Decoding The IRS CP504 Notice: A Critical Moment in Tax Debt Resolution

The IRS CP504 letter is scary as hell.

But many clients mistakenly believe it means the IRS is coming after their money and their property and they're coming right now.

The reality is, when you receive a CP504 notice, it does not mean IRS is coming to take everything you own.

For the IRS to actually seize assets or garnish wages, they have to first issue a Final Notice of Intent to Levy, typically in the form of LT11, CP90, or LTR1058.

These final notices are different than the CP504 because they trigger a Collection Due Process (CDP) appeal right, allowing clients to dispute the IRS’s actions before they’re enforced.

Advisors Can Offer Clients a Lifeline

For tax professionals, financial advisors, and attorneys, CP504 presents an opportunity to help clients respond to the severity of their tax debt without pushing them into an unnecessary state of panic.

You can offer them an informed path forward that’s the difference between proactive action and full-blown financial crisis.

Here are the three most critical steps you can discuss with clients facing a CP504.

Three Critical Steps to Guide Your Clients Through A CP504

1. Clarify What The Notice Means: Understand the Debt, but Don’t Overreact

The first step in guiding clients through receiving a CP504 is to help them understand the consequences of receiving the notice.

A CP504 is a warning, not a notice of impending enforcement.

Encourage your clients to pause, breathe, and avoid jumping to conclusions.

Then help them review the details of their tax debt.

By examining past tax returns, IRS transcripts, and any previous notices, clients can better understand where they stand as it relates to the taxes they owe.

It's important to take into account penalties, interest, the statutes of limitation on year, missing returns, and everything in between.

Helping your client understand exactly where they stand allows them to gain control over the situation.

When clients are informed, they're generally more relaxed and in turn, they’re more likely to make confident, strategic decisions instead of acting unreasonably out of fear.

2. Emphasize Urgency Without Inciting Panic

While a CP504 doesn’t allow the IRS to levy immediately, ignoring it will lead to the dreaded Final Notice of Intent to Levy. Therefore, clients should act promptly—but that doesn’t mean they should throw caution to the wind and drain their savings or max out their credit cards.

The IRS generally sends CP504 after a series of previous notices have gone unanswered. It’s a nudge toward compliance, not the final push.

Your clients should recognize this as a critical moment to explore payment or resolution options, but not as a reason to liquidate everything they have or take loans with unfavorable terms.

Acting now can prevent the Final Notice of Levy and the consequences it brings but you have time.

3. Have a Game Plan Ready: Explore Resolution Options and Prepare for the Final Notice of Intent to Levy

At this stage, clients should consider all the resolution pathways available, which may include paying the debt, setting up an installment agreement, or investigating eligibility for an Offer in Compromise, among others.

However, even if clients pursue a resolution, they should prepare to receive the Final Notice (LT11, CP90, or LTR1058) because, as discussed, the Final Notice of Intent to Levy actually gives the IRS the ability to seize money and property.

Importantly, the Final Notice also gives the taxpayer the right to appeal using a Request for Collection Due Process (CDP).

The CDP request gives clients a chance to dispute IRS enforcement actions before they take place.

When you're able to help clients understand the significance of a Final Notice of Intent to Levy and appeal rights, they know what to expect, what options they have, and how to approach next steps without panic.

You’re giving clients a sense of control and security.

TL;DR:

Key Insights on the IRS CP504

• Understand What CP504A Really Means: It’s serious but not an immediate threat. The CP504 warns of impending action but doesn’t allow the IRS to seize assets just yet. That doesn’t happen until they receive the Final Notice of Intent to Levy.
• Act Promptly, Not Impulsively: CP504A is serious but isn’t the Final Notice of Intent to Levy; it requires a response to prevent escalation.
• Review Resolution Options and Prepare for Future Notices: Help clients review resolution options, but make sure they understand that a Final Notice (LT11, CP90, or LTR1058) will follow, allowing crucially important CDP appeal rights.

Let’s Talk…

Professional advisors, the IRS has been sending a lot of CP504s after not doing so for years.

Do you have clients with CP504 issues right now?

If so, what questions do you have?

Let me know in the comments or reach out to me directly.

I’m happy to talk you through it.