If you are waiting for a tax refund from your state and you receive this notice, you may not get the refund. IRS Notice CP504 informs you that the IRS intends to seize your state tax refund. It also states that the IRS may “levy your property or rights to property, and apply it” to the balance you owe. When you default your federal tax debt in a timely manner, you may find yourself subject to IRS collection activities. Before the IRS can collect funds from you, it must bring its intentions to your notice through a written CP 504 notice. Find out what this notification is and what actions are expected of you if or when you receive a CP 504 notice in the mail.

What is IRS Notice CP504?

As stated above, CP504 is a notification that the IRS intends to issue a levy against your state tax refund. The notice also warns you that the IRS may file a tax lien against you, and if your state tax refund doesn’t cover your whole federal tax debt, the IRS may start looking for other assets to seize. The IRS can take your wages, real estate commissions, payments from your clients, bank account balances, personal assets, and even social security benefits. However, before they can do that, the IRS needs to inform you about your rights to appeal first.

Luckily, you will get another warning (LT11 or L1058) before that happens, which will let you know about your right to appeal. But to be on the safe side, you should try to make arrangements with the IRS as soon as you receive the CP504.

How Does the IRS Take Your State Tax Refund?

The IRS uses the State Income Tax Levy Program (SITLP) to claim state tax refunds,. Generally, your state will also inform you that the IRS is levying your refund. Through the Municipal Tax Levy Program (MTLP), the IRS can also levy refunds from your city or municipal tax program. If you reside in Alaska, the IRS can levy your Alaska Permanent Fund Dividend (AKPFD) to cover your federal income tax debt.

The IRS only levies state and local refunds to cover personal income tax, but the agency may change the rules and start to claim business refunds in the future. Note that if the IRS already sent you a different notice warning you about levying your assets and advising you of your right to an appeal hearing, you may not receive Notice CP504, but the IRS may still take your state refund.

How Do I Pay?

You can pay your tax bill by separating the payment slip from your notice and sending it the IRS with a check for the full payment. Ensure to note your social security number, the tax year, and the form you used to file your income taxes on the check. To get your payment to the IRS on time, you can pay online. If you can’t afford to pay the balance in full, contact the IRS to make plans such as the following:

  • Installment Agreement  — you make monthly payments on the tax debt.
  • Offer in Compromise — you make a partial payment, and the IRS erases the remaining part of the debt.
  • Currently Not Collectible (CNC) Status — you show the IRS that you can’t afford to pay and the IRS agrees to stop collection activity.

Even if you make one of these agreements, the IRS may still levy your state or local tax refund, but that amount will help to lessen your tax bill. Also, if set up an installment agreement; you may have to agree that the IRS can keep your federal refunds and apply those amounts to your tax debt. You can also take a look at Innocent Spouse Relief. Through that program, you establish that the tax debt is your current or ex-spouse’s duty, and the IRS agrees to stop collection activity on you. Alternatively, you can apply to abate tax penalties, where the IRS decides to reduce or remove failure-to-pay and late-payment penalties on your account.

What to Do If You Don’t Agree With the Notice

Maybe you already settled your tax bill or set up an installment plan. Perhaps you don’t concur with the amount due. Or, potentially, you see another mistake on the notice. If you don’t agree with Notice CP504 for any reason, you should contact the IRS through the number on the letter. Do not ignore this notice. If you don’t take action, the IRS may seize your tax refund and then pursue additional collection activity.

How to Respond to IRS CP 504 Notices

If you receive a CP 504 notice in the mail, it is important that you do not ignore it. This notice is chance to get into contact with the IRS to discuss ways to resolve the debt before your assets are levied.

You should call the telephone number on your notice to have a chat with an IRS agent. The agent will be able to discuss what repayment options are available to you. If you purposely evade taking this measure, the IRS may advance with levying your assets, which can result in you losing income upon which you rely to sustain you and your household.

Repayment and Tax Debt Settlement Options

When you call the telephone number listed on your CP 504 notification, you should be informed about what alternatives are available to you to settle or repay what you owe to the IRS. Some of the choices usually available to most taxpayers include:

  • Offer in Compromise, or OIC
  • Penalty abatement
  • Installment agreement
  • Currently Not Collectible status, or CNC
  • Credit or debit card automatic monthly withdrawals

The choices available to you will be based on how much money you have in your bank accounts right now and what assets can be liquidated to put toward your debt.

CP 504 Disputes 

If you disagree with the CP 504 notice, you have the right as a taxpayer to dispute it. Before you dispute the notification, however, you should find out how to do so in a productive manner and what legal resources are available to you.

First, you are advised to retain the services of a tax professional that is trained and knowledgeable in the IRS tax codes. Your tax professional can evaluate your returns and the CP 504 notice to ensure the legitimacy of your dispute.

You may then file an appeal and follow through with the process to have the IRS review your taxes. The whole appeals process may last for up to a year. During that time, the IRS may still reserve the right to levy your assets.

The IRS informs taxpayers of its intent to levy assets with the CP 504 notification. You can act in your best interests by knowing what this notice is and how best to respond to it.