tax levy

What Is A Notice of Levy?

Key Takeaways:

  • A notice of intent to levy is a warning notice that the IRS sends when they plan to seize a taxpayer’s assets.

  • Taxpayers may receive an IRS levy notice if they have an outstanding tax balance that they haven’t tried to resolve.

  • The IRS must issue a notice of intent to levy at least 30 days before they are legally permitted to seize assets unless they are seizing a taxpayer’s state tax refund or if the IRS thinks the collection of tax is in jeopardy.

  • The IRS can levy most personal property and assets, including real estate properties, vehicles, bank account wages, Social Security benefits, and more.

  • A federal tax lien is when a government entity places a legal claim on a taxpayer’s assets to secure tax payment. A tax levy is a process of actually seizing those assets to collect tax payments.

  • The IRS will send multiple notices of intent to levy before the final notice of intent to levy and seizure of assets.

  • If you do not respond to a notice of intent to levy, the IRS will begin to seize your assets.

  • The best way to prevent your assets from being levied when you receive an IRS notice is to pay your tax debt in full, but if you cannot afford to pay your tax bill, some tax relief options include an installment agreement, an offer in compromise, currently non-collectible status, and innocent spouse relief.

  • Taxpayers have to right to file an appeal with the IRS if they disagree with the notice of intent to levy.

If the IRS plans to seize your assets as a method of collecting what you owe in tax debt, they may issue a notice of intent to levy. This notice of intent is usually for people who have substantial delinquent tax debt that they have not tried to resolve. When you receive a notice of intent to levy from the IRS, it is telling you that you have an unpaid tax liability that must be paid.

An IRS intent to levy notice specifically refers to a tax period for which someone owes taxes, and for each tax and period, the IRS must issue a notice of intent to levy.

The IRS must issue a notice of intent to levy at least 30 days before they are permitted to actually seize assets. If the IRS plan to place a levy on your assets, they must first complete the following steps:

  1. Issue a written IRS levy notice to the taxpayer explaining the intent to levy and their right to appeal the levy.

  2. Within the IRS notice, the IRS must include a clear explanation of the reason the tax levy is being placed, the seizure process, and the taxpayer’s options moving forward.

  3. Deliver the IRS notice to the taxpayer personally or send the notice to the taxpayer’s law-known address through the U.S. mail system.

It is beneficial to keep in mind that there are certain exemptions to this 30-day rule. These exemptions include:

  • The seizure of a taxpayer’s state tax refund

  • If the IRS determines that the collection of tax is in jeopardy

  • Disqualified Employment Tax Levies (DETL)

  • Federal contractor levies

What type of assets can the IRS levy if you fail to pay your tax debt?

There are multiple types of assets the IRS can levy if taxpayers neglect to pay their delinquent tax debt. Some of these assets include:

  • Personal property including real estate and vehicles

  • The right to a property

  • Bank account funds

  • Social Security benefits

  • Wages issued from an employer

  • Payments due to you from a contractor or vendor

  • Employee travel advances

  • Work commissions

  • Retirement benefit plans

  • Office of Personnel Management (OPM) issued government retirement benefits

  • State income tax refunds

In general, when you owe money to the IRS, they can legally leave you with very little other than the bare essentials.

tax law

Types of IRS Levy Notices

The type of IRS notice you receive will depend upon which assets the Internal Revenue Service plans to seize when you have unpaid taxes. Here are 5 common types of IRS intent to levy notices:

  • CP297 – This levy notice is the final notice businesses will receive before the IRS takes action.

  • CP504 – This levy notice indicates that the IRS is planning to place a levy on your assets.

  • CP90 – This levy notice is the final notice individuals will receive before the IRS takes action.

  • LT1058 – This levy notice indicates the final notice the IRS will send before taking action.

  • LT11 – This levy notice indicates the final notice the IRS will send before taking action.

What is the difference between a federal tax lien and a tax levy?

A federal tax lien is a legal claim that the government or an agency can make on your accounts or assets in the case that you have an outstanding tax balance. This tax debt can include federal taxes, employment taxes, and self-employment taxes. If a lien is placed on your property, the government has the legal right to seize your property if the tax liability isn’t paid. While a tax lien is the legal claiming of an asset, a tax levy is a process of actually seizing those assets.

How many notices of intent to levy will the IRS send?

You might be wondering: what do I do if I receive an IRS notice? If you have outstanding tax debt and have yet to begin making payments on those unpaid taxes, the IRS will send you multiple notices of intent to levy before they begin actually levying your assets. Initially, when the IRS contacts you regarding your tax bill, it will inform you that you owe taxes to the IRS and provide an outline of how much you owe in taxes as well as interest and penalties.

