IRS issues Notice of Intent to Levy in a letter numbered CP504 asking you to pay the tax due within 10 days of service of that letter. The Notice of Intent to Levy is issued as per Internal Revenue Code Section 6331 (d) . The CP504 or the Notice of Intent to Levy explains why this notice was issued and what may happen , if the tax due is not paid within 10 days . In other words , there are information about tax due in books of IRS including the penalties and interest are accruing. The letter also threatens that IRS may resort to diverting federal government payments due to the taxpayer, as well as State tax refunds.
What happens if you don’t pay tax debt even after Notice of Intent to Levy?
IRS letter CP504 is first serious move by IRS towards collection of tax . Basically , the goal of IRS in issue lo CP504 is to pressure the taxpayer to pay the tax debt in full. However, since the CP504 is not the final notice of intent to levy , the IRS can not do all those things like enforce collections by levying bank accounts, levying accounts receivable, or seizing the taxpayer’s assets immediately after 10 days of CP504 .This notice is precursor to other serious notices from IRS for a definite action to collect the irs tax debt against you.Here are a list of things that happens when you ignore the Notice of Intent to levy or letter CP504
1. Higher penalty rate for failure to pay
The failure to pay penalty rate is generally 0.5% per month or part of month. However, if you are served with a notice of intent to levy , penalty rate will be 1 % if you do not pay the tax debt within 10 days of service of notice.
2. You will receive a Final Notice IRS Letter 1058 or LT-11
When you avoids CP504- IRS will issue you Final Notice of Intent to Levy which may be numbered as Letter 1058, or LT-11 in IRS-parlance.This notice is dead serious notice to you that since you did not pay tax debt despite the previous notices issued by the IRS, they will enforce collection of the liability by taking harsh majors like federal tax lien or recovery from state tax refund, salary,commission or any property or assets in your name .
3. IRS may issue notice of federal tax lien
When IRS finds that you ignored their Final Notice of Intent to Levy , they may file a public document called the Notice of Federal Tax Lien, to openly alert everyone including creditors that the government has a legal right to your property.This will make create immense difficulty to sell or borrow against your property as every creditor will wary of such a lien over your property. This will also hamper your credit score.
What should you do if you receive notice of intent to levy?
First and foremost , you must contact a tax lawyer or tax attorney or a tax professional after you are served with the first CP504 letter. This is so because when IRS issues first notice of intent to levy, it is an indication that now legal correspondence will happen and matter may move to court as well . For a layperson , it is almost impossible to handle after the stage of CP504.
Once IRS serve on you Final Notice of Intent to Levy ,you have an opportunity to file a Collection Due Process or CDP Appeal within 30 days of the date on the Final Notice of Intent to Levy or present before them an alternate pay to resolve the tax debt issue. Once a CDP Appeal is filed, the IRS is generally prohibited from enforcement while the Appeal is pending, and until after the taxpayer has a hearing with an IRS Appeals Officer.
If a taxpayer fails to file a CDP Request within those 30 days, he may still request appeals consideration for up to 365 days following the date on the Final Notice. The IRS may grant the taxpayer what is called an “Equivalent Hearing.”
There is another form of Appeal that is available to a taxpayer called ’ Collection Appeals Program (CAP) which is available to taxpayers who are unable to resolve an issue with Collections. CAP Appeals are fast-tracked to an Appeals Officer, and the Office of Appeals generally tries to resolve the issue within 5 days.