IRS CP504 Notice
Understand your IRS CP504 & the steps you need to take to resolve your tax debt with the IRS
TLDR;
An IRS CP504 notice is a letter warning you of a levy, garnishment, or other potential collection action by the IRS, a response or payment is due within 30 days from the date of the letter.
The notice includes information about the tax year in question, the amount owed, any penalties or interest, and the due date for payment.
If you are not able to pay the full amount by the due date, the IRS may take further action to collect the debt.
You may qualify for Tax Relief or Settlement if you are unable to pay your tax debt
The IRS CP504 Notice is a final balance due reminder for payment of a delinquent tax debt that you owe for taxes.
The IRS CP504 notice is one of the most aggressive forms of collection action that the IRS can take, which is why it is crucial to understand its implications and take action promptly. In this blog post, we will delve into the key aspects of the IRS CP504 Notice, why you may have received it, and the steps you can take to resolve it.
The IRS CP504 is a last resort to alert you that the IRS intends to initiate collection actions against you in the form of levies and liens if you don't take immediate action to resolve the debt. The notice includes the total amount due, including interest & Penalties on the tax year owed.
The IRS CP504 Notice notice contains the total balance owed for the tax year it references on the first page. The balance due totals the amount of tax and the following statutory amounts of Interest & Penalties:
Failure to Pay Penalty
Failure to File Penalty
Interest to the balance
The Total Balance Owed for the Tax Year.
Why did the IRS send me the CP504 Notice?
The main reason that the IRS issues & mails out the notice is because they have to provide you a systematic warning, which is legally required before they take action against you. Without giving proper warnings, the IRS can not take action against you.
When the IRS mails you the CP504, the IRS is essentially opening the doors for collection actions against you. The CP504 Notice is giving you a 30 day warning before they can take such actions against you.
What the IRS CP504 Notice does not include
The IRS CP504 notice is only specific to 1 Tax Year. If you owe taxes for other years, a CP504 notice will only contain information for 1 particular tax year. Each tax year will need to have its own CP504 Notice mailed out to you if you have not resolved the balances.
If you had made recent payments, the letter may have been generated by the IRS automatically, and the recent payment may not have been reflected in the CP504 letter. To check the account balance, you may need to contact the IRS to get the updated balance or go online and review your account history.
How can I resolve the balance on the IRS CP504?
You can resolve the balance owed to the IRS in the following 7 ways:
Review the original tax return for errors & amend the tax return
Pay the balance in full ( & penalty forgiveness)
Temporary time to pay ( & Penalty Forgiveness)
Payment Plans ( & Penalty Forgiveness)
Penalty Forgiveness
Offer In Compromise
Non-Collectible Status - Financial Hardship Status
1. Review the original tax return for errors & amend the tax return
This step is always important, review your income and deductions and compare that with the tax return as filed.
Getting a second opinion from a different qualified tax professional is highly recommended. This might be the case if you either filed the original tax return yourself or you had the taxes filed by a seasonal tax preparer from one of the big box tax preparation companies.
The big chain tax prep companies hire seasonal preparers who are not experts in taxes. So, a second opinion would not hurt.
If there is an error in the tax return, you can correct the tax return and file an amended tax return. If this reduces or eliminates the balance that would be golden!
However, if the tax return is correct and amending the tax return is not an option, then you will have to review one of the other ways to fix the IRS balance.
2. Pay the balance in full ( & penalty forgiveness)
If the CP14 is accurate compared with the original tax filing, paying the taxes in full is an option. When making the payment, it can be made online with a checking account, or a credit card or send a payment through the mail by check or money order.
if you will be paying the balance off, you have to make sure you pay the correct tax year in question. If you just send a payment to the IRS without the tax year in question, the IRS might apply the payment to a different tax year, and you might just end up in collections.
Penalty forgiveness might also be available even if you pay off the balance in full. The forgiveness of penalties is detailed below.
3. Temporary time to pay ( & Penalty Forgiveness)
The IRS can grant you a temporary time to pay, up to 120 days to pay the balance in full.
You can request the IRS to grant you a certain amount of time to pay the taxes in full.
This option allows you 4 months to pay the balance. Keep in mind, only choose this option if you are 100% sure you can pay the IRS in the time frame requested.
Once you make the payment, you may qualify for the forgiveness of penalty which is detailed below.
4. Payment Plan ( & Penalty Forgiveness)
The IRS can grant you an installment agreement. There are different types of payment plans offered by the IRS. All of the payment plans once approved, will require you to file future tax returns on time, and not owe an additional amount.
If the balance is under $25,000, the IRS will accept a 72-month payment plan where you can make the payments yourself before the due date.
If the balance is over $25,000 and under $50,000 the IRS will also accept a 72 payment plan, however, the payments must be through direct debit from a checking account.
When the balance is over $50,000 and under $100,000 the IRS can accept an 84-month payment plan, however, they will file a federal tax lien against you.
Another option is to request a financial hardship payment plan. Under a hardship payment plan, the amount you owe to the IRS does not matter. What matters is only your current finances.
This method works like this: Let’s say you owe $100,000 ( One Hundred Thousand Dollars). However, you can only afford a payment of $50 (Fifty) per month.
The IRS will accept the payment plan, however, your financial situation will have to be disclosed, including Income, Asset, Liabilities, and expenses.
If the hardship payment plan gets approved, the IRS may also file a federal tax lien against you.
