest charges) if you owe more than $100,000 for any given tax period.

Part 6: Additional Information

Getting to the end of the Notice CP171, we find a section with some general information.

There’s a link to the official IRS web page on Notice CP171.

The IRS may occasionally try to gather information about your business such as employees, employers, banks etc, especially if the tax return you’ve submitted is lacking key information.

As a business owner you are entitled to request a list of any third parties whom the IRS has contacted in connection with your tax account.

The following note reminds you that business owners have the right to file a complaint with the Small Business Administration ombudsman if excessive compliance or enforcement actions have been a problem.

Finally, if you need to contact the IRS by mail, make sure to use the address given at the top of this notice.

What You Should Do If You Receive a Notice CP171

If you receive a Notice CP171 from the IRS, here are some key steps to follow:

Step 1: Review your notice.

Your first step is always to read through any IRS correspondence you receive carefully and thoroughly.

If there are any parts that don’t make sense to you, take note of them and consider contacting the IRS, checking through their resources, or asking your legal tax representative.

Once you feel confident about your understanding of the notice, you can consider your next steps depending on where you’re at and whether or not you agree with the total amount the IRS says you owe.

Step 2: Check for errors.

It is possible, and not uncommon, for the IRS to make mistakes from time to time.

Make sure you take the time to comb for any errors, and as far as possible, check the details you’ve been given regarding your tax account against whatever information you have on record yourself.

Step 3: Consider your next step.

Depending on your situation, you may just decide the best option is to go ahead and pay the bill in full.

However, if you think the total amount given in this Notice CP171 is inaccurate, or if paying in full is not an option for you, then you can and should consider alternate payment methods or formal appeal.

Installment Agreement (IA), Offer in Compromise (OIC) and Currently Not Collectible status (CNC) could be options for you, if you qualify.

If you’re already working with a tax attorney, CPA, EA etc they can help you first of all determine which payment options might be viable for you.

This is something we do for our clients all the time, so do feel free to reach out to us today if you’ve got a tax debt that you need help with.

Step 4: Respond to the IRS.

Responding promptly to the IRS, in one way or another, is important.

If the IRS doesn’t hear from you at all, you will continue to receive reminders and may also be under threat of further collection actions, which can include lien, levy and other financial penalties.

Step 5 (Optional): Seek professional assistance.

If you’re not so sure about how to respond to your Notice CP171, or if you just don’t want to handle it alone, consider seeking the help of a qualified tax professional.

A CPA, EA, or tax attorney can help to bring clarity and focus to your case with the IRS, and help you discern the optimal way forward for the resolution of your tax debt.