The IRS sends out millions of notices to taxpayers every year. IRS Notice CP 504 (Intent to Levy), delivers a stern warning to taxpayers with tax debt: “Urgent!! We intend to levy on certain assets. Please respond NOW.” If not responded to, the IRS can begin seizing assets such as automobiles, bank accounts, investment accounts, wages, state income tax refunds and more.
The tax code limits what the IRS can seize from taxpayers. There are assets allowances for personal property and tools used in a trade or business. Also there are limits for the following expense categories: housing, clothing, transportation and others.
The IRS applies these tax code limits to calculate what the taxpayer can pay. This is the taxpayer’s Reasonable Collection Potential. The numbers provided by the taxpayer on the IRS financial disclosure forms feed this calculation. A taxpayer working with a tax resolution specialist will know their Reasonable Collection Potential. They will know precisely the limits of what the IRS can seize.
It is good idea for the taxpayer to prepare for such seizures on receiving the CP 504 notice. It is important to analyze all relevant information and then choose the right strategy. It is often possible to resolve a tax dispute before any asset seizures take place.
- The taxpayer should examine the IRS CP 504 notice to find out the precise issues in dispute. Few taxpayers will even take the time to see what the notice is saying. The basis for the notice might be as simple as a math error, or something more serious like a missing tax return or overdue payment.
- The next step is to ask for the IRS taxpayer files. Electronic IRS files known as “transcripts” provide valuable information about each taxpayer. Also, the taxpayer’s administrative file contains more details. The Freedom of Information Act entitles the taxpayer to this file.
- If the taxpayer agrees with the IRS assessment of taxes owed, then an installment agreement is probably the best alternative. The taxpayer negotiates a monthly payment which minimizes interest and penalties, while leaving enough for monthly living expenses. Planning will help the taxpayer choose a payment plan that fits their finances best.
- However, if the taxpayer does not agree with the IRS assessment in CP 504 notice then an immediate appeal may be the best course of action. The IRS may have already decided (rightly or not) the taxpayer owes back taxes and begun collection. The IRS will give the taxpayer a hearing to explain why further collection action should not occur.