If you’ve received an IRS Notice CP161 or CP504, it’s a serious signal that there may be unresolved tax issues—often stemming from a late filing or an unpaid tax balance. These notices serve as official communications from the IRS, alerting taxpayers about discrepancies or delinquencies that require immediate attention. Fortunately, receiving one of these notices does not mean you’re out of options. With the right steps, you can correct a late filing, resolve outstanding balances, and potentially reduce penalties.
🔍 What Is IRS Notice CP161?
Notice CP161 is typically issued when you have filed a return but have an unpaid balance. It is not a late filing notice per se but often appears after a late return has been processed and assessed for penalties and interest. The CP161 includes:
- Details of the unpaid tax amount
- A breakdown of interest and penalties applied
- Instructions on how to pay or respond
📬 What Is IRS Notice CP504?
Notice CP504 is much more urgent. It is a final notice stating that the IRS intends to levy (seize) assets such as wages, bank accounts, or state tax refunds to satisfy an unpaid tax debt. It usually comes after previous notices (like CP161 or CP501) have gone unanswered. Receiving CP504 means you need to act immediately to avoid collection actions.
🛠️ Step-by-Step Guide to Fixing a Late Filing After Receiving a Notice
Step 1: Review the Notice in Detail
Carefully read the entire notice. Make note of the tax year in question, the total amount owed, and any deadlines for response. Ignoring deadlines could lead to levies, liens, or increased penalties.
Step 2: Determine Your Filing Status
If you haven’t filed your tax return for the year listed in the notice, file it immediately. Even if you can’t pay the balance in full, timely filing stops the failure-to-file penalty from growing.
Step 3: File the Late Return
- Use the correct Form 1040 or business return (1120, 1065, etc.) for the year in question.
- File electronically if possible to ensure faster processing.
- Attach a reasonable cause statement if you’re requesting penalty relief.
Step 4: Pay What You Can
Even a partial payment can reduce interest and penalties. You can pay online via the IRS Direct Pay portal or set up an installment agreement using Form 9465.
Step 5: Contact the IRS
Use the contact number listed on the notice to speak with an IRS agent. Let them know:
- You’ve filed your return
- You’re aware of the balance due
- You would like to resolve the issue by paying or setting up a payment plan
Step 6: Respond to the Notice in Writing (If Applicable)
If you’re disputing the notice or requesting abatement, send a written response via certified mail to the address on the notice. Include:
- Your name and SSN or EIN
- The notice number (CP161 or CP504)
- Any relevant documents supporting your claim (e.g., proof of timely mailing, financial hardship, medical records)
🔧 Requesting Penalty Relief
If the late filing was due to circumstances beyond your control, you may be eligible for penalty abatement through:
- First-Time Abatement: If this is your first penalty and you were otherwise compliant.
- Reasonable Cause Relief: Based on documented hardship or uncontrollable circumstances.
Use IRS Form 843 to request penalty abatement in writing if not resolved via phone.
📉 Understanding the Risks of Ignoring CP504
If you do not act on a CP504 notice:
- The IRS can garnish your wages or levy your bank accounts
- They may file a Notice of Federal Tax Lien against your property
- Your credit and financial reputation could suffer significantly
✅ Best Practices for Handling IRS Notices
- Never ignore IRS mail
- File returns even if you can’t pay the tax
- Keep documentation of all communications with the IRS
- Consult a tax professional if the situation is complex or you’re unsure how to respond
🔚 Final Thoughts
Receiving a CP161 or CP504 notice after a late filing can be intimidating, but it’s not the end of the road. The IRS offers avenues to fix your tax record, pay what you owe in manageable steps, and even eliminate some penalties. The key is to act quickly, communicate clearly, and remain compliant going forward to avoid further consequences.
