Before the Internal Revenue Service (IRS) can take any ‘enforced collection action’ — what most people refer to garnishments or levies of wages and bank accounts, first, the IRS must mail out a letter to a taxpayer called a Final Notice of Intent to Levy. (Notice CP 90)
Who does it applies to?
If you owe the IRS back taxes, there is a series of letters that IRS sends out. This letters have technical names: First, a CP501, which is as friendly as IRS notices get. If the bill remains unpaid, then a CP503 warning that collection action could take place. If the bill is still unpaid or no arrangements have been made to settle the tax debt, then IRS will send a CP504, which is a “Notice of Intent To Levy.”
The CP504 compared to a Final Notice of Intent to Levy
Confusing matters, is that the CP504 is not a Final Notice of Intent to Levy. While the IRS can intercept state refunds at this point, they can not take any other actions. So often, a CP504 will lull a taxpayer into a false feeling of safety. After all, they think, a levy notice was issued and the IRS must not been ale to find anything to levy.
NOTE: If you dispute your tax bill, you may be able to get the IRS agree to lower it, using something called Audit Reconsideration.
How is a Final Notice of Intent to levy sent?
A Final Notice of Intent to Levy is sent certified mail. Because many taxpayers aren’t home at the time the mail carrier arrives, they have to go to the post office to claim it. Of course, many do not, after all, who is terrible enthused about receiving certified mail from the IRS?
Regardless, even if the letter is never claimed, it is still valid. Taxpayers mistakenly assume that there must be a court hearing before the IRS can being levying and garnishing. This is not true. The Final Notice of Intent to Levy is the final notice a taxpayer receives before their world will likely turn upside down.
What does a Final Notice of Intent to Levy Do?
A Final Notice of Intent to Levy is the notice a taxpayer is given that they have 30 days to a right to claim something known as a Collection Due Process hearing. At this hearing, a taxpayer should present something called a “proposed collection alternative,” or raise issues why they don’t owe the tax, that is, claim innocent spouse relief, or an audit reconsideration. To put it more clearly, a taxpayer can dispute the ability to pay the debt, and/or dispute the validity of the debt.
IRS appeals officers tend to be the best and brightest of the IRS and very grounded in reality and very aware of the incredible detailed Internal Revenue Manual. They are experts at tax research and usually work methodical. Because of their high level of competence, taxpayers have the right to have a tax attorney or other tax professional represent them at the hearing.
It is important that the collection due process hearing be treated as a legal proceeding. The reason is that if a taxpayer can not find a reasonable solution at the hearing, the taxpayer has a right to take the case to tax court. Most cases fail in tax court because the taxpayer failed to create a record or actually show up at the hearing. They wind up being dismissed because taxpayers did not know how to follow the rules.
What if you missed the 30 day deadline?
If you miss the 30-day deadline to file a Collection Due Process hearing, you have a year from the date of the Final Notice of Intent to Levy to file something called an “Equivalency Hearing.” An Equivalency Hearing is just like a Collection Due Process hearing, with one major difference. There is not right to tax court.
If an Equivalency Hearing is requested, typically the IRS will not levy or garnish, but are allowed to do so
What if you miss the 1-year deadline to file an Equivalence hearing?
You may still request a levy to be released provided it is creating a hardship or by submitting a collection alternative such as an Offer in Compromise, an Installment Agreement or Request for hardship status. You may also be able to file bankruptcy to wipe out old tax debts, despite what some tax resolution companies claim.
Conclusion: Do NOT be afraid
A Final Notice of Intent to Levy should not be treated as something to be afraid of. But rather, an opportunity. It triggers valuable appeal rights that can result in an optimum tax resolution without any levies or garnishments. The key is to pick it up and respond quickly. Yet because of the complexities of various programs, it is best to be represented by a tax professional who specializes in tax resolution who can properly present the most favorable aspects of your particular situation.