The CP 504 letter is one of many form letters the IRS sends to taxpayers for common tax debt situations. If you have received a CP 504 notice (the notice number is shown in top right-hand corner along with tax year the notice refers to and the date the letter was (supposedly) sent out), you typically have 30 days to pay the amount due or call the IRS to make some kind of other arrangement. If no payment is made or the IRS is not contacted, the first step the IRS takes will be to seize any state refund you may be entitled to. Often, these letters are received 10-14 days after the stated date of mailing which reduces the time you have for a response.
If their is still a balance due after any refund is taken, you should get a notice advising you of the right to appeal. If no appeal is made, the IRS can then seize other assets, including:
- wages, real estate commissions and other income
- bank accounts
- business assets
- personal assets (including your car and home), and
- social security benefits
You don’t want the process to go this far. The best time to respond to an IRS letter is as soon as it is received. The longer you wait, the more difficult the process can be to ward off collections efforts.
Should you receive any letter demanding payment, don’t assume they are correct. We see IRS mistakes all the time. When a client brings such a letter to us, here is how we respond:
- Determine if garnishments or levies are imminent. If so, we want to get in front of them. We can usually do this by calling the IRS and explaining how we (with the client) are going to proceed in responding to the letter. In nearly all cases, we get at least 30 days to act before further collection action is taken.
- Gather the facts. Is the assessment of tax liability correct? Can we amend the return to eliminate or reduce the liability? Is the client responsible for the debt (sometimes it is a spouse that is responsible)? Can penalties be waived or reduced?
- If we determine there is an actual tax liability, we then present the clients with their options:
- The most common arrangement made for payment of a tax debt is an installment agreement. You typically have up to 72 months to pay and interest rates are much less than those you might be charged if you use a credit card. Don’t quote me but I believe I have read that 70-80% of collections are handled using this method.
- If you find payment difficult, there are 3 options, all of which require the filing of a financial statement with the IRS. We have to use their rules in determining whether or not there is any disposable income available to pay the existing debt. This can be a difficult hurdle to cross as the IRS only allows you to count certain expenses in determining disposable income. Things like credit card payments, recent loans, etc. may not be allowed resulting in a gap between the disposable income the client thinks is available and what the IRS thinks is available.
- If we can show that paying the taxes creates a financial hardship, then we typically have 3 options. None of these will be available without all tax returns being filed and a financial analysis conducted.
- partial payment plan, an installment plan with extended terms
- an offer in compromise (OIC), where you pay a portion of your debt. This is what is always mentioned in the radio and TV ads but in practice, less than 1% of accounts in collection are settled this way. For those that qualify, these are great as we have seen debts settled for as little as 2% of what was owed.
- currently non-collectible status (CNC) – if you are experiencing an existing financial hardship that may be only temporary, and if the IRS agrees, you could be placed in CNC where all collections efforts seize but interest and penalties continue to be accrue on the tax debt. You will be asked to requalify periodically.
Bottom line of course is don’t ignore these things. They just get worse.
LISTEN AND UNDERSTAND. THE IRS IS OUT THERE. IT CAN’T BE BARGAINED WITH. IT CAN’T BE REASONED WITH. IT DOESN’T FEEL PITY, OR REMORSE OR FEAR. AND IT ABSOLUTELY WILL NOT STOP, UNTIL YOUR BILL IS PAID……misquote from Terminator
Well, actually it isn’t that bad, though it may seem so. In all but a small minority of cases I have worked on, I have found the IRS reasonable to work with. They have to follow their procedures and processes but they do try to work with people.
If you have a letter, any IRS letter, come see us. 1st 30 minutes are free and if you engage our services, you will find our fees quite reasonable. You don’t have to owe at least $10,000 for us to work with you and we are not going to ask for a large down payment.
AFS-USE THE BEST FOR LESS