CP171 Notice: Avoid Penalties and Resolve Your Balance

Last updated 10/30/2024 by

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Summary:

The CP171 Notice is issued by the IRS to notify taxpayers of a balance due on their account. This notice typically arises when the taxpayer has failed to pay their outstanding taxes by the due date or when additional interest and penalties have accumulated. The CP171 explains the balance owed, provides payment options, and outlines the consequences of failing to resolve the debt. Acting quickly can help avoid further penalties and interest, while resolving the issue in a timely manner ensures taxpayers stay in good standing with the IRS.

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Receiving a CP171 Notice from the IRS can be a source of anxiety, but it’s essential to understand that it serves a critical purpose—informing you of unpaid tax obligations. Ignoring the notice can lead to mounting interest, additional penalties, and even enforcement actions such as liens or levies. In this article, we will explain the CP171 Notice in detail, including why it was issued, how to respond, what actions to take, and how to avoid receiving future notices. Understanding the process will help you take control of your tax situation and avoid further complications.

What is the CP171 notice?

The CP171 Notice is a formal letter issued by the IRS that informs a taxpayer they have an unpaid balance on their account. It typically follows prior notices, such as CP14, which would have originally notified the taxpayer of the balance due. The CP171 is a more urgent reminder that the amount remains unpaid and that additional penalties and interest may have accrued over time.
This notice outlines:

The amount you owe in taxes, interest, and penalties
The due date for payment
Payment options, including how to pay electronically or via mail
Possible consequences for non-payment, including liens or wage garnishment

It’s important to understand that the CP171 does not add any new tax liabilities. Rather, it reflects existing taxes that have not been paid and urges you to take immediate action to resolve the balance.

How does the IRS calculate your balance?

The amount shown on the CP171 includes the original tax owed, as well as any interest and penalties accrued since the original due date. Here’s a breakdown of how these amounts are calculated:

Original balance due

This is the tax liability that you either reported on your return or that was assessed by the IRS after an audit or examination. It is the principal amount you owe without penalties or interest.

Interest

The IRS charges interest on any unpaid taxes starting from the due date of your return. Interest continues to accrue until the balance is paid in full. The IRS interest rate is determined quarterly and is based on the federal short-term rate plus 3%.

Penalties

Failure to pay your taxes on time results in additional penalties, such as:

Failure-to-pay penalty: This penalty is 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid, up to a maximum of 25% of your balance.
Failure-to-file penalty: If you filed your return late and had unpaid taxes, you might have incurred a failure-to-file penalty, which is typically 5% of the unpaid taxes per month, also capped at 25%.

Together, these amounts can quickly grow, which is why responding to the CP171 Notice as soon as possible is essential.

Pro tip

If you’re setting up an installment agreement, pay as much as you can upfront. This reduces the amount on which interest and penalties will accrue, helping you save money over time.

Why did I receive the CP171 notice?

The IRS sends a CP171 Notice when a taxpayer has an outstanding balance that has not been paid by the deadline. There are several reasons you might receive this notice:

You missed a payment deadline and did not pay the amount owed by the due date.
You failed to pay the full balance of your taxes from a previous notice.
Interest and penalties have accumulated on your unpaid balance, and the IRS is informing you of the updated total.
You did not respond to earlier notices (such as a CP14 or CP501).

Regardless of the cause, receiving a CP171 is a clear indication that the IRS expects prompt payment or communication to resolve the matter.

How does the CP171 notice affect you?

If you receive a CP171 Notice, it’s essential to understand the possible consequences. Ignoring the notice or failing to resolve the balance could lead to further action by the IRS. Some potential consequences include:

Accrual of additional interest and penalties

As long as your balance remains unpaid, the IRS will continue to charge interest and penalties on the outstanding amount. This can significantly increase your tax debt over time, making it even harder to pay off.

