IRS Notice CP504 CPA discusses IRS Liens and Levies | Back Taxes

IRS Notice CP504 CPAs recognize 504 as the last stop before an IRS tax lien, shortly followed by a levy (seizure of your assets) or garnishment of wages. At the very least, a federal tax lien kills your credit. In my experience, Clients receive Notice CP504 because they have un-filed back taxes. But the IRS doesn’t really expect to collect the amount they’re demanding on Notice CP504. Preparing and filing correct back tax returns cuts the tax bill:

• The actual amount of tax due drops.
• Some penalties disappear.
• Sometimes filing back taxes results in a refund - strange but true.

I’ll provide some tips I’ve learned over the years along with an example of how an IRS Notice CP504 CPA might approach your case.

Here’s some tips I’ve learned as back tax CPA:

• Don’t allow the IRS to use a “substitute” tax return prepared by them. Why? The IRS prepares the substitute return using information they have on file, most of which is income related like Form 1099-MISC. They don’t factor in legitimate deductions and credits.
• By the time CP504 arrives, they’ve already sent a string of CP Notices to grab your intention. They want you to file a correct tax return now. Here’s our earlier post on Back Taxes.
• Don’t assume the IRS is correct. But if they are and you can’t pay the back tax immediately, you have a few options:
  • An Offer in Compromise on Form 656. This is the infamous pennies on the dollar technique.
  • An Installment Agreement, Form 9465 to pay the back taxes off over time.
  • Putting your account into currently un collectible status.

“The long sequence of IRS Notices is deceiving. Up through Notice CP504, they seem like all rattle and no strike. But that’s about to change. “
- Gary Bode, IRS Notice CP504 CPA and tax accountant

Variations on a Theme

Sometimes there is a Letter 1058 which threatens a federal tax lien. Sometimes the IRS just sends Form 668(Y), Notice of Federal Tax Lien. Here’s our post on Form 668(Y). They can and will levy (seize) certain assets and sell them to satisfy the lien. At fire sale prices. This is not your best option.

How a CPA Works a Back Tax or Taxes Due Case with Notice CP504

• CPAs get a limited Power of Attorney, allowing the IRS and your State to speak with us. This helps take the stress off a Client.
• A CPA writes to the IRS and your State requesting a delay in the collection process to help us prepare your case. Generally the IRS is generous about the timeline.
• CPAs listen carefully to your side of the story. The IRS isn’t always right. But they assume they’re correct and you have to prove otherwise.
• CPAs review the IRS Notices, look up your IRS transcripts and review documentation to evaluate the IRS evidence against you.
• CPAs prepare back tax returns if required. Amazingly, this can actually generate an IRS refund.
• CPAs prepare amended returns if appropriate.
• CPAs consider the concomitant State implications. The IRS mght be polite by comparison.
• Notice CP504 is still part of the IRS Automated Collection Service. While it may appear to you there’s an agent working your case, CP 504 is still all computer generated. CPAs will get an agent assigned when appropriate. Notice CP504 arrives late in the game, so having an Agent is helpful. Liens are stressful and expensive.
• CPAs will try to exclude your assets from the lien, if things progress that far.
• Once a CPA determines the amount you actually owe to the IRS, we look to see if we can reduce that through an offer in compromise. Ditto with the State. Please see the link above.
• CPAs look to see if the IRS will put your account into currently un-collectible status.
• CPAs will help you decide if going to tax court is an option.
• CPAs will help set up an Installment Agreement with the IRS to payoff your back taxes monthly.
• Once you’ve satisfied the IRS, we work to release the lien. Here’s our post on Form 12277.
• CPAs follow-up to insure the IRS actually releases the lien through Form 10916c.

While we’re a CPA Firm in Wilmington NC, we offer a Virtual Office to serve National and International Clients

Distance isn’t an issue. Please read some of our posts to help you gauge our ability. IRS Notice CP504 generally warrants professional consideration. We offer a free initial phone consult on Notice CP504, or any back tax issue. (910) 399-2705.

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