CP504 Notice for IRS International Penalty Enforcement: When a U.S. person receives a notice, such as a CP15 Notice, putting them on notice that they have been penalized for failing to file and report a foreign gift (3520), trust,(3520-A) or foreign corporation (5471)— the clock starts ticking. Initially, the taxpayer will first try to appeal the penalty to the IRS Office of Appeals. Simultaneously or thereafter (pending on pre-payment strategies) the Taxpayer will make abatement request on Form 843. In the meantime, the IRS will continue collection enforcement of the amount due. While most IRS agents are amenable to putting the collection proceedings on hold pending the outcome of the penalty appeal, that is not always the case — and sometimes after the first request has expired the IRS may not agree to pause collection any further.
At that time, you may receive a CP504 notice.
When a person receives a CP504 notice, it can be a scary and traumatic experience.
This is especially true in situations in which a person seeks to eliminate a foreign trust or foreign gift penalty — and the IRS has yet to respond to the penalty forgiveness request.
Even though the IRS may consider waiving the penalty, the collection continues to move forward and so the Taxpayer has to respond to the CP504 notice in a timely matter.
One important aspect about the CP504 Notice is that while it refers to a levy or lien, it does not actually mean the IRS is about to immediately levy or lien the account. It is more of a scare tactic letting the Taxpayer know that they have a debt with the IRS and that the IRS seeks to enforce collection through collection and that two ways the IRS may seek collection is with a levy or a lien.
Unfortunately, this is only the first in a series of letters you will receive before you receive the final notice of levy or lien and then can consider a CDP request.
Responding to a CP504 Notice
When a person receives a CP504 notice, they have a limited time to respond.
The letter ordinarily provides the taxpayer with 30 days to respond. At this point, if the taxpayer has not retained experienced counsel, they may consider doing so — if for no other reason than to understand the strategy going forward.
While the CP504 notice provides the taxpayer with an opportunity to submit a CAP, that may not always be the best strategy, especially if the taxpayer believes they may qualify for reasonable cause and is willing to wait for a more formalized final notice of intent to lien or levy before taking action.
For other taxpayers, they may want to completely cease collection and avoid accruing interest. In that case, a CAP maybe the right move. It is important to note that by filing certain forms with the IRS, it may prevent the taxpayer from filing other forms or taking alternative action for the same nucleus of fact.
In conclusion, when a taxpayer has already received the CP15 notice and is still waiting for a decision about appealing the penalty for reasonable cause, the clock is still ticking from the IRS’s standpoint. As a result, collection enforcement moves forward and taxpayers should be aware of their different options and the amount of time they have to respond — as well as determine a strategy moving forward.
Golding & Golding: About Our Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS disclosure & compliance.
Contact our firm today for assistance.