IRS Notice of Intent to Levy: What It Is and What to Do

Did you recently receive a Notice of Intent to Levy from the Internal Revenue Service (IRS)? It’s certainly not a piece of mail anyone looks forward to receiving. However, there are steps you can take to potentially remedy the situation upon receiving this IRS notice.

The IRS extends relief options to qualified taxpayers and businesses. You can also hire a tax relief firm to help you determine the next steps.

What Is a Levy?

A levy refers to the seizure of your assets to resolve unpaid taxes. Typical targets for seizure include your bank accounts, retirement accounts, wages, independent contractor income or accounts receivables if you have a small business. The IRS may also seize property. The IRS must take specific steps before they can take levy action, which could buy you more time to figure out the next steps.

What is a Notice of Intent to Levy?

Taxpayers who owe federal back taxes and haven’t worked with the IRS to find a solution could receive a Notice of Intent to Levy. It’s a document that communicates the IRS’ plans to confiscate funds or assets to cover unpaid tax debt. The Notice of Intent to Levy also outlines why the IRS is planning to levy assets or garnish wages, how the process works and how to file an appeal if you think they have not followed proper procedure.

Federal law requires correspondence to be sent to the taxpayer at least 30 days before the planned seizure. The following are some of the most typical forms the IRS would send via U.S. Mail:

• CP504 (Notice of Intent to Seize (Levy) Your Property or Rights to Property): The IRS sends this notice to taxpayers with delinquent tax debt. Its purpose is to notify you of the IRS’s plans to levy your bank accounts and income and seize your property and any rights to it if you fail to remit the outstanding balance to the IRS immediately. Your state income tax refund is also at risk of seizure if the tax debt remains unpaid after receiving this notice.
• CP90 (Intent to Seize Your Assets and Notice of Your Right to a Hearing): You’ll receive this notice if the IRS intends to levy your assets for back taxes. If you receive it, you have the legal right to request a collection due process hearing by completing and submitting IRS Form 12153 (Request for a Collection Due Process or Equivalent Hearing).
• 1058 (Final Notice of Intent to Levy sent by a Revenue Officer) or LT11 (Final Notice of Intent to Levy sent by Automated Collections): Either of these notices also indicates the IRS’ intent to seize your property or property rights. Receipt of either notice also requires an immediate response to the IRS.

Fortunately, there are ways to avoid a levy or garnishment. For example, you can file your returns and make tax payments in a timely manner or request an extension if you need additional time. The IRS also offers installment agreements to help you resolve outstanding tax debt. Or you can work with a tax relief firm to apply for an Offer in Compromise (OIC), which may allow you to settle your tax debt for a fraction of what you owe.

Which Assets Can the IRS Levy?

The IRS can levy just about all your assets, including:

• Automobiles
• Bank accounts
• Commissions
• Compensation from employers (including wages)
• Social Security benefits (up to 15%)
• Employee travel advances
• Vendor and contractor payments
• Residential and commercial property
• Retirement benefits (including federal government retirement benefits distributed by the Office of Personnel Management)

Refer to IRS Publication 1494 to determine the amount of income that could be exempt from levy on wages, salary, and other income. But keep in mind that the IRS can seize a sizable amount of your assets and leave you with the bare minimum.

What Happens if You Don’t Pay Your Tax Debt After a Notice of Intent to Levy?

If you fail to reach out to make formal payment arrangements or file the proper appeal, the IRS could move forward with seizing your assets. Generally, you have 30 days from the date on the letter to rectify the situation before the IRS takes action and should consider hiring a tax relief professional to help you understand what options could be available to you.

What Do You Do If You Receive a Notice of Levy?

You can pay what you owe in full to stop IRS collection activities and prevent the seizure of your assets. But if you can’t afford to repay your outstanding tax liability all at once, these options could be available to you:

Offer in Compromise

The IRS could agree to settle your tax liability for a fraction of what you owe through an Offer in Compromise (OIC). However, your chances of success are slim as the IRS only approves a small percentage of the OIC applications they receive each year.

• Doubt as to Collectibility: To qualify under this premise, you must not have the means, or an ample amount of income and assets, to pay back taxes during the statutory period.
• Doubt as to Liability: The tax examiner who assessed the tax liability must have misinterpreted the tax code or omitted additional evidence you presented during their review for this justification to work in your favor.
• Exceptional Circumstances (Effective Tax Administration): You’ll need to demonstrate that paying your tax liability in full would cause you to experience undue financial hardship or be deemed unfair or inequitable.

Refer to the Offer in Compromise Pre-Qualifier Tool to gauge your eligibility for an OIC. It’s also best to consult with a tax professional for assistance with preparing the documentation needed to request a settlement.

Installment Agreement

An installment agreement lets you make payments toward your balance over a set period. Here are your options:

• Long-Term Payment Plans:
  • Individuals who owe $25,000 or less could be eligible for a 60-month installment agreement if they meet certain criteria.
  • Individuals who owe $50,000 or less could be eligible for a 72-month installment agreement if they meet certain criteria.
  • Businesses that owe $25,000 or less could be eligible for a 24-month installment agreement if they owe $25,000 federal tax.

• Extended-Term Payment Plan: This arrangement is determined by your income, liabilities, and expenses the IRS classifies as allowable per the national standards of living. The terms are generally negotiated for you by a tax relief firm.

You should also have filed all required returns and be current on estimated tax deposits (if self-employed) before applying for an installment agreement.

Requests for installment agreements can be made online, by phone or by mail. Prepare to provide the following information when applying for a payment plan:

• Your name
• Your date of birth
• Your physical address (as listed on the most recently filed tax return)
• Your email address
• Your mobile phone number
• Your filing status
• Your total outstanding tax debt amount
• Your financial account number of identity verification code

Installment agreement requests for businesses must also include this information:

• Your Employer Identification Number (EIN)
• The applicable tax period and form the IRS filed or examined
• The month and year you started the company

You’ll also need to pay a fee to set up a payment plan with the IRS. Below is a breakdown of what you can expect to pay:

• Short-Term Payment Plan: $0 regardless of the way you set it up
• Long-Term Payment Plan with Direct Debit Installment Agreement: $31 if you apply online or $107 if you apply by mail, phone or at an IRS office
• Long-Term Payment Plan without a Direct Debit Installment Agreement: $130 if you apply online or $225 if you apply by mail, phone or at an IRS office

You could be eligible for a discounted setup fee if you meet low-income guidelines.

Innocent Spouse Relief

Are you on the hook for federal tax debt incurred by your current or former spouse? Consider filing Innocent Spouse Relief if you filed a joint tax return and weren’t aware the tax liability was underpaid or in situations of spousal abuse or forgery on tax returns.

Currently Not Collectible (CNC) Status

CNC Status is available to taxpayers dealing with financial hardship. It allows you to defer making tax payments until your financial situation improves, but you’ll need to contact the IRS to plead your case. They will review your financial situation by analyzing your monthly income, expenses, and assets to determine if you’re able to pay. The IRS could also request documentation and a Form 433A or B and copies of your pay stubs and bills to substantiate the financial information you provided when requesting CNC status.

If approved for CNC status as an individual taxpayer, the IRS may review your financial situation every two years to determine if you can afford to make tax payments and every year if you have a business in CNC.

Frequently Asked Questions (FAQs)