Possible enforcement actions

If you fail to respond to the notice, the IRS may take enforcement actions to collect the debt. This could include:

Tax liens: A lien is a legal claim against your property that protects the IRS’s interest in your assets. This can damage your credit score and make it difficult to sell or refinance your property.
Wage garnishment: The IRS may garnish your wages, meaning they can take a portion of your paycheck to apply toward your tax debt.
Bank levies: The IRS can seize funds directly from your bank accounts to satisfy your debt.

Potential legal consequences

In extreme cases, continued non-payment of taxes can result in criminal charges, especially if the IRS believes the non-payment was deliberate or fraudulent. While this is rare, it’s an indication of how serious tax debt can become if not addressed.

Pro tip

Consider making electronic payments through the IRS website. It’s faster, more secure, and provides immediate confirmation that your payment has been received, reducing the risk of missed deadlines.

What should you do when you receive a CP171 notice?

When you receive a CP171 Notice, it’s important to act immediately to avoid further penalties and interest. Here are the steps you should take:

Review the notice carefully to understand the amount you owe and the deadline for payment.
Confirm that the balance due is accurate. If you believe there is an error, contact the IRS to clarify.
If possible, pay the full balance by the due date. You can make payments online via the IRS website or send a check by mail.
If you can’t pay the full amount, consider other options such as an installment agreement or an offer in compromise.

It’s also a good idea to consult with a tax professional if you’re unsure about the next steps or if the amount owed is substantial.

Payment options for the CP171 notice

Full payment

The easiest way to resolve a CP171 Notice is to pay the full amount owed by the due date. You can do this in several ways:

Online: The IRS allows for electronic payments via their website. You can use a bank account or credit card to make your payment.
Mail: If you prefer, you can send a check or money order to the address provided on the notice.

Make sure to include the payment coupon at the bottom of the notice if mailing your payment.

Installment agreement

If you cannot afford to pay the full amount at once, the IRS offers installment agreements that allow you to pay off your debt over time. You’ll need to apply for the agreement and continue making monthly payments until the balance is paid off. Keep in mind that interest and penalties will continue to accrue while you’re making payments.

Offer in compromise

In some cases, the IRS may accept less than the full amount owed through an Offer in Compromise (OIC). This option is typically only available if you can prove that paying the full amount would cause financial hardship. An OIC requires extensive documentation, including proof of your financial situation, and is not guaranteed to be accepted by the IRS.

Temporary delay of collection

If you’re facing significant financial difficulties, the IRS may temporarily delay collection efforts. This does not forgive your debt, but it can provide some relief by giving you more time to pay. Interest and penalties will continue to accrue during the delay, so it’s important to explore other payment options if possible.

Pro tip

Set up IRS account alerts online to get real-time notifications on any changes to your tax return or account. This helps you stay updated on adjustments and due dates.

How to avoid receiving a CP171 notice in the future

To avoid receiving a CP171 Notice or other IRS letters about unpaid taxes, consider the following best practices:

Pay your taxes on time to avoid interest and penalties.
Set up payment reminders or automatic payments to ensure you don’t miss deadlines.
Keep thorough records of your tax payments to resolve any potential discrepancies quickly.
Communicate with the IRS if you’re unable to pay your taxes, rather than ignoring the issue.

By staying proactive with your tax obligations, you can avoid the stress and complications that come with IRS notices.

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Frequently asked questions

How do I know if the CP171 notice amount is correct?

If you receive a CP171 Notice, it’s important to verify that the amount listed is accurate. Compare the notice to your previous tax documents and any earlier IRS notices to ensure the original tax amount, penalties, and interest have been calculated correctly. If you believe there is an error, contact the IRS for clarification, or consult a tax professional for help in reviewing the notice.

Can I dispute the CP171 notice if I think it’s wrong?

Yes, you can dispute the CP171 Notice if you believe the information is incorrect. To dispute it, you should contact the IRS as soon as possible and provide documentation supporting your claim. You may need to submit a written explanation, along with copies of relevant tax documents, to demonstrate why the balance or penalties should be adjusted. The IRS may request additional information during the review process.

Will paying off the CP171 balance stop further penalties?

