What Can a Taxpayer Do About a Tax Levy?

October 16, 2020

By Dan Gibson

A tax levy is when the government takes a citizen’s property in order to resolve an outstanding debt to the government. It really serves a dual purpose (1) to decrease the outstanding tax debt; and (2) get the attention of a delinquent taxpayer.

What can someone do who knows that he or she owes money to the IRS and is concerned about impending IRS action? It is not from a lack of trying that the government warns the taxpayer of imminent action. The IRS does send a notice specifying the amounts due. If that is not acted upon, the IRS will initiate a letter campaign of up to four more notices before commencing collection activity. These notices are Reminder Balance Due (CP-501), Important 2nd Notice Balance Due (CP-503), Urgent Final Notice Balance Due (CP-504), and Final Notice of Intent to Levy and Notice of Your Right to a Hearing (Letter 11, Letter 1058 or CP-90). This last notice explains the rights that the taxpayer has under §6330 before the actual levy action begins.

What if the taxpayer fails to respond to these notices? The IRS may then levy, seize and sell property; take withholdings; garnish wages or other payments; and other acts aimed at restitution.

What can a taxpayer do to pre-empt these actions? Recall the Final Notice of Intent to Levy above. Along with that notice is the right to a hearing known as a Collection Due Process Hearing (or an Equivalent Hearing). If a taxpayer acts upon this in a timely manner, the case is transferred from the IRS group whose mission is to collect taxes to a group whose mission is to settle tax cases.

Don’t misunderstand; the IRS still wants to get paid. But under the protection of a hearing, the activities of the Collection Division cease, and the taxpayer can prepare a plan with a settlement officer to pay the government in a more orderly manner. Unfortunately, very few delinquent taxpayers take advantage of the hearing process and are left to deal with the Collection Division—which is probably one of the most effective collection agencies in the world.

So if you’ve foregone a hearing, what then? The taxpayer must first ensure that all tax filings are up to date.  Second, they must have paid their current year’s tax obligation to date. Third, contact the IRS and request a levy, or partial levy, release in order to pay essential living expenses. Lastly, put together a financial package (Form 433), and propose a collection alternative, which will mostly likely be an installment payment plan.

Regardless of your stage of the process, action is the key. Procrastination only prolongs the misery and creates additional costs and headaches.

Click here to register for our October 20 webcast on “Liens and Levies.”

About Daniel Gibson

Daniel Gibson provides accounting, tax planning and consulting services to real estate and services industries and is a member of the AICPA and New Jersey Society of Certified Public Accountants.