If you’ve received a CP504 Notice from the Internal Revenue Service (IRS), you can’t afford to ignore it. This letter, which confirms that you have an amount due on your account, serves two purposes:
- A reminder that the IRS has not received payment of your outstanding tax balance
- A warning that if you don’t pay immediately or reach out to make payment arrangements, the IRS may levy your income and bank accounts and seize your property (including your state income tax refund) to pay your tax liability.
In general, the IRS sends the following notices before you receive a CP504:
- CP14 and/or CP501: You have taxes due on an account.
- CP503: The IRS has not heard from you and your account is still unpaid.
The CP504 Notice- an Overview
The CP504 Notice indicates the amount of tax due and the due date for paying it. It may also indicate interest charges and a failure to pay penalty, both of which are added to the tax debt and may accrue until you make the payment. On the left-hand side of the letter, the IRS warns that failure to pay or respond may result in a levy or seizure of your property.
Property subject to seizure includes but may not be limited to:
- Income such as wages, commissions, bonuses, and Social Security benefits
- Personal and business bank accounts
- Personal and business assets
The IRS can also place a Notice of Federal Tax Lien on your property, making it difficult to sell or borrow against it. This lien also appears on your credit report, which hurts your credit rating, and your creditors will be notified that the IRS is now first in line to claim the property.
Many taxpayers receive this notice because they’ve been too worried or stressed to respond. They know they can’t afford to pay their tax balance, so they ignored the preceding letters. If you don’t take action immediately after getting a CP504, you may face an even more stressful situation.
What to Do After Receiving a CP504
If you receive a CP504, you need to act immediately. Your response deadline will be on the notice. If you do not respond by that due date, you may face a tax levy on your property and accounts.
If you agree with the amount requested on the notice and can afford to pay it, you can do so online using a debit card, credit card, or bank transfer. Another option is to send a check using the envelope provided with the notice. Check the notice for the exact due date, as you normally have 30 days to pay.
If your situation is more complicated (you can’t afford to pay the balance or you disagree with the amount requested), contact an MN tax attorney to learn more about your rights and options.
What if You Can’t Pay the Balance?
You may be able to work out a payment plan if you are unable to pay the entire amount. Online payment plans and installment agreements are both possibilities, and an Offer in Compromise may help you settle a tax debt for less than what you owe. If the IRS accepts your offer, you will be able to pay less than the full amount through a lump-sum payment or periodic payment plan.
IRS Installment Agreements
Depending on the amount you owe, the IRS offers different installment agreement options. You may be able to take advantage of some of these options even if you already have a federal lien.
- IRS Streamlined Agreement: Streamlined IRS installment agreements may be available to individuals owing $50,000 or less. You do not have to provide financial statements, which makes the process simpler, but you must pay the balance within 72 months or before the collection statute of limitations expires.
- Negotiated IRS Payment Plan: You may need a negotiated IRS installment agreement if you owe more than $100,000, or if you owe less than $100,000 but cannot pay the balance within the required time frame. In order to qualify, you must provide financial information to the IRS.
Offers in Compromise
If you can’t afford to fully repay your tax debt, you may settle it for less than what you owe with an IRS Offer in Compromise (OIC). These agreements can reduce IRS debt, but whether you qualify depends on your specific situation, and filing an offer in compromise when it is inappropriate for your case can have negative consequences.
Unpaid tax debts can also be subject to other penalties and interest assessments. Fortunately, you may be able to waive portions of or all of your penalties if you file a formal penalty abatement request with the Internal Revenue Service.
What if You Don’t Agree With the Notice?
If you think the amount listed on your CP504 notice is incorrect or you’ve either already paid it or set up an installment plan, you should call the number at the top of the notice to connect with an IRS representative. Regardless of whether you agree or disagree with the tax notice, you must respond immediately or face a seizure order. A Minnesota tax attorney can assist you in dealing with the IRS, challenging incorrect assessments, or negotiating a lower tax bill.
How Can a Minnesota Tax Attorney Help You Respond to Notice CP504?
Since CP504 notices are time-sensitive, the sooner you speak to an attorney, the more likely you are to avoid aggressive collection actions. The attorney can handle all correspondence and inform the IRS of your intent to resolve your debt.
An attorney can help you develop a strategy for responding based on the unique circumstances of your case:
- If you agree that you owe the debt, your attorney can help you devise a payment plan or negotiate a settlement that is acceptable to all parties.
- If you disagree with the amount the IRS says you owe, your attorney can help you dispute it. If you wish to prevent further collection attempts, you must file an appeal so that your attorney can help you argue your case at a hearing.
An attorney can also help you prepare a penalty abatement request. Certain taxpayers are eligible for this abatement under the First Time Penalty Abatement policy, which offers administrative relief from penalties for failure to pay. As per IRS policy, this relief may be available to you if you meet certain conditions. You can discuss these conditions with your attorney to determine if you qualify.
The prospect of wage garnishments, bank levies, and tax liens can be extremely worrying for individual taxpayers. Our tax law team at Pridgeon & Zoss, PLLC, will help you understand your legal position and explain your options. Our years of experience and proficiency in tax law make us uniquely equipped to help our clients with their IRS tax matters.
Do You Have Questions About Your CP504 Notice?
If you receive a CP504 Notice in MN, you should consult with Pridgeon & Zoss, PLLC regarding your legal rights. We can help you protect your money and assets by negotiating more affordable payment arrangements with the IRS or even arranging to settle your tax debt for a lower amount. For more information or to schedule a consultation, contact us today. We serve clients throughout Minnesota and western Wisconsin from our offices in Edina and St. Anthony and look forward to assisting you.