The IRS is definitely a huge bureaucracy and, as one might expect, the proverbial wheels can turn slowly. In routine cases of personal tax debt that don’t involve unpaid payroll taxes or outright fraud, it’s sometimes possible to fly under the collection radar for years without creating IRS tax problems. And, even after you’ve received a billing letter or two, it’s a pretty safe bet that aggressive collection action is still out there somewhere in the future. But, after receiving the third – and usually the last – IRS letter regarding an unresolved IRS tax issue, the agency’s patience has run out and they will come to collect. The CP 504 is a game changer.
Specifically, a CP 504 is the final notification to taxpayers that the IRS is seeking payment of a balance due or settlement of a tax issue before they initiate collection action. These collection actions will be detailed in the letter. Typically, taxpayers are notified that a levy will be placed against their state tax return and applied to the debt. The letter can also serve as a notification that the IRS will seek assets where a levy can be placed or a federal tax lien can be filed. By the way, if taxpayers have previously made an Offer In Compromise as a way to solve their IRS tax problems, the agency doesn’t have to look for too many assets to attach to; Applications to the OIC require, of course, that complete financial disclosures be submitted to the IRS.
In practice, however, a CP 504 collection letter will never be generated if the delinquent taxpayer responds promptly to prior notification of resolving their IRS tax issue. Procrastination, despite the character flaw that most have fallen victim to, is a dangerous act at this point in the IRS proceedings. They are serious and aggressive gathering action is coming. Unless one has the time, intelligence, and inclination necessary to quickly establish themselves as an expert on IRS policies and procedures – something that is unrealistic for most of us, it is time to seek advice from a tax professional – especially if there are questions about debt validity. . The financial and emotional impact of banks or wage levies on most families cannot be overstated. The long-term consequences of federal tax liens can also be serious and have an impact on employment, credit acquisition and even routine business dealings. Fair and affordable options regarding the resolution of IRS tax issues certainly still exist – even after receiving CP 504, but debtors must be proactive and pursue those options. At this point, advice from a tax resolution professional experienced in IRS collection tactics can be invaluable and well worth the effort and expense.