CP504, a Missing Final Notice, and an Innocent Spouse Request
Elena filed a joint 2021 return with her former husband, who ran a construction business. The IRS assessed $18,400 after disallowing business deductions. She moved twice and says she never received the statutory notice of deficiency. She now has a CP504 dated March 3 and calls on March 28, saying it is a final levy notice and she has three days. She wants a Collection Due Process hearing and innocent spouse relief. Her only income is $2,100 monthly Social Security, and she cares for a disabled adult son. She did not file a separate return and says she did not know about the business deductions. The account transcript shows no Letter 1058 or CP90. There is an unfiled 2022 return. She asks you to stop all collection and cancel the tax.
1. Is Elena entitled to a Collection Due Process hearing now? Explain how the CP504 fits into the collection notice sequence.
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A CP504 is a preliminary notice of intent to levy, but it is not the final notice that triggers Collection Due Process rights under IRC §6330. CDP rights generally arise from Letter 1058, CP90, or CP297. The transcript shows none of those, so Elena is not entitled to a CDP hearing yet. Do not tell her that a CDP hearing will stop a levy.
Verify the transcript and the address of record before responding. Explain that the CP504 gives her a window to resolve the balance and that a final notice will create a 30-day CDP deadline. Tell her not to ignore the CP504. If she remains without a final notice, she can request a collection conference or CAP on the proposed levy, submit an installment agreement or currently not collectible request, and correct her address on Form 8822. If a final notice is later issued, she must request CDP within 30 days. Do not promise to cancel the tax or stop all collection.
2. What rights and options should you explain, and what should you not promise?
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Explain the right to representation, the right to appeal, the right to copies of records, and the right to contact the Taxpayer Advocate Service if she has a systemic problem or hardship. Explain the collection alternatives: installment agreement, partial pay, and currently not collectible. Explain that an unfiled 2022 return must be filed before most collection alternatives can be considered. Explain the innocent spouse process using Form 8857 and that collection may be suspended for her portion while the claim is pending, but not necessarily for the entire liability.
Do not promise to stop all collection or cancel the tax. Do not disclose her former husband's information without authorization. Do not tell her the CP504 is a final notice, and do not let her miss a later final notice. Because she says she never received the deficiency notice, also explain audit reconsideration if she has evidence the business deductions were proper. Document each right explained and her response.
3. How should you handle the innocent spouse issue and the claim that she never received the deficiency notice?
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Treat the two issues separately. For innocent spouse relief, explain the three requirements: a joint return, an understatement attributable to the other spouse, and knowledge or equity factors. She says she did not know about the business deductions and had no ownership interest in the business. That is relevant, but the decision is made on Form 8857 with a full administrative record. Do not pre-judge the claim at the phone contact. Advise her to file Form 8857 and provide the divorce decree, the business records she can obtain, and her income and expense information.
For the missing deficiency notice, check the assessment and the last known address. If the IRS sent the notice to an old address, she may still have audit reconsideration options if she has records proving the deductions were proper. Do not tell her the assessment is invalid simply because she did not receive the notice. Document her address history, the transcript review, and the specific advice given. Avoid promising a particular outcome on either issue.