Tom Talks Taxes - October 1, 2021
An interview with Clarice Landreth, EA about IRS collection notices
For this edition, I spoke with Clarice Landreth, EA, NTPI Fellow, an IRS collections expert, about IRS collection notices and what they really signify.
Clarice is the Quality Assurance Analyst at Omni Financial in Broomfield, CO. She has over 18 years of expertise in tax resolution, specializing in offers in compromise and the trust fund recovery penalty. She currently serves as Chair of the National Association of Enrolled Agents (NAEA) National Tax Practice Institute (NTPI) Planning Committee and is a speaker at the NAEA NTPI events. In her downtime, she enjoys hiking, and bicycling. You can reach Clarice at email@example.com.
What is an IRS CP504 notice, and what does it allow the IRS to do to a taxpayer?
A CP504 notice is one of the most misunderstood notices in collection representation cases. The top of the CP504 states “Final Balance Due Reminder – Notice of Intent to Seize (Levy) Your Property or Rights to Property”, which seems extremely scary. This notice satisfies the notice of intent to levy requirement under §6331(d).
One thing practitioners get confused about is that the CP504 indicates that the IRS can take collection action such as levying a bank account. However, with a taxpayer who owes individual taxes, the only action the IRS can typically take based off this notice is to levy a taxpayer’s state tax refund. There are exceptions to this if the taxpayer is pyramiding employment taxes, has a federal contract, or the IRS makes a determination that collection is in jeopardy.
Does a taxpayer have any appeal rights for a CP504 notice?
It is very important to understand the rights offered on all notices issued by the IRS. The IRS will indicate in the notice what, if any, appeal rights are available in response to the notice. The CP504 notifies a taxpayer (or their 2848 representative) of their right to file a request under the Collection Appeal Program (CAP). This can be done either by calling the IRS or by using Form 9423, Collection Appeal Request. Many practitioners believe that you must file Form 9423 to request a collection appeal; however, it is not required. A phone call requesting the appeal under the CAP is all that is required. IRS Publication 1660, Collection Appeal Rights, explains this further.
What should a practitioner do in response to a CP504 notice?
Many times, a practitioner’s immediate response to this is to file a Form 9423; however, a practitioner’s response to a CP504 really depends on where the liability is in the collections process. But all roads lead to a phone call (we all have experienced the frustration of calling the IRS) to the IRS as this is the best way to make sure no unnecessary or incorrect collection action takes place against the taxpayer.
The first step is to determine if the balance due on the CP504 is correct. Should the taxpayer have received this notice? As we have all seen through the pandemic, there are major delays at the IRS. Many CP504 notices are being issued although the practitioner (or the taxpayer) responded to prior notices or paid the balances owed. The next steps all depend on if the taxpayer’s liability is with Automated Collections, a Revenue Officer, or Appeals. You should reach out to whichever department is currently working the case and work to resolve the liability.
While an appeal request under CAP can be filed, it is much more efficient to try to resolve the liability through conversations with the IRS. Appeals is very limited in what they can do in a collections appeals hearing. They are not able to consider any resolution alternatives during an appeal hearing held in response to a CAP request. The main thing Appeals considers is if the proper procedures were followed in the issuance of the CP504. And due to the backlog, the appeal request may not get processed in a timely manner.
What is a Notice of Intent to Levy with Right to a Hearing, and what does it allow the IRS to do to a taxpayer?
“Notice of Intent to Levy and Your Collection Due Process Right to a Hearing” is usually issued after a CP504 has already been sent to the taxpayer. Generally, the IRS issues a LT11, LT1058, CP90, CP77, or CP92 to notify a taxpayer of their rights. This notice is known as a “final notice” within the practitioner circle. A practitioner must be careful not to always think of these as final notices as the LT11 does not state that at the top of the notice. It is important to realize the magic words regarding the required notice is “Your Collection Due Process Rights to a Hearing”.
If an appeal on Form 12153, Request for a Collection Due Process or Equivalent Hearing, is not filed, in thirty days, the IRS can take collection actions, such as levying bank accounts or garnishing wages. The IRS generally cannot take collection action if a Form 12153 is filed until the appeals hearing has been held and the taxpayer has the chance to file a Tax Court petition.
Can a taxpayer receive a CP504 after a Final Notice of Intent to Levy? If so, what should the practitioner do?
The IRS will typically not issue a CP504 after the CDP rights notice is issued; however, they will issue it if a new liability is assessed on a different tax module. All CP504 notices must be analyzed and responded to in some way depending on the status of the case. This is especially the case if a resolution has been achieved for the taxpayer as a CP504 might indicate the taxpayer has accrued a new balance, which may default the resolution.
Do you have any closing thoughts you’d like to share?
Read the notice! A notice will always state if there are appeal rights. Also, your first reaction should not be to automatically file an appeal. You should analyze the facts of the case prior to taking any action. Many practitioners get stuck in a box and do the same things on each case; however, every case has a different set of facts.
If you don’t do collection work, here’s the big picture: the IRS must issue a series of notices before they can take levy action on your client. In order, they are:
Notice and Demand
Notice of Intent to Levy
Notice of Right to a Collection Due Process (CDP) Hearing, and
Notice of Third-Party Contact
Exceptions to the above can be found in IRM 188.8.131.52.2 Required Notices.
This process gives you plenty of time to work on a client’s balance due to resolve it prior to potential levy action.
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