CP504: Notice of Intent to Levy — State Tax Refund
The practitioner's complete guide to IRS CP504 — the third and most urgent pre-levy notice, state refund levy authority, CDP rights, and immediate response strategies.
CP504 is the IRS's third and most urgent pre-levy notice — a Notice of Intent to Levy your state tax refund. Unlike the earlier CP501 and CP503 notices, CP504 is not merely a reminder: it is a formal notice that the IRS intends to seize the taxpayer's state income tax refund and apply it to the outstanding federal tax balance. For practitioners, CP504 is a critical deadline notice. The client has a narrow window to respond before the IRS proceeds with levy action, and the options available at this stage are more limited than at earlier stages. Immediate action is required.
What CP504 Means and What the IRS Can Do
CP504 is issued under IRC §6331(d), which requires the IRS to provide notice before levying on certain assets. The notice specifically warns that the IRS intends to levy the taxpayer's state income tax refund. However, the IRS's levy authority at this stage extends beyond state refunds — it can also levy bank accounts, wages, and other assets after the Final Notice (LT11) is issued.
The state refund levy is particularly effective because it requires no further notice — the IRS can intercept the refund through the Federal Tax Refund Offset Program (FTROP) without additional steps. For clients who are expecting a state refund, this can result in an immediate, involuntary payment that the practitioner and client may not be aware of until the refund fails to arrive.
After CP504, the IRS will issue LT11 (or Letter 1058) — the Final Notice of Intent to Levy. LT11 triggers the taxpayer's right to a Collection Due Process (CDP) hearing under §6330. The CDP hearing is the most powerful tool available to taxpayers facing levy action, and the 30-day deadline to request it is absolute — missing it eliminates the right to Tax Court review.
| Action | Deadline | Consequence of Missing |
|---|---|---|
| Request CDP hearing | 30 days from LT11 | Lose Tax Court review right |
| Request installment agreement | Before levy | Prevents levy while pending |
| Submit OIC | Before levy | Prevents levy while pending |
| Pay in full | Before levy | Stops all collection action |
| Request CNC status | Before levy | Suspends collection |
Immediate Response Strategies at the CP504 Stage
The most important thing a practitioner can do upon receiving a client's CP504 is to act immediately — not in 30 days, but within the week. The IRS collection machine moves faster than most practitioners expect, and the window between CP504 and actual levy action is measured in weeks, not months.
File Form 2848 (Power of Attorney) immediately to get access to the client's IRS account. Pull a transcript to verify the balance, confirm all returns are filed, and identify any discrepancies. A common scenario: the IRS has assessed a balance based on a substitute for return (SFR) that is significantly higher than the client's actual liability. Filing the correct return and replacing the SFR assessment can dramatically reduce the balance before any payment arrangement is made.
Request a Collection Due Process hearing if the client disputes the underlying liability or wants to propose a collection alternative (installment agreement, OIC, CNC). The CDP hearing suspends levy action while the hearing is pending. Even if the client ultimately agrees to an installment agreement, the CDP process provides additional time and leverage.
The Collection Due Process Hearing — The Most Powerful Tool
The CDP hearing under §6330 is the taxpayer's most powerful protection against IRS levy action. To request a CDP hearing, the taxpayer must file Form 12153 within 30 days of the date on LT11 (not CP504 — the 30-day clock starts with LT11). The request must be in writing and must specify the collection alternative the taxpayer is proposing.
During the CDP hearing, the taxpayer can challenge the appropriateness of the collection action, propose collection alternatives (installment agreement, OIC, CNC), and — in limited circumstances — challenge the underlying tax liability. If the taxpayer disagrees with the CDP determination, they have the right to appeal to the U.S. Tax Court within 30 days.
Equivalent hearing: if the taxpayer misses the 30-day CDP deadline, they can request an 'equivalent hearing' within one year of LT11. The equivalent hearing provides the same opportunity to propose collection alternatives, but does not suspend levy action and does not provide Tax Court review rights. It is a second chance, but a significantly weaker one.
Frequently Asked Questions
CP504 is the Notice of Intent to Levy state tax refunds — the third pre-levy notice. LT11 (or Letter 1058) is the Final Notice of Intent to Levy, which triggers the taxpayer's right to a Collection Due Process hearing. The 30-day CDP deadline runs from LT11, not CP504. Both are urgent, but LT11 is the critical deadline notice.
Not immediately — the IRS must first issue LT11 (Final Notice of Intent to Levy) before levying bank accounts, wages, and most other assets. However, the IRS can intercept your state tax refund after CP504 without additional notice. After LT11, the IRS can levy virtually any asset.
File Form 12153 within 30 days of the date on LT11 (not CP504). The request must be in writing, must be sent to the address on LT11, and must specify the collection alternative you are proposing (installment agreement, OIC, CNC, or dispute of the liability). The CDP hearing suspends levy action while pending.
You can request an 'equivalent hearing' within one year of LT11. The equivalent hearing provides the same opportunity to propose collection alternatives, but does not suspend levy action and does not provide Tax Court review rights. You should still request it — it provides leverage in negotiations — but the protections are significantly weaker.
Generally no — once the IRS has applied the state refund to the balance, it is treated as a payment and is not refundable. However, if the underlying assessment was incorrect (e.g., based on an SFR that overstated the liability), you can file an amended return, correct the assessment, and request a refund of the overpayment.
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Book A Strategy Call With A Tax AdvisorFrequently Asked Questions
Verify the notice is legitimate by checking the notice number and comparing it to your filed return. Do not ignore it — most IRS notices have strict response deadlines. Pull your IRS account transcript online at IRS.gov to confirm the assessment matches what the IRS shows on file.
Most IRS notices require a response within 30 days from the date printed on the notice. Some notices, like statutory notices of deficiency, give you 90 days. Missing the deadline can result in default assessments, loss of appeal rights, or escalation to collection action including liens and levies.
Yes. First-time penalty abatement (FTA) is available if you have a clean three-year compliance history — meaning you filed all required returns on time and paid all taxes due for the prior three years. You can request FTA by calling the IRS at 1-800-829-4933 or by submitting a written request.
You have the right to dispute any IRS assessment. File a written protest within the response window explaining why you disagree, attach supporting documentation, and request a conference with IRS Appeals. If the amount is under $25,000, you can use the simplified Collection Due Process (CDP) hearing request.
Yes. The IRS offers installment agreements for taxpayers who cannot pay in full. For balances under $50,000, you can apply online at IRS.gov/OPA. For larger balances, you will need to submit Form 9465 along with Form 433-A (Collection Information Statement) documenting your income and expenses.
An IRS notice alone does not affect your credit score. However, if the balance remains unpaid and the IRS files a federal tax lien (Notice of Federal Tax Lien), that lien becomes a public record and can significantly damage your credit. Paying or resolving the balance before lien filing protects your credit.
For simple issues like verifying a payment or correcting a minor discrepancy, calling 1-800-829-4933 is faster. For complex disputes, penalty abatement requests, or anything involving legal arguments, always respond in writing via certified mail with return receipt so you have proof of timely response.
Yes. Your CPA, EA, or tax attorney can represent you before the IRS using Form 2848 (Power of Attorney). Once filed, the IRS will communicate directly with your representative. This is strongly recommended for notices involving audits, large balances, or potential criminal referrals.
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