Receiving IRS Letter CP504B can be alarming—but ignoring it is far worse. This notice is a formal warning that the IRS intends to levy (seize) your property or rights to property, such as bank accounts, wages, or even Social Security benefits due to unpaid taxes. For U.S. taxpayers with foreign financial accounts or income, this letter may also signal more serious international reporting noncompliance. Understanding what CP504B means and how to respond legally—especially distinguishing between intentional and unintentional noncompliance—is critical to resolving your case effectively.
What is IRS Letter CP504B?
CP504B is a final notice before levy. It’s typically issued after previous IRS attempts to collect unpaid tax liabilities have gone unanswered. This version of CP504 specifically pertains to unpaid international penalties or assessments related to noncompliance with obligations like FBAR (Foreign Bank Account Report) filing or Form 8938 (Statement of Specified Foreign Financial Assets).
Intentional Noncompliance
If a taxpayer willfully failed to report foreign income or disclose foreign assets—by hiding offshore accounts, filing false returns, or ignoring known obligations—the IRS presumes fraud or tax evasion. In such cases, the Voluntary Disclosure Practice (VDP) is the recommended path.
The VDP allows taxpayers to avoid criminal prosecution if they come forward before the IRS contacts them. It requires full cooperation, detailed disclosure of offshore activities, and payment of all back taxes, interest, and substantial penalties (often up to 50% of the highest account value). However, it provides a structured way to come into compliance and avoid more severe consequences.
Unintentional Noncompliance
Many taxpayers fail to report foreign assets or income due to ignorance of complex reporting rules rather than willful intent. In such cases, the IRS offers Streamlined Filing Compliance Procedures (SFCP) as a more lenient alternative.
There are two tracks under SFCP:
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- Streamlined Domestic Offshore Procedures (SDOP): For U.S. residents, it requires three years of amended returns, six years of FBARs, and payment of a 5% offshore penalty based on the highest year-end account balance.
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- Streamlined Foreign Offshore Procedures (SFOP): For non-U.S. residents, the 5% penalty is waived entirely. Only the same three years of amended returns and six years of FBARs are required.
In both cases, the taxpayer must certify that the failure was non-willful, meaning it was due to negligence, inadvertence, or a good faith misunderstanding of the law.
Relevance to Taxpayers
CP504B is not just another piece of IRS mail—it’s a final warning. If you receive one and have unreported foreign assets or income, immediate action is essential. Ignoring it may lead to asset seizure, increased penalties, and even criminal exposure. Understanding whether your noncompliance was intentional or unintentional determines your legal response and shapes your options for resolution.
Consulting an experienced international tax attorney is vital to navigating the proper disclosure path and avoiding further IRS enforcement. The sooner you act, the more options you have to mitigate risk—and potentially avoid the full force of IRS penalties.
Juarez Hernandez Tax Law specializes in tax controversy and IRS representation, with a proven track record in resolving complex tax matters. Timely intervention is essential to protect your assets and legal rights. Engaging Juarez Hernandez Tax Law ensures experienced guidance and the best chance for a favorable outcome.