The IRS is obviously a huge bureaucracy and, as one might expect, the proverbial wheels can turn slowly. In routine cases of personal tax debt that do not involve unpaid payroll tax or outright fraud, it is sometimes possible to fly under the collection radar for years without incurring any IRS tax problems. And, even after you receive a collection letter or two, it’s a pretty safe bet that aggressive collection action is still somewhere off in the future. But, upon receipt of the third – and typically the final – IRS letter regarding an unresolved IRS tax problem, the agency’s patience has run out and they’re coming to collect. The CP 504 is a game-changer.
Specifically, the CP 504 is the final notice to the taxpayer that the IRS is seeking payment of a past-due balance or resolution of the tax problem before they begin collection action. This collection action will be detailed in the letter. Typically, the taxpayer is notified that a levy is about to be placed against their state tax refund and applied against the debt. The letter may also serve as notification that the IRS is about to search for assets upon which a levy may be placed or federal tax lien may be filed. By the way, if the taxpayer had previously applied for an Offer In Compromise as a means of solving their IRS tax problems, the agency won’t have to look very hard for assets to attach; application for the OIC requires, of course, that a complete financial disclosure be handed over to the IRS.
But, as a practical matter, the CP 504 letter of collection would never have been generated in the first place had the delinquent taxpayer responded promptly to prior notices regarding resolution of their IRS tax problems. Procrastination, though a character flaw to which most have fallen victim, is a dangerous course of action at this point in the IRS process. They’re serious and aggressive collection action is coming. Unless one has the necessary time, intelligence and inclination to quickly make themselves into an expert regarding IRS policies and procedures – something unrealistic for most of us, it’s time to seek the advice of a tax professional – particularly if there is any question as to the validity of the debt. The financial and emotional impact of a bank or wage levy on most families cannot be overstated. The long-term consequences of a federal tax lien can also be serious and impact employment, credit acquisition and even the routine transacting of business matters. Equitable and affordable options concerning the resolution of IRS tax problems certainly still exist – even after the receipt of a CP 504, but the debtor must be proactive and pursue those options. At this point, the advice of a tax resolution professional that is well-versed in IRS collection tactics can be invaluable and well-worth the effort and expense.