5. Penalty Forgiveness
The penalty that has been added for either failure to file or failure to pay may be forgiven. The penalties are added as a way to punish you for either not filing on time, not paying on time or both.
The forgiveness of penalties by the IRS is created as a way to offer you an opportunity to reward you if you have had a good filing history or if you have faced hardship or there is a reasonable explanation to the late filing or the late payment of the taxes.
If you have had a good filing history for the last 3 years, where you filed your tax return timely and generally had refunds or paid your tax balance before tax day, then you might be a candidate for the “First Time Penalty Abatement”
Another method of requesting the penalty be forgiven is if you have faced some kind of hardship that prevented you from paying the taxes.
Hardship can be one of the following:
Medical Hardship such as an unexpected illness or surgery
Financial hardship such as a loss of a job
Death of an immediate family member
The IRS also offers the forgiveness of Penalty if you received wrong tax advice from a tax professional, and because of that advice you ended up owing the balance to the IRS
One other method of getting the penalties forgiven if you received erroneous written advice from the IRS. IF this occurs, you will qualify for the forgiveness of the penalty.
6. Offer In Compromise
The IRS has a complete tax forgiveness program, known as the OIC, or Offer In Compromise. There are three types of Offer In Compromise: Doubt as to collectibility, Doubt as to liability & effective tax administration.
This program exists to give an opportunity and to wipe out the balance owed to the IRS down to nothing, zip, zero ($0).
There are requirements and eligibility guidelines to meet the standards of the OIC.
If the taxes are forgiven through the program, there is also a 5 probationary period the IRS will monitor your tax filing and no additional taxes owed. So the goal moving forward is file on time, and not owe an additional tax at tax time.
The most popular program of the OIC is the doubt as to collectibility. The guidelines are based on your disposable income, assets, liabilities and living expenses.
A sample of the IRS OIC works like this:
A calculation shows your offer amount is calculated at $100.
You owe the IRS $45,000.
The IRS accepts your offer of $100.
You pay the $100 & the IRS forgives the $45,000.
The big requirement is the eligibility guidelines and your current financial situation.
7. Non-Collectible Status - Financial Hardship Status
There is a financial hardship program known as Non-Collectible Status or CNC.
CNC is an excellent program where you are placed in a protected status because of your current financial hardship situation.
CNC is a great solution for those who will not qualify for an offer in compromise, yet can not afford to pay the taxes.
CNC allows you to continue to pay for living expenses without the worry of any type of IRS collection action.
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ou received a CP504 Notice because you have an outstanding tax debt that you have not paid or resolved with the IRS. The IRS may send this notice when it has exhausted all other collection methods, including sending you a CP501 or CP503 notice. The IRS may also refer your case to a collection agency for further action.
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f you have received an IRS CP504 Notice, there are several options available for you to resolve your tax debt. The first option is to pay your debt in full, including any penalties and interest accrued. You can also set up an installment agreement to pay your debt over a specified period. Another option is to apply for an offer in compromise, which allows you to settle your debt for less than the full amount owed. It would help if you also considered speaking to a tax professional to help you determine the best course of action based on your financial circumstances.
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The IRS 504 notice will include the due date for payment, which is typically within 30 days of the date on the notice.
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If you don't pay the full amount owed by the due date, the IRS may take further action to collect the debt, including Levying or garnishing your income sources & placing a lien on your property or seizing your assets. In addition, the IRS may issue a passport revocation.
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If you believe the amount of tax is incorrect, you have the right to dispute the amount with the IRS.
Several options exist to dispute the amounts such as an amended tax return, Identity Theft Claim, or a doubt as to liability program. The burden of proof is up to you to show the IRS.
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If you can't pay the full amount on the CP504, review your original tax filings to see if an amended tax return is possible or if one of the following tax relief programs may apply:
1) Temporary time to pay ( & Penalty Forgiveness)
2) Payment Plans ( & Penalty Forgiveness)
3) Penalty Forgiveness
4) Offer In Compromise
5) Non-Collectible Status - Financial Hardship Status
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The IRS CP504 is the final warning of a balance due on a tax year. This is an important step the IRS needs to issue out levies, garnishments & liens in the future.
The CP504 notice is threatening you with levy action & other collection actions if you do not pay or resolve the tax debt se and get more aggressive.
The collections department of the IRS needs to send out certain letters to you as a legal warning. These legal warnings are mandatory and required before the IRS is able to take any action against you.
From the time the IRS sends you to collections to the time they have the authority to take action is approximately 4 months. The last notice will be sent through certified mail, and the letter will state the final warning.
The best way to deal with this problem is head-on, and for you to take action before the IRS takes action
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There are different gorunds to appealing the IRS actions. When the IRS issues a CP504 notice, the appeal available is the Collectiona Appeals Program or CAP Request.
A CAP request is a fast track appeals program that is different from a CDP or Collections Due Process Hearing. .A CAP request is designed to have an IRS Collections Manager review for the legality of the notice & to resolve the account with you. If the account is not resolved with IRS Management, the IRS office of appeals will review the account.
An IRS CP504 Notice is a not-so-subtle hint that you need to engage with the IRS regarding your tax debt.
It can be intimidating, but it's essential to remain calm, review your options, and take action as soon as possible. Remember that ignoring the notice can result in severe financial penalties, so it's essential to address the matter before it spirals out of control.
If you need some help in resolving your IRS CP504, we can provide a free case review. With the right strategy and approach, you can resolve your tax debt and achieve financial stability.
