An Internal Revenue Service (IRS) notice of intent to levy is a last-resort collection method to shock and scare delinquent taxpayers into paying overdue taxes, but if they cooperate, even if they can’t pay, they can stop a levy from going into effect and sometimes even reduce the arrearages or at least make tolerable arrangements to pay them over time.
Pre-Levy IRS Procedure
The Fifth Amendment of the Constitution prohibits the IRS from taking taxpayer property without due process of law. To comply with this prohibition, the IRS must notify the taxpayer of the impending levy and grant an opportunity to be heard about it. The IRS must send the taxpayer a notice “given in person, left at the dwelling or usual place of business of such [taxpayer], or sent by certified or registered mail not less than 30 days before the day of the first levy.” [i]
The notice must include “in simple and nontechnical terms the right of the [taxpayer] to request a hearing during the 30-day period” [ii] before the levy goes into effect. The hearing must be before a neutral, impartial hearing officer “who has had no prior involvement with respect to the unpaid tax.” [iii] At the hearing the taxpayer may raise “any relevant issue relating to the unpaid tax or the proposed levy:
- “appropriate spousal defenses,
- “challenges to the appropriateness of collection actions, and
- “offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer in compromise,” [iv] as examples.
If the taxpayer challenges the appropriateness of collection actions, the hearing becomes essentially an appeal from the notice of levy. A taxpayer dissatisfied with the decision of the hearing officer may contest it by a petition to the United States Tax Court within 30 days.
Ways to Stop a Levy
- Pay the IRS off. This way is the most obvious. It is better, or not so bad, to go into debt for the amount of the tax arrearage than to suffer the sudden, sweeping financial impact of a tax levy followed by its devastating financial credit consequences.
- An installment agreement. This way is probably the most common type of IRS tax settlement. The taxpayer agrees to pay overdue taxes in monthly installments over a period of up to three years. Taxpayers who enter into installment agreements will be in good standing with the IRS as long as they make their monthly payments. This settlement stops penalties but not interest from accruing on outstanding balances.
- An offer in compromise. This settlement method allows the taxpayer to make an offer which, if the IRS accepts it, settles a tax debt for less than the total amount due. This option is available to taxpayers who can prove to the IRS that complete collection of the amount due would cause severe financial hardship and in any event liquidation of all taxpayer assets and resources could not recover for the government substantially more than the amount offered as a compromise.
- Appropriate spousal defenses. This very rare form of tax settlement applies to very few taxpayers. When spouses file a joint tax return, both are equally liable for all taxes owed. Innocent spouse relief places full tax liability on one of them or separates out how much each of them owes. IRS requirements are stringent for this type of relief, which is available only to those who file jointly.
The main point about IRS levies is not to ignore notices of them. The IRS appreciates cooperation, which always makes collection easier, so a prompt response is the first step in the right direction. The second is a consultation with a tax attorney for advice and in some circumstances advocacy before the IRS in pursuit of the best result. The IRS is not infallible. Skillful, experienced tax attorneys prove this fact every day.
[i] United States Code Title 26 Section 6330(a)(2) (26 US Code 6330(a)(2)).
[ii] 26 US Code 6330(a)(3).
[iii] 26 US Code 6330(b)(3).
[iv] 26 US Code 6330(c)(2).