The dreaded 500 series the IRS mails out to taxpayers with outstanding balances is back after a COVID-related hiatus. Taxpayers whose IRS debts fall under the purview of the agency’s Automated Collection Service will typically receive three CP500 letters before the IRS gets aggressive.
The first letter in the series, CP501, is a completely benign letter. The CP501 lets taxpayers know they have unpaid federal taxes and details their options for resolving it. More or less, the CP501 serves as a gentle reminder to taxpayers to pay up.
If the IRS sends a CP501 and is not contacted by the taxpayer in a timely manner (usually six weeks), the agency will send the same taxpayer a CP503 notice. This entry in the 500 series is a still-gentle (but more forceful) reminder that the taxpayer has not satisfied their federal tax debts. The CP503 letter also serves as the first notice to taxpayers that liens and levies are on the table.
CP504—What it Is, and What it Isn’t
The last letter in the IRS’s 500 series is the CP504 letter, also known as the agency’s pre-levy notice. This letter strikes a markedly aggressive tone, letting taxpayers know that the IRS may move to levy their state refund if the taxpayer does not take action within 30 days. If the taxpayer’s state refund does not cover their outstanding federal tax debt, the IRS might also place a lien on the taxpayer’s property.
A lien is distinct from a levy. A levy is the action (or attempted action) of seizing property. A lien is simply a claim to property. If the IRS places a lien on a taxpayer’s house, the IRS would likely get the proceeds from the sale before the homeowners and any other creditors.
What can the IRS take? It has the authority to seize:
- Wages;
- Money in checking and savings accounts;
- Business assets;
- Social Security benefits; and
- Other liquid assets.
However, it’s important to understand that the CP504 letter is not an intent-to-levy notice. Many taxpayers read the letter and start panicking, thinking that the IRS is taking all the money in their bank account. In a way, that’s an intended consequence of the letter. The IRS wants to prompt taxpayers to take action. If you don’t take action in a timely manner in response to a CP504, the IRS may send a Final Notice of Intent to Levy to notify you that they are about to levy your assets. So, if you receive a CP504, all is not lost, but you should handle the issue promptly with an experienced legal professional.
Conclusion
While dealing with the COVID-caused backlog, the IRS put its foot off the gas when it came to the 500 series. These collection notices, as well as actual levy notices have resumed, and taxpayers are scrambling to respond. If you think the IRS has made a mistake with your account, we’re prepared to represent you. Call our team at (206) 488-1979 to schedule a consultation.
- The IRS Makes Mistakes Too - September 1, 2023
- Should You Be Withholding More From Your Paycheck? - August 1, 2023
- Don’t Get Tripped Up By Forms 433-A and 433-B - July 10, 2023
