When you receive IRS Notice CP504, the Internal Revenue Service (IRS) wants to take your money and property to pay for your federal tax debt. That’s clear, but receiving this letter may leave you with several questions: 

When will the IRS start taking my money? Should I pay the debt, even if I disagree with the assessment? What should I do if I do not have the money or assets to pay my tax debt? 

In this post, we at Seattle Legal Services, PLLC, discuss Notice CP504 in detail and outline the steps you should take if you have received this letter in the mail. 

What Is IRS Notice CP504?

An IRS Notice CP504 is a notice of intent to levy (seize) your property or any rights you may have to property. If a CP504 notice lands in your mailbox, you likely already received other notices indicating that your tax obligation is outstanding and the IRS wants to start collection. 

Under Internal Revenue Code § 6331(d), the IRS must send Notice CP504 to taxpayers at least 30 days before filing a levy. Additionally, the IRS must send you Notice LT11 – Final Notice of Intent to Levy before proceeding with a bank levy, wage garnishment, or other collection action. 

You can dispute the collection action if you have not received Notices CP504 and LT11 before the IRS levies you. However, make sure that the IRS has your correct address, or you may be missing correspondence. 

When Will the IRS Send Notice CP504?

After failing to pay your federal tax, you will receive a series of notices from the IRS, the first of which is the CP501 notice. This letter indicates that a balance is due on your tax account and includes the outstanding amounts and the date when these amounts are due. 

If you do not respond to the CP501 notice, the IRS will send you a CP503 notice. This letter reminds you that you have an outstanding tax debt and is a general warning to settle the debt before the IRS proceeds with the collection. 

If you fail to respond to the CP503 notice, you will receive the CP504 notice. You should not ignore a CP504 notice, even if you ignore the last two, as failure to respond generally results in levy action. Often, there is a delay before the IRS sends out the first notice, but once the first one comes, the others will follow about every six weeks.

IRS Notice CP504 – Detailed Explanation

The sections below outline the content of an IRS Notice CP504:

Billing Summary

The first section of Notice CP504 is a billing summary that typically lists the following four items:

• Your federal tax debt, according to the IRS.
• Any payments or credits on your account for the tax year.
• Failure-to-file, failure-to-pay, or failure-to-deposit penalties that the IRS assessed against your account.
• The interest amount that the IRS has charged to your tax account.

The amount you owe equals the tax debt plus penalties and interest minus payments and credits. 

The IRS’s Instructions on How to Respond

Under the section titled “What you need to do immediately,” the IRS states that if you agree with the amount due, you must pay it within ten days or call the toll-free number to arrange a payment plan. If you do not agree with the amount, you should contact the toll-free number in the letter to review your account with an IRS representative. 

According to Notice CP504, you can request an appeal under the Collection Appeals Program (CAP) if you disagree with the IRS’s intent to levy. However, if you don’t agree with the results of the CAP appeal you cannot protest. So for best results, we at Seattle Legal Services, PLLC, recommend partnering with a reputable tax attorney who can deal with the IRS on your behalf. 

Consequences of Failure to Respond

Notice CP504 outlines several steps the IRS can take if you do not respond within 30 days of the letter’s date:

Federal Tax Lien

Once you owe tax to the IRS, the government has a claim against all your property. If you do not pay this debt, the IRS can file a Notice of Federal Tax Lien against you. This public record establishes the government’s priority as your creditor and can make it difficult to sell or borrow against the property you own. 

Levy

As a delinquent taxpayer, you may face levy action by the IRS, which means the government can take possession of your property or rights to property. The IRS often starts by seizing state tax refunds you should have received. If these refunds are insufficient to cover your liability, the IRS can seize other property, including:

• Wages and other income, such as commissions
• The funds in your bank account
• Personal assets, such as a luxury vehicle or a vacation home
• Business assets
• Social Security benefits

Failure-to-Pay Penalty 

The IRS imposes a penalty for late tax payment of 1/2% per month on the tax amount you owe, even if you filed your return on time. This penalty is capped at 25% of the unpaid tax. 

