failed irs tax audit

The IRS goes through a long process before it seizes a taxpayer’s assets or income. Their goal is to collect the money they are owed, not spend a substantial amount of time and money chasing that money. That’s why there are multiple notices that inform taxpayers of the agency’s intent to levy—they give the taxpayer plenty of opportunities to settle their tax debt without losing their assets or incurring over-the-top interest and penalties.

Although there are numerous notices that lead up to an actual levy, that doesn’t mean you should take the early notices lightly. All IRS collection notices indicate that you are on a path that ends with either you voluntarily paying your tax debt or losing your valuable assets through involuntary collections. Learn more about the notice you’ve received, and if you need help getting ahead of this problem, call Seattle Legal Services at 206-536-3152.

What is a Notice of Intent to Levy?

An IRS Notice of Intent to Levy is one of the most alarming pieces of mail you can ever receive. The IRS lays out its intentions in each notice, going so far as to tell you exactly what it will levy if your taxes remain unpaid. Assets they may seize include your real property, personal property, investments, and income. 

This includes real estate, vehicles, recreational vehicles, jewelry, antiques, stocks, annuities, and money held in bank accounts. It is far more challenging to stop or reverse a levy that has already started than it is to prevent a levy, so it is crucial to act quickly when you receive anything from the IRS indicating that they intend to levy your assets.

Notices That Inform You of the IRS’s Intent to Levy

The Notice of Intent to Levy isn’t just one letter; the IRS sends numerous notices to both individuals and businesses before actually moving forward with this process. These notices include:

  • CP504: This is the first letter you receive after the IRS has sent you notices of your unpaid taxes. It includes the amount owed and states that the IRS intends to seize/levy your property or rights to property. You generally have 30 days to make arrangements or pay your past-due taxes.
  • CP90: This comes after you receive CP504, and it’s fairly similar in structure and content. It’s titled “Intent to seize your assets and notice of your right to a hearing.” It gives you 30 days to request a Collection Due Process hearing if you want to appeal the levy.
  • LT1058: Letter 1058, the final notice before an actual levy, has a much stronger sense of urgency than previous levy notices. It states in bold and capital letters, “Final Notice of Intent to Levy and Notice of Your Right to a Hearing.” It outlines your options and notes that there are still ways to avoid a levy if you act quickly. 
  • LT11: If you do not receive LT1058, you may receive LT11—like LT1058, it arrives via Certified Mail. It urges an immediate response and is titled, “Final Notice: Notice of Intent to Levy and Notice of Your Right to a Hearing.” It also warns you that at any point they may now file a lien and take steps to seize your property.
  • CP504B: Notice CP504B is the business equivalent of CP504. If your business has past due taxes and you have ignored previous requests for payment, you will receive this Notice of Intent to Levy in the mail.
  • CP297: Notice CP297 comes after CP504B is ignored. It is sent to the business address on file, states the amount due immediately, and their next steps if communication attempts are ignored.

  • CP77: The IRS sends this when other notices have not resulted in payment for your tax debt. It notifies you of their intent to levy and your right to a CDP hearing.

The Roadmap to These Notices

Although CP504 or CP504B may be the first notice you receive with “levy” in the title, it should not be the first notice you receive from the IRS. Before the IRS gets to the point of threatening a levy, it sends several other notices. The first notice you’ll likely receive is CP14, which indicates your balance due, which tax year the balance is from, and how that amount breaks down into taxes, penalties, and interest. It generally gives you 21 days to pay in full or come to a different agreement with the IRS.

The next step is CP501, which is nearly identical to CP14. Again, it gives you 21 days to pay up and settle your account with the IRS. The final notice before you begin receiving notices about potential levies is CP503, which is labeled as your second reminder for your unpaid taxes. You have 21 days to settle your account or come to an arrangement with the IRS, and if you do not do so, you’ll begin receiving Notices of Intent to Levy.

What to Expect After the Final Notice: the Collection Process

Legally, the IRS is required to send LT11 or LT1058 at least 30 days before levying any of your assets. They may file a Notice of Federal Tax Lien, which announces to your creditors that the government has a right to any of your assets or your shares in any property. This can make it considerably harder to get credit. If the IRS pushes it further, your passport may also be suspended or any passport application you send in may be denied.

What does this mean for you? It means that you have 30 days from receipt of LT11 or LT1058 to get in touch with the IRS, figure out a way to handle your tax debt, and protect your assets and income.

Your Options to Avoid a Levy

Ideally, you’ll look into these options before you receive a Notice of Intent to Levy—the earlier you start this process, the more time you have to navigate the paperwork and figure out which tax solution is best for your needs. If you wait until LT1058 or LT11 hits your doorstep, you have already lost much of the time that the IRS has given you—you have 30 days until your assets or income can be seized. 

Consider these options if you cannot pay in full, and if you’re unsure which solution is best for your financial situation, reach out to Seattle Legal Services to explore your options.

Installment Agreement

This is one of the most popular options for taxpayers, as it spreads payments over a reasonable timeframe and limits the immediate impact on your finances. A long-term installment agreement can last up to 72 months and even longer in some cases. The amount you pay depends on how much you owe and how much disposable income you can afford to put toward the debt each month. 

If your debt is small enough, you may be able to get approved for a payment plan instantly when you apply. Before committing to an amount, make sure that it fits your monthly budget—some taxpayers commit to a larger payment than required, which leaves them missing payments and stretching to make ends meet. Missing even a single payment puts you in violation of your agreement with the IRS, so it’s best to make an agreement that you can fulfill every month.

Offer in Compromise

For those who cannot afford to pay their taxes in full, an Offer in Compromise may be the best solution. The IRS will consider your income, assets, and basic monthly expenses when deciding whether or not to accept your offer. You may wish to work with a tax solution attorney to figure out a reasonable and fair Offer in Compromise that the IRS is likely to accept. If your offer is accepted, you can either pay the required amount in one lump sum or in periodic payments.

Currently Not Collectible

This isn’t so much a permanent solution as it is a temporary way to postpone payments. If the IRS looks at your financial situation and sees that there is genuinely no way to collect from you at the present time, they will place you in CNC status. This means that collection efforts stop until your financial situation changes in a way that allows you to make payments. If the IRS places you in this status, they will request regular updates on your financial situation to determine whether or not to resume collection activities.

Collection Due Process Hearing

If you disagree with the levy itself or the amount you owe, you are also entitled to request a Collection Due Process hearing. During a CDP hearing, you can discuss alternatives to a levy and dispute how much you owe, assuming you have not officially disputed the amount before.

Your Next Steps and How an Attorney Can Help

If you have received any letter labeled as a Notice of Intent to Levy, you should act immediately. You may have multiple notices to go before the IRS technically begins levying your assets, but being proactive about your current tax situation gives you more time to address it properly.

Wherever you are in this process, we can help. At Seattle Legal Services, we understand how easy it is to fall behind on your taxes and not see a way out. You have lots of options available to you, and we’re committed to helping you find a solution that accommodates your needs. Call us at 206-536-3152 or fill out our online contact form to set up a consultation with our experienced and compassionate legal team.