If you or your business had the misfortune of winding up in collections with the Internal Revenue Service, you’ve probably been receiving what might seem like an overwhelming amount of mail from the IRS regarding your tax liability. It is not uncommon for people in this situation to feel a sense of dread every time they get another letter from the IRS. In fact, many taxpayers feel so much stress that they don’t even open their IRS mail.
While these feelings are understandable, failing to open and understand collection mail from the IRS can lead to severe consequences—consequences that can very often be avoided with just a little bit of knowledge and action. My goal here is to arm you with a basic understanding of what, in my opinion, is the single most important collection notice issued by the IRS: The Final Notice of Intent to Levy. This particular notice kicks in a powerful set of rights derived from the United States Constitution. These rights protect you, the taxpayer, and knowing them should help to alleviate that sense of dread that you might be feeling each time you receive IRS mail. If it is a Letter 1058, a Notice LT 11, or a Notice CP90, it is time to step up your efforts.
Will the IRS garnish my wages or social security benefits?
For many taxpayers in collections with the IRS, there is a substantial fear that the IRS will garnish their wages or social security benefits, seize their bank accounts, seize their investment or retirement accounts, or even seize their car or home. Business taxpayers may have the same concerns as well as concerns that the IRS will levy their accounts receivable or seize their entire business.
To make things worse, not only does the IRS do very little to dispel these fears, they may actually take actions to amplify them. For example, collection personnel may make demands from a taxpayer with the threat of enforced collections, even though the IRS has yet to fulfill its own prerequisites to enforcement. The IRS also sends collection letters which appear to be very threatening, but which, in reality, have very little “teeth.” After all, fear can be a major motivator, and the IRS wants taxpayers to be motivated to pay their tax debts.
However, as much as the IRS may want you to believe that they are going to start seizing your wages and assets, there is this little thing called the Fifth Amendment to the United States Constitution, which provides, in part, that no “person shall…be deprived of life, liberty, or property, without due process of law…” Well, your wages, social security benefits, and assets are “property” (or rights to property), and that means that the government cannot simply take them without giving you “due process.”
Your due process rights with regard to IRS collections are codified in 26 USC Sec. 6330 (aka IRC Sec. 6330), the basics of which are as follows:
- They must notify you in writing that you have a right to a hearing before actually taking your property (with very limited exceptions);
- They must wait a minimum of 30 days after giving you written notice before they start taking your property;
- They must inform you of your right to a hearing (Collection Due Process Hearing);
- With very limited exceptions, if you request a hearing within 30 days of the written notice, they cannot take your property while such a hearing, and appeals therein, are pending.
The written notice referred to above will often, but not always, state “FINAL NOTICE, NOTICE OF INTENT TO LEVY AND NOTICE OF YOUR RIGHT TO A HEARING.” The notices will typically have a notice or letter number in the upper right hand corner and/or the lower right hand corner of the page. If it is a Letter 1058, a Notice LT 11, or a IRS Notice CP 90, it is the notice about which I am writing. However, keep in mind that the law does not require the IRS to use any particular letter or notice number. In other words, if the notice contains language to the effect that it is a “Notice of Intent to Levy” and language to the effect that it is a “Notice of Your Right to a Hearing,” then it is almost certainly the notice which kicks in your due process rights. Although not all of these notices say “Final Notice of Intent to Levy” (FNIL), for the sake of convenience, I will henceforth refer to them as “FNIL.”
If you have yet to receive an FNIL, you can be reasonably certain that the IRS will not garnish your income or seize your assets (other than tax refunds to which you might be entitled) any time soon, even if the IRS says they will. Although I would encourage you or your tax professional to try to resolve your tax debt well before the issuance of the FNIL, you need not lose sleep worrying over potential garnishment or seizure. Just keep opening the IRS mail.
If, and when, you do receive an FNIL, it is time to step up your efforts. The IRS means business when it sends the FNIL, and your course of action after receiving one could make the difference between financial safety and disaster. If at all possible, bring a professional with extensive expertise in dealing with the Collection Division of the IRS on board. If you are working with a CPA, an enrolled agent or a tax attorney, keep in mind that he or she might only handle a tax collection case 2 or 3 times per year, and it is extremely unlikely that his or her practice is focused exclusively on collection cases.
With the real and imminent threat of enforcement brought forth by the FNIL, the stakes are high. This is not the time to be tinkering with do-it-yourself tax representation or to be working with a tax professional who handles a collection case 2 or 3 times per year. Seek a specialist who resolves back tax liabilities, and nothing else, for a living. Not only will a good specialist minimize the chances of enforcement, he or she can also give you the best chances of resolving your tax debt as favorably as it can possibly be resolved given your circumstances. Since the FNIL comes with a 30-day period within which to appeal, I recommend bringing a specialist on board ASAP and no more than 3 weeks after the date on the FