What is IRS Notice CP504?
IRS Notice CP504 is a 'Notice of Intent to Levy and Notice of Your Right to a Hearing.' It is one of the final notices in the IRS collection sequence before the IRS begins levying the taxpayer's assets. The CP504 notifies the taxpayer that the IRS intends to levy the taxpayer's state tax refund and other assets if the balance due is not paid within 30 days.
The CP504 is significant because it authorizes the IRS to immediately levy the taxpayer's state income tax refund without further notice. For other types of levies (bank accounts, wages, accounts receivable), the IRS must issue a Final Notice of Intent to Levy (Letter 1058 or LT11) and provide the taxpayer with a Collection Due Process (CDP) hearing right before proceeding with the levy.
The Collection Sequence
The IRS collection sequence typically follows this order:
| Notice | Description | Response Window |
|---|
| CP14 | First notice — balance due | 60 days |
| CP501 | Second notice — balance due reminder | 30 days |
| CP503 | Third notice — balance due — urgent | 30 days |
| CP504 | Notice of intent to levy — state refund seizure authorized | 30 days |
| Letter 1058 / LT11 | Final notice of intent to levy — CDP hearing right | 30 days |
| CP90 / CP297 | Notice of levy on wages, bank accounts, etc. | N/A — levy already issued |
Practitioners should advise clients who receive a CP504 to act immediately. The 30-day response window is critical — if the taxpayer does not respond within 30 days, the IRS will proceed with the levy of the state tax refund and will issue the Final Notice of Intent to Levy (Letter 1058 or LT11) for other assets.
Responding to CP504
The appropriate response to a CP504 depends on the taxpayer's situation: (1) if the taxpayer agrees with the balance due and can pay in full, they should pay the balance immediately to stop the levy; (2) if the taxpayer agrees with the balance due but cannot pay in full, they should request an installment agreement (IA) or currently not collectible (CNC) status; (3) if the taxpayer disagrees with the balance due, they should contact the IRS to dispute the balance and request a hold on collection while the dispute is resolved; and (4) if the taxpayer believes they qualify for an Offer in Compromise (OIC), they should submit an OIC application as soon as possible.
Collection Alternatives
The IRS offers several collection alternatives for taxpayers who cannot pay their tax liability in full: (1) Installment Agreement (IA) — allows the taxpayer to pay the balance due in monthly installments over up to 72 months (or longer for partial payment installment agreements); (2) Currently Not Collectible (CNC) status — the IRS temporarily suspends collection activity if the taxpayer can demonstrate that they have no ability to pay; and (3) Offer in Compromise (OIC) — allows the taxpayer to settle their tax liability for less than the full amount owed if they can demonstrate that they cannot pay the full amount or that doing so would create an economic hardship.
CDP Hearing Rights
The CP504 does not trigger the Collection Due Process (CDP) hearing right for levies on assets other than state tax refunds. The CDP hearing right is triggered by the Final Notice of Intent to Levy (Letter 1058 or LT11), which is issued after the CP504. Practitioners should advise clients who receive a Letter 1058 or LT11 to request a CDP hearing within 30 days to preserve their right to appeal the IRS's collection actions to the U.S. Tax Court.
If the taxpayer misses the 30-day CDP hearing deadline, they may still request an Equivalent Hearing within one year of the date of the Final Notice. The Equivalent Hearing provides the same collection alternatives as the CDP hearing but does not preserve the right to appeal to the Tax Court.
More Tax Planning FAQs
What is the penalty for failing to file this form on time?
Failure-to-file penalties are generally 5% of unpaid tax per month (up to 25%). Failure-to-pay penalties are 0.5% per month (up to 25%). Interest accrues on unpaid tax at the federal short-term rate plus 3%. Penalties can be waived for reasonable cause (illness, natural disaster, IRS error). First-time penalty abatement is available for taxpayers with a clean compliance history.
What is the statute of limitations for IRS assessment related to this form?
The IRS generally has three years from the later of the return due date or filing date to assess additional tax. If the taxpayer omits more than 25% of gross income, the statute is extended to six years. There is no statute of limitations for fraudulent returns or failure to file. Taxpayers should retain tax records for at least seven years to cover the extended statute of limitations.
Can this form be filed electronically?
Most IRS forms can be filed electronically through IRS e-file or through tax preparation software. Electronic filing is faster, more accurate, and provides confirmation of receipt. Some forms (such as
Form 2553 and
Form 8832) must be filed on paper. The IRS mandates electronic filing for businesses that file 10 or more information returns (1099s, W-2s) starting in 2024.
What records should be retained to support this form?
Taxpayers should retain all records supporting the information reported on this form for at least seven years (to cover the extended statute of limitations for omission of income). Records include: receipts, invoices, bank statements, brokerage statements, contracts, and correspondence with the IRS. Electronic records are acceptable if they are accurate, complete, and accessible.
What is the first-time penalty abatement (FTA) program?
The IRS First-Time Penalty Abatement (FTA) program waives failure-to-file, failure-to-pay, and failure-to-deposit penalties for taxpayers who have a clean compliance history (no penalties in the three prior years, all required returns filed, and no outstanding tax debt). FTA is available by calling the IRS or submitting a written request. It is one of the easiest ways to get a penalty waived.
How does this form interact with state tax returns?
Federal tax forms often have state counterparts that must be filed separately. State tax laws do not always conform to federal tax law, so the state return may require different calculations or additional schedules. Taxpayers should review their state’s conformity to federal tax law changes and file all required state returns by the applicable deadlines.
What is the difference between a tax deduction and a tax credit?
A tax deduction reduces taxable income, saving taxes at the marginal rate. A tax credit directly reduces tax liability dollar-for-dollar. A $1,000 deduction saves $370 for a taxpayer in the 37% bracket; a $1,000 credit saves $1,000 regardless of the tax bracket. Refundable credits can reduce tax liability below zero, resulting in a refund. Non-refundable credits can only reduce tax liability to zero.
How does the alternative minimum tax (AMT) affect this form?
The AMT is a parallel tax system that disallows certain deductions and adds back preference items. Taxpayers who owe AMT must complete
Form 6251 to calculate their AMT liability. Common AMT triggers include: ISO exercises, large state tax deductions, accelerated depreciation, and passive activity losses. Taxpayers should model both regular tax and AMT before making decisions that could trigger AMT.
How should a tax professional set up representation when a client receives an IRS Notice CP504?
When a client receives a
CP504 Notice of Intent to Levy, the tax professional should first verify the underlying tax liability and the accuracy of the IRS's calculations. Next, the professional must submit an IRS Power of Attorney (Form 2848) to formally represent the client, allowing direct communication with the IRS. Promptly requesting a Collection Due Process hearing under §6330 can halt levy actions while the case is under review. Establishing a clear communication plan with the client and IRS is critical to managing deadlines and preventing enforced collection.
What are the procedural steps and deadlines for responding to an IRS CP504 Notice to prevent levy actions?
Upon receipt of a
CP504, the taxpayer typically has 30 days to respond before the IRS initiates levy procedures, per §6331(d). The tax professional should advise the client to request a Collection Due Process hearing within that window to challenge the levy or propose alternative resolutions such as installment agreements or offers in compromise. It's essential to submit all necessary documentation and payment proposals promptly to comply with IRS deadlines and avoid enforced collection.
What triggers an IRS audit or further collection scrutiny after issuance of a CP504 Notice?
A
CP504 Notice itself signals the IRS's intent to levy due to unpaid tax liabilities, often following prior notices like
CP14. Triggers for additional audit or collection scrutiny include failure to respond timely, disputes unsupported by documentation, or discovery of new unreported income during collections. The IRS may escalate enforcement or audit activities if the taxpayer does not engage in resolution efforts or submit accurate financial disclosures required under §6330.
What documentation should a tax professional gather to support a client's response to a CP504 Notice?
Supporting documentation should include copies of the original tax returns, any amended returns, proof of prior payments, financial statements, and correspondence with the IRS. If proposing an installment agreement or offer in compromise, detailed financial disclosures per IRS Form 433-A or 433-F are necessary. Additionally, records demonstrating reasonable cause for nonpayment, such as medical bills or casualty losses, can strengthen appeals under §6330 and IRS Publication 594.
What are the levy limits and protections available to a taxpayer who receives a CP504 Notice?
Per §6334, certain property is exempt from levy, including necessary clothing, tools of the trade up to $7,500 in value, and a portion of wages subject to limits based on the standard deduction and personal exemptions, which for 2026 correspond to a standard deduction of $14,600 for single filers. Moreover, taxpayers can invoke protections by requesting a Collection Due Process hearing under §6330, which temporarily halts levy actions. Understanding and advising on these limits is crucial to protecting client assets.
How should a tax professional handle a client who receives both a CP504 Notice and a CP2000 Notice simultaneously?
When a client receives both notices, it is important to address the
CP2000 first as it proposes changes to the tax return that may affect the underlying liability cited in the
CP504. An amended return or formal response to the CP2000 should be filed promptly to resolve discrepancies. Resolving the CP2000 may reduce or eliminate the debt triggering the CP504 levy notice, potentially stopping collection actions. Coordinated handling ensures accurate liability assessment and avoids unnecessary levies.
What key points should a tax professional communicate to a client about the seriousness of an IRS Notice CP504?
It is critical to explain that a
CP504 is a formal IRS notice indicating the agency’s intent to levy assets if outstanding tax liabilities are not resolved promptly. Ignoring this notice can lead to enforced collection actions such as bank account levies or wage garnishments, which are difficult to reverse. Emphasize the importance of timely response, possible options like installment agreements or appeals under §6330, and the need to avoid additional penalties and interest by addressing the matter proactively.
Professional Disclaimer
The information on this page is intended for licensed tax professionals (CPAs, EAs, and tax attorneys) and is provided for educational and research purposes only. Tax law is complex and fact-specific — all strategies discussed are subject to limitations, phase-outs, and conditions that may not apply to every client situation. Practitioners should independently verify all information against current IRS guidance, Treasury Regulations, and applicable state law before advising clients. This content does not constitute legal or tax advice.
