TL; DR 

Meaning: A CP504 notice from the IRS is a serious document informing you that they intend to take action to collect unpaid taxes you owe. It's essentially a final warning before they take steps to seize your assets. 

Next Steps: Read the notice carefully and make sure you know how much you owe and why. Whether you decide to dispute the assessment or make a payment, take immediate action.

What to Do: You can either pay the amount that’s owed (in full or via a payment plan) or dispute the amount owed on your taxes with the IRS.

Notice of Intent to Seize Your State Tax Refund or Other Property 

Receiving a CP504 is not something to take lightly, and should be addressed immediately. In this article, we’ll explain exactly what to do when you receive a CP504 notice. Hopefully, you can avoid seizures of your property or your state tax refund. 

What is a CP504 Notice? 

A CP504 notice, formally called a Notice of Intent to Levy, is a serious notification from the IRS. It informs you that they have the authority to take steps to collect unpaid taxes you owe. In simpler terms, it's a final warning before the IRS takes action to seize your assets.

Common Reasons for Receiving a CP504 Notice 

There are several reasons why you may receive a CP504 notice. In all likelihood, you’ve already received a few notices from the IRS before informing you that you owe money on your tax bill. Here are a few reasons why: 

1. Unpaid Taxes on a Tax Return 

This is the most straightforward reason for receiving a CP504 notice. When you file your tax return, you calculate your tax liability based on your income and deductions. If this calculation results in a number where you owe money to the IRS, that's the debt the CP504 notice is referring to. It's crucial to pay the outstanding balance by the due date listed on the notice to avoid further consequences like additional penalties and interest. 

2. Ignored Previous Notices 

The CP504 is typically sent after the IRS has already attempted to contact you about the outstanding balance through earlier notices (like CP501 and CP503). Ignoring those could lead to this escalation. 

The IRS follows a specific process for collecting unpaid taxes. Before the CP504, they likely sent you earlier notices: 

• CP501 (First Notice and Demand): This is the initial reminder about the unpaid balance, outlining the amount owed and the due date. 
  
  
• CP503 (Second Notice and Demand): This is a follow-up notice if you haven't responded to the CP501. It reiterates the urgency of settling the outstanding amount. 

Ignoring these earlier notices can lead to the escalation of the situation, culminating in the more serious CP504 notice.

3. Miscalculation on Your Tax Return 

There could be a mistake in your tax return calculation, resulting in an outstanding balance that the IRS identified. You may have made an error in addition or multiplication, overlooked eligible deductions or credits, or made a mistake in reporting your income or expenses. 

4. Missing Information 

Your tax return might have missing or incomplete information, triggering the IRS to request additional payment and eventually reach the CP504 stage if not resolved. You might have neglected to include required tax forms or schedules that support your deductions or credits, or forgot to include information on existing forms. For instance, you might have included a deduction but not attached a receipt to support it. The IRS may also require further verification on specific deductions before finalizing your return. 

5. Unpaid Estimated Taxes

If you make estimated tax payments throughout the year, there might be a shortfall that wasn't addressed earlier, leading to the CP504 notice. Estimated taxes are quarterly payments made throughout the year to prepay your tax liability. This applies to self-employed individuals, freelancers, and others who don't have taxes withheld from their paychecks. 

A CP504 notice for estimated taxes could indicate that you didn't pay enough in estimated taxes throughout the year, resulting in a remaining balance due. This shortfall could trigger the CP504 if not addressed earlier. 

Alternatively, you might have missed making an estimated tax payment for a specific quarter. This missed payment could contribute to the outstanding balance and potentially lead to the CP504 notice. 

6. Unpaid Penalties 

Unpaid taxes accrue penalties and interest over time. If left unaddressed, these charges can significantly increase the outstanding amount, potentially leading to the CP504 notice.

Understanding the CP504 Notice: Page by Page 

Page 1: CP504 Notice Overview 

• Header: This section acts as your verification checkpoint. Look for the IRS logo and the title "Notice CP504" along with the tax year in question. Below that, you'll see the notice date and your Social Security number (SSN) or Employer Identification Number (EIN). A real IRS notice will include this specific information.
• Why We're Writing to You: This section gets straight to the point. It explains that you have unpaid taxes and the IRS intends to collect the outstanding amount.
• What You Need to Do Immediately: The IRS outlines your urgent actions. This might be a direct request to "Pay the full amount due immediately" or a nudge to "Contact us to set up a payment plan." Don't delay taking action on these instructions. 
• What We're Proposing: Here, the IRS lays out the details of your outstanding tax debt. This breakdown will likely include: 
  • • • • The original amount of unpaid tax for the specified tax year. 
        • Any penalties that have accrued due to late payment or filing. 
        • The accumulated interest on the outstanding balance. 
• If You Agree with Our Assessment: This section provides a roadmap if you accept the amount owed. It will explain how to make a payment to settle the debt and potentially avoid further penalties and interest charges.
• If You Disagree with Our Assessment: If you believe the amount is incorrect, this section offers instructions on how to dispute it. You'll typically need to: 
  • • • • File an appeal with the IRS. 
        • Provide documentation to support your claim (e.g., receipts, proof of income).
        • Submit a written explanation outlining why you disagree with the assessment.

• Interest Charges and Penalties: This section serves as a reminder of the potential consequences of inaction. It details any additional charges that may be added to your outstanding balance if you don't address the situation promptly. These charges can include: 
  • • • • Increased penalties for late payment. 
        • Continued interest accrual on the outstanding amount.

Page 2: Payment Options 

Here, the IRS offers solutions for settling your debt. You'll find information on various payment methods, such as: 

• • • Sending a check or money order. 
    • Making an electronic payment through the IRS website. 

This page might also provide details on setting up a payment plan if you're unable to pay the full amount at once.

Page 3: Your Rights as A Taxpayer

The IRS acknowledges your rights in this section. You'll find information on: 

• How to appeal the CP504 notice if you disagree with the assessment.
• What legal actions the IRS can and cannot take to collect the debt. This might include wage garnishment or asset seizure.

Page 4: Additional Information 

This final page offers resources to help you navigate your situation. It might include: 

• Contact information for the IRS if you have further questions. 
• Information on accessing resources and self-help tools on the IRS website.
• Recommendations for seeking professional help from a tax professional or attorney specializing in tax debt resolution.

In Summary 

The CP504 notice indicates that your overdue tax bill has reached a critical stage. The IRS has exhausted earlier attempts to collect the owed amount and is now prepared to take stricter measures if you don't respond. 

Your best course of action is to get in touch with the IRS and to make a full payment or payment arrangements to get the bill settled. If you disagree with the information in the notice you can dispute the assessment, but it’s still crucial to get in touch with the IRS right away. 

If you need assistance, don’t hesitate to get in touch with a LedgerFi tax consultant.