The payment due date is generally the return due date or within 21 days of receiving a notice for additional taxes owed. If the IRS issues a Notice of Intent to Levy, and you do not pay the balance within ten days, the monthly penalty increases to 1%. However, the monthly penalty is 1/4% (0.25%) for those with an approved installment agreement.

Interest

Interest will also continue to accrue on your account while you owe taxes to the IRS. Notice CP504 includes a table that indicates how the IRS calculates interest on the amount you owe. The interest rate adjusts quarterly, and it’s the Fed Rate plus three.

U.S. Passport Denial or Revocation

Under the FAST Act, the IRS must inform the State Department about taxpayers who owe more than $62,000 in federal taxes, including penalties and interest. That is the 2024 number. It adjusts annually with inflation. 

After receiving this notification, the State Department may not issue or renew the taxpayer’s passport. If the taxpayer already holds a passport, the State Department may revoke it or impose travel limitations. This measure enforces tax compliance by restricting international travel for those with significant tax debts. 

What To Do After Receiving an IRS CP504 Notice

When the IRS sends you Notice CP504, the agency wants you to pay the amount you owe or contact them to arrange a payment plan. If you have the funds or assets to pay the outstanding tax, it is generally always in your best interest, as the IRS will likely issue a levy before the debt expires. 

Contact the IRS to Address Errors

Before paying your tax debt or pursuing one of the tax resolution options, ensure that the IRS’s math checks out. Measure the IRS’s numbers in the notice’s billing summary and penalty sections against your own. If you notice a discrepancy, call the number that the IRS provides and explain that there is an error. 

Resolve the Tax Debt

If the tax debt amount correlates with your records, you should resolve the tax debt before the IRS sends you Notice LT11. If you cannot afford the amount, consider one of the options below: 

Installment Agreement

Under an Installment Agreement, you pay down the tax you owe over time, making a substantial liability easier to manage. The IRS may consider your application for an installment agreement if you have filed all your tax returns for the previous six years and have paid all your current tax liabilities. 

The IRS will stop collection while you pay down your tax debt, though the agency can still file a Notice of Federal Tax Lien against you.

Penalty Abatement

If this is your first time incurring penalties, you should also request first-time penalty abatement. If the IRS approves this request, it will remove failure-to-pay, failure-to-file, and failure-to-deposit penalties from your balance, including the interest that accrued on these penalties. 

The IRS typically grants a penalty abatement if an applicant:

• Has a good compliance history
• Has filed all tax returns on time 
• Has paid or arranged to pay the tax they owe

In addition to first-time abatement, you can also request abatement for reasonable cause which refers to cases where you had a reasonable cause to pay or file late, such as a death in the family.

Offer in Compromise

An offer in compromise is a settlement agreement between you and the IRS, which means you only pay a percentage of your tax debt, and the IRS writes off the rest. 

If you can prove that you do not have the income or net realizable equity in assets to cover your tax debt, the IRS may grant an offer in compromise for doubt as to collectability. Contact us at Seattle Legal Services, PLLC, to learn more about this type of tax debt resolution. 

Currently not Collectible Status

If your income is equal to or lower than the IRS’s Collection Financial Standards, you may experience financial hardship and qualify for currently not collectible status. In this case, the IRS will pause collection against you until your income increases. 

Frequently Asked Questions

What should I do if I have already paid the outstanding tax debt?

You do not need to respond if you have fully paid your tax debt before receiving IRS Notice CP504.

I received Notice CP204, even though the IRS suspended collection on my account due to financial hardship. What should I do?

If the IRS has marked your account as currently not collectible, you do not need to respond to Notice CP504. However, you may want to contact the agency to double-check on your account status.

What does CP stand for?

The “CP” in IRS Notice CP504 stands for “computer paragraph. “A computer automatically generates a CP notice once it receives a trigger from a taxpayer’s balance or actions. 

Let Us Take Care of Your Tax Situation

A bank levy, wage garnishment, or other collection by the IRS can compromise your financial security. Even if you don’t have enough funds to pay your bill completely, you can still work out other arrangements with the IRS. 

At Seattle Legal Services, PLLC, we have the experience and knowledge to help you resolve your tax liability in a manageable way. Contact us today to schedule a consultation.