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IRS Collection Notices to Taxpayers in the OVDP program?

The IRS is sending out a slew of collection notices to taxpayers who paid 100% of all taxes, 100% of all interest, and 100% of all penalties. Why is this happening?

If you owe money to the IRS, the first collection notice the IRS sends is known as a CP503. This letter is sent from something known as ACS (Automated Collection System). This letter tells you have a balance due with the IRS and you better pay within 30 days or make arrangements to pay it off in full. If you fall to respond, the IRS ACS will then send you a CP504. This letter will say “Notice of Levy.” It tells you you better respond in 30 days or else. If you do not respond ACS (or a revenue officer, if your case has been so assigned) will send you something known as a Final Notice of Intent to Levy. If you do not respond with a request for a Collection Due Process hearing, the IRS is no free to levy and garnish your wages, bank accounts, accounts receivables and even retirement accounts.

The IRS Offshore Voluntary Disclosure Program (OVDP) Process.

Thousands of US taxpayers have failed to report their worldwide taxable income from bank accounts overseas. Many of them were not aware that the IRS has universal tax jurisdiction, and some people were intentionally hiding income in order to evade taxes. Whatever the reason, the IRS has wanted to give taxpayers a chance to ‘come clean,’ and report those accounts using the offshore voluntary disclosure program (there is a standard 2012 OVDP and a more recent “streamlined OVDP”)(“OVDI” is used interchangeably with OVDP, herein).  

The OVDP process requires taxpayers to file all amended returns, and as long as they are able, to pay all additional taxes and penalties along with interest, along with auguring for lower penalties if necessary ad possible appeals and litigation.  

So the taxpayer sends the amended returns, payments and the entire OVDP package to the OVDP unit. There, they code in the amended return and process payment. Once filed the taxpayer waits for a closing agreement to close out of the case while the IRS is auditing the amended returns.

So why are clients who paid their bills in full getting collection notices?

The OVDP unit is properly adjusting the taxable income on the taxpayers account transcript. Yet, the OVDP process includes no such mechanism for altering ACS to reflect that this is no normal case. The OVDP records the tax, 20% accuracy penalty and 27.5 FBAR penalty pursuant to the program;they do not reflect the proper tax, penalties and interest provided under the Internal Revenue Code and furthermore payment are also not being reflected. This results in the computer reflecting a balance due. Since the Automated Collections Systems is, automated, a balance due always means a CP503 — that first collection letter.

So what is the proper response?

In these cases, it is difficult to find anyone in the OVDP unit to take care of the matter ask there is not any one particular agent assigned yet. So our response to this process has been to write to ACS to inform them that the taxpayer in is in the OVDP attaching a letter indicated the acceptance into the program.

Because we have not seen any Notice of Levy (CP504) issued yet (again the CP503 is issued aftera CP503), we believe so far that out response has been adequate to stop these IRS collection letters.

You can also consider contacting the taxpayer Advocate's office to report your individual clients problem and/or is systemic problem with the IRS .

Where your client receives a Final Notice of Intent to Levy, you can requestg a Collection Due Process hearing. At a collection due process hearing we can get face-to-face with a real IRS appeals officer and explain that enforced collections is totally inappropriate. Of course, having to use the Appeals Division of the IRS to stop the IRS from collecting taxes when no tax is due, is not exactly an efficient allocation of resources.
Need to make a Voluntary Disclosure of Your Offshore Bank Account?
Contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at or or Toll Free at 888-8TaxAid (888 882-9243). 



Read more at: Tax Times blog

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