Paying off the balance indicated on the CP171 Notice will stop further penalties and interest from accruing on the unpaid amount. However, any penalties and interest that have already accumulated before the payment will still be due. It’s important to make the payment by the due date on the notice to avoid additional penalties. If you cannot pay in full, consider setting up an installment agreement to minimize further charges.

What should I do if I cannot pay the full amount on the CP171 notice?

If you cannot afford to pay the full amount, you have several options. You can request an installment agreement to pay the debt over time or apply for an Offer in Compromise if you meet the eligibility requirements. Additionally, the IRS may consider temporarily delaying collection actions if you’re facing financial hardship. Contact the IRS or speak to a tax professional to determine the best course of action based on your circumstances.

How long does it take to resolve a CP171 notice?

The time it takes to resolve a CP171 Notice depends on the action you take. If you pay the balance in full, the matter is usually resolved quickly. Setting up an installment agreement may take a few weeks, while disputing the notice or applying for an Offer in Compromise could take several months, depending on the complexity of your case. Respond promptly and provide any requested documentation to speed up the process.

Need help understanding other IRS letters and notices? Visit our comprehensive guide to IRS Letters and Notices or search for the document you received in the table below.

IRS Letter or Notice Number

Notice Description

CP01	The IRS verified your claim of identity theft and will monitor your account.
CP01H	The IRS received a tax return with a social security number that belongs to a dead person.
CP02H	Money is due on an amended return based on a grant received due to Hurricane Katrina, Rita, or Wilma.
CP03C	You received the First-Time Homebuyer Credit for a house you purchased.
CP04	You may be eligible for tax deferment because either you or a spouse served in a combat zone, a qualified contingency operation, or a hazardous duty station during the tax year specified on your notice.
CP08	You may be entitled to additional money due to the Additional Child Tax Credit.
CP10	Your tax return changed due to a miscalculation, and the refund you wanted to apply to an estimated tax payment has changed.
CP10A	Your tax return changed due to a miscalculation of the Earned Income Credit, and the refund you wanted to apply to an estimated tax payment has changed.
CP11	You owe money because the IRS amended your return due to a miscalculation.
CP11A	Your tax return changed due to a miscalculation of the Earned Income Credit, and the refund you wanted to apply to an estimated tax payment also changed.
CP11M	Your tax return changed due to a miscalculation of the Making Work Pay and Government Retiree Credit, and the refund you wanted to apply to an estimated tax payment has changed.
CP12	You are due a bigger refund because the IRS corrected one or more mistakes on your tax return.
CP12A	The IRS made changes to correct the Earned Income Credit (EIC) claimed on your tax return.
CP12E or CP12F	The IRS corrected a miscalculation on your return.
CP12M	The IRS made changes to the computation of the Making Work Pay and/or Government Retiree Credits on your return.
CP12R	The IRS made changes to the computation of the Rebate Recovery Credit on your return.
CP13	The IRS made changes to your return due to a miscalculation. There is no refund or amount due. Your balance is zero.
CP13A	The IRS made changes to your return due to a miscalculation of the Earned Income Credit. There is no refund or amount due. Your balance is zero.
CP13M	The IRS made changes to your return due to a miscalculation of the Making Work Pay credit or the Government Retiree Credit. There is no refund or amount due. Your balance is zero.
CP13R	The IRS made changes to your return due to a miscalculation of the Recovery Rebate Credit. There is no refund or amount due. Your balance is zero.
CP14	You owe money on unpaid taxes.
CP16	The IRS made changes to your return due to a miscalculation. The refund you were due was applied to other tax debts.
CP21A	You owe money due to the changes you requested that the IRS make on your tax returns.
CP21B	You are due a refund due to the changes you requested that the IRS make on your tax returns. The money should arrive within 2 to 3 weeks.
CP21C	The IRS made the requested changes to your tax return. You will not receive a refund, and there is no tax due. Your balance is zero.