When you receive the initial notice from the IRS, the most efficient manner of settling with the IRS and avoiding your assets being seized is to pay what you owe in tax liability. If you don’t respond to the notice regarding your tax balance, the IRS will begin informing you of their intent to levy your assets. Eventually, you will receive an IRS final notice that outlines their intent to levy as well as reminds you of your right to a hearing.

Although there is a specific protocol that the IRS must follow in regard to issuing a notice of intent to levy, there are a few exceptions that allow the IRS to seize assets without following the full protocol. An of the IRS being able to seize assets without several notices includes when the IRS seizes tax refunds to contribute toward unpaid federal income taxes. Additionally, if the IRS believes its collection efforts on your account are in jeopardy, it can also issue a tax lien or levy without following the complete protocol and issuing multiple notices.

What happens if you do not respond to an IRS notice?

If you receive a notice of intent to levy from the IRS but fail to respond to the notice or make payment arrangements, the IRS can file a notice of tax lien to stake their claim for the potential seizure of assets through a levy.

The IRS can start by seizing your state tax refund that you would have been entitled to if you were up to date on your tax payments. If there is still a remaining tax balance owed after the IRS levies your state tax refund, the IRS may issue another notice that offers you the right to a hearing with the IRS Independent Office of Appeals.

If you do not appeal, the IRS can then move forward and levy your property, including:

  • Earned wages

  • Real estate commissions

  • Other forms of earned income

  • Personal bank accounts

  • Business assets

  • Personal assets such as your car or home

  • Social Security Benefits

What To Do If You Receive A Final Notice of Intent to Levy

If you receive a final notice of intent to levy from the IRS, it is important to take immediate action to prevent the legal seizure of your assets. The fastest and most efficient way to avoid getting your assets seized is to pay your entire tax bill in full. This will remove you from your tax liability and halt all collection efforts against you.

Although a full payment of your tax debt is the most efficient way to avoid a tax levy, there are other options for taxpayers who are unable to pay their full debt. Here are some of the best options to resolve your tax issues when the IRS sends a notice of intent to levy but you cannot pay the full tax debt without inducing financial hardship:

Installment Agreements

An installment agreement is one of the most effective methods that can help delinquent taxpayers pay what they owe in back taxes. When the IRS approves an installment agreement, the taxpayer makes monthly payments to the IRS until they pay their full tax liability. Although an installment agreement will stop the tax collection activities of levies and liens, as well as reduce the IRS failure-to-pay penalty by 50%, taxpayers will still be responsible to pay the interest that accrues while they are making payments.

Offer in Compromise

While it is relatively rare for the IRS to approve an offer in compromise compared to other forms of tax debt relief, this payment agreement can be extremely helpful in allowing taxpayers to pay what they owe in back taxes. An offer in compromise is when the IRS agrees to settle taxes for less than what the person owes. While this form of tax relief will not remove taxpayers from their tax liability altogether, it does make tax payments more manageable for people who would face financial hardship if they attempted to pay all of their tax debt.

Currently Non-Collectible Status

Another form of tax debt relief that could help people who receive IRS notices includes currently non-collectible status or CNC status. If you are approved for this agreement, the IRS will temporarily deem your account as “non-collectible” and all tax collection activities will stop until the CNC status is removed. To apply for CNC status, taxpayers must provide a collection information statement to the IRS with sufficient documentation proving that the taxpayer will experience significant economic hardship if they were to pay the total tax bill.

Innocent Spouse Relief

Although the innocent spouse tax relief is a form of tax relief with specific requirements, it can be beneficial for those who qualify to help them avoid IRS levies. An individual may be approved for innocent spouse relief if they filed their tax return jointly with their spouse and it can be proved that the outstanding tax debt is solely the responsibility of the other spouse.

Appealing an IRS Levy Notice

If you receive a final notice of intent to levy and notice of your right to a hearing from the IRS but you do not agree to the terms of the notice, you have the opportunity to issue an appeal. On the notice that you receive, there will be a phone number that you can call to contact the IRS directly in regard to an appeal. Additionally, it is usually a good idea to file an appeal as well using IRS Form 12153.

If you receive a levy notice from the IRS, consulting with a tax professional is the best way to ensure you manage your tax issues correctly and find a tax resolution that helps you restore good standing with the IRS. Contact Ideal Tax today for a free consultation with one of our tax resolution professionals.