CP21E	As a result of your recent audit, the IRS made changes to your tax return, and you owe money as a result of those changes.
CP21I	The IRS made changes to your tax return relating to the Individual Retirement Arrangement (IRA) taxes. You owe money due to the changes.
CP22A	The IRS made the changes you requested, and you owe money as a result.
CP22E	As a result of your recent audit, the IRS changed your tax return, and you now owe money.
CP22I	The IRS made changes to your tax return relating to the Individual Retirement Arrangement (IRA) taxes. You owe money due to the changes.
CP23	The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. You owe taxes due to these changes.
CP24	The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. This resulted in an overpayment of estimated taxes.
CP24E	The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. This resulted in an overpayment of estimated taxes.
CP25	The IRS changed your return because there was a difference between the amount of estimated tax payments listed on your tax return and the amount actually posted to your account. You are not due a refund, nor do you owe any money. Your balance is zero.
CP31	You need to update your address because your refund check was returned to the IRS.
CP45	The IRS was unable to apply your overpayment to your estimated tax as you requested.
CP49	The IRS used all or part of your refund to pay a tax debt.
CP53	Your refund check will be sent by mail because the IRS can’t provide your refund through direct deposit.
CP57	The bank declined your payment, so the IRS was unable to draft funds from your bank account.
CP71	A reminder of the amount you owe in tax, penalty, and interest.
CP71A	A reminder of the amount you owe in tax, penalty, and interest.
CP71C	A reminder of the amount you owe in tax, penalty, and interest.
CP71D	A reminder of the amount you owe in tax, penalty, and interest.
CP88	The IRS is holding your refund because you haven't filed one or more tax returns, and it believes you will owe tax.
CP90	The IRS is notifying you of its intent to levy certain assets for unpaid taxes. You have the right to dispute the levy in a Collection Due Process hearing.
CP91	The IRS will levy up to 15% of your social security benefits for unpaid taxes.
CP120	The IRS needs documentation of your tax-exempt status.
CP120A	Your organization’s tax-exempt status has been revoked because it failed to file a Form 990 series return for three consecutive years.
CP130	You may no longer need to pay the Alternative Minimum Tax (AMT) because your tax return filing requirements changed.
CP152	The IRS received your return.
CP153	The IRS will send your refund by mail because your direct deposit did not go through.
CP161	You have an unpaid balance due to the IRS.
CP166	Your monthly payment to the IRS did not go through due to insufficient funds in your bank account.
CP178	You may no longer owe excise tax because your tax return filing requirements changed.
CP231	You need to update your address because your refund was returned to the IRS.
CP259	You did not file the business tax return identified in the notice.
CP259A	You should have filed these forms but did not – Form 990/990-EZ, Return of Organization Exempt From Income Tax, or Form 990-N (e-Postcard).
CP259B	The IRS requires you to file these forms but did not – Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation.
CP259C	The IRS believes that you are a private foundation, but did not file the required Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation.
CP259D	You must file this form, but you did not – Form 990-T, Exempt Organization Business Income Tax Return.
CP259E	You should have filed this form, but you did not – Form 990-N (e-Postcard) or Form 990/990-EZ, Return of Organization Exempt From Income Tax.
CP259F	The IRS requires you to file this form but did not – Form 5227, Split-Interest Trust Information Return.
CP259G	The IRS requires you to file this form, but you didn’t – Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations.
CP259H	As a tax-exempt political organization, you must file this form, but you did not – Form 990/990-EZ, Return of Organization Exempt From Income Tax.
CP276A	You submitted your tax liability schedule incorrectly. The IRS typically charges a Federal Tax Deposit (FTD) penalty for this but did not this time.
CP276B	The IRS did not receive the correct amount of tax deposits. It normally charges a Federal Tax Deposit (FTD) penalty but did not this time.
CP297	The IRS is notifying you of its intent to levy certain assets for unpaid taxes. You have the right to dispute the levy at a Collection Due Process hearing.
CP297A	The IRS has levied your assets for unpaid taxes. You have the right to dispute the levy at a Collection Due Process hearing.
CP298	The IRS notifying you of its intent to levy up to 15% of your social security benefits for unpaid taxes.
CP501	You have a balance due on one of your tax accounts.
CP503	You have an unpaid balance on one of your accounts, and the IRS has not heard from you.
CP504	You have an unpaid amount due on your account. If you do not pay immediately, the IRS will levy your state income tax refund to apply it to the amount you owe.
CP504B	You have an unpaid amount due on your account. If you do not pay immediately, the IRS will levy certain property or rights to property to apply it to the amount you owe.
CP521	A reminder that you have an installment agreement payment due.
CP523	You have defaulted on your payment agreement. Therefore the IRS is terminating the agreement and will levy your assets.
CP601	Usted tiene un saldo pendiente de pago (dinero que le debe al IRS) en una de sus cuentas contributivas.
CP603	No hemos recibido respuesta de parte de usted y todavía tiene un saldo sin pagar en una de sus cuentas contributivas.
CP604	Usted tiene un saldo sin pagar en su cuenta. De no pagar esta cantidad inmediatemente, el IRS embargará cualquier reembolso de impuestos estatales al que tenga derecho y aplicarlo al pago de su deuda.
CP604B	Usted tiene un saldo sin pagar en su cuenta. De no pagar esta cantidad inmediatemente, el IRS embargará ciertas propiedades o derechos de propiedad y lo aplicará al pago de su deuda.
CP621	Este aviso es para notificarle que usted tiene un plan de pagos a plazos vencido. Por favor, envíe el pago inmediatamente.
CP623	Este aviso es para informarle nuestra intención de cancelar su plan de pagos a plazos y confiscar (embargar) sus bienes. Usted incumplió en su acuerdo.
CP711	Nosotros realizamos cambios a su planilla debido a que entendemos que hubo un cálculo erróneo. Como resultado de estos cambios, usted adeuda dinero por sus contribuciones.
CP721	Hicimos el(los) cambio(s) que usted solicitó a su declaración de impuestos para el año tributario que aparece en su aviso. Como resultado de éste(estos) cambio(s) usted debe dinero en sus impuestos.
CP722	Hicimos el(los) cambio(s) que usted solicitó a su declaración de impuestos para el año tributario que aparece en su aviso. Como resultado de éste(estos) cambio(s) usted debe dinero en sus impuestos.
CP771	Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses.
CP772	Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses.
CP773	Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses.
CP774	Usted recibió este aviso para recordarle sobre la cantidad que adeuda en contribuciones, multas e intereses.
CP959	Usted no radicó su planilla de contribución de negocios identificada en este aviso.
CP2000	The income or payment information on file doesn’t match your tax return. The discrepancy may result in an increase or decrease in your tax due.
CP3219A	The IRS has received information that is different from what you reported on your tax return. This may result in an increase or decrease in your tax.
CP3219N	The IRS didn’t receive your tax return, so it calculated your return based on the information received from employers, financial institutions, and others. If you want to challenge the proposed tax, you have 90 days from the date of this notice. If you are outside the country, you have 150 days.
Letter 0012C	The IRS needs additional information to process your tax return.
Letter 0484C	The IRS wants a completed
Letter 0525	Updates you on proposed changes after an IRS examination. Any changes are explained and details the refund due or taxes owed.
Letter 531	IRS Notice of Deficiency. The information the IRS received about you was different from what you reported on your return.
Letter 0668D(LP 68)	The IRS released their levy.
Letter 0549C	Your tax bill was paid.
Letter 0681C	The IRS accepted your payment proposal. However, this is not a formal Installment Agreement.
Letter 0757C	You did not adhere to the terms of your Installment Agreement.
Letter LT 11	The IRS plans to seize your property or rights to property.
Letter 1058	The IRS has not received your payment. It plans to seize your property or rights to property.
Letter 1615 (LT 18)	You must respond to the IRS within 10 days of this notice regarding past due tax returns.
Letter 1737 (LT 27)	Complete and sign Form 433F, Collection Information Statement.
Letter 1961C	Your application for a Direct Debit Installment Agreement was declined. It explains why and what you need to do to qualify.
Letter 1962C	Your application for a
Letter 2050 (LT 16)	The IRS is trying to collect unpaid taxes from you from returns that have been filed or from returns that have not been filed.
Letter 2257C	The IRS is providing the payoff amount that you requested.
Letter 226-J	An IRS letter to large employers notifying them that they may be liable for an Employer Shared Responsibility Payment (ESRP).
Letter 2271C	A request for an Installment Agreement has been approved. It explains the fees and how to qualify for a Low Income Fee Reduction. The letter may also request missing information.
Letter 2272C	An IRS letter explaining why your request to pay the balance due in installments was declined.
Letter 2273C	A confirmation letter of your request to pay the balance due in installments. It contained the amount to pay, fees charged, and where to send payment. Instructions on how to apply for the Low Income Fee Reduction included.
Letter 2318C	A response to a request to pay taxes due to payroll deductions. It also explains the fees that are charged.
Letter 2357C	The IRS is admitting that it did not send you the balance due notices that it should have.
Letter 2603C	The IRS accepted your installment agreement. The IRS will file a Notice of Federal Tax Lien on your personal property.
Letter 2604C	The IRS has accepted your request for installment payments. This IRS letter provides the monthly payment, the address where to send it, and the fees charged. The letter also provides instructions on how to apply for the Low Income Fee Reduction.
Letter 2761C	The IRS is requesting your combat zone service dates to ensure that it provides you with the special provisions and protection of the combat zone deferment. Copies of military orders or other documentation to support your time served may be requested. Civilians working in support of the Armed Forces may be required to provide a Letter of Authorization or a letter from their employer.
Letter 2789C	An annual reminder notice, as required by law, of the balance due to the IRS. It explains that penalties and interest continue to accrue until the balance is fully paid.
Letter 2840C	Confirms your Installment Agreement request and includes the payment amount and due date. This IRS letter explains the fees charged for paying monthly and explains how to apply for the Low Income Fee Reduction (if you qualify).
Letter 3030C	Provides an explanation of the tax, penalty, and interest still due on your account.
Letter 3127C	A confirmation of your request to make a change to your Installment Agreement. This IRS letter explains the fees for the change. Changes can be to the payment amount or due date, or it can include additional liabilities.
Letter 3174	A reminder of taxes due after the IRS has sent a Notice of Intent to Levy.
Letter 3217C	The IRS has accepted your request to pay the balance in installments. This IRS letter provides your payment amount, the due date, and fees charged. The letter also provides instructions on applying for the Low Income Fee Reduction (if you qualify).
Letter 3228 (LT 39)	A request to pay the balance due within 10 days using the envelope provided.
Letter 3500	The IRS has received your documents, and it needs additional time to review them.
Letter 3572	Your Federal Income Tax Return has been selected for examination. The IRS auditor requests that you call to schedule an audit appointment.
Letter 4883C	The IRS received your federal income tax return but needs more information to verify your identity in order to process your tax return accurately.
Letter 4903 (LT 26)	You must file your tax returns immediately. The IRS has previously contacted you, but it did not receive a response.
Letter LP 47	The IRS is trying to locate the person identified in the letter and is requesting that you provide their new address.
Letter LP 59	The IRS has not received a response to the notice of levy it previously sent.
Audit Letter 2205	The IRS manages audits either by mail or through an in-person interview to review your records. The interview may be at an IRS office (office audit) or the taxpayer’s home, place of business, or accountant’s office (field audit).
Letter 915	You recently underwent an audit, and the IRS informs you that you now owe taxes.

Key takeaways

The CP171 Notice is issued when the IRS notifies a taxpayer about an unpaid tax balance.
Interest and penalties continue to accrue on unpaid taxes, so timely action is essential.
Responding promptly can prevent enforcement actions like wage garnishment or tax liens.
Payment options include full payment, installment agreements, and Offers in Compromise.
Proactively managing your tax obligations helps prevent future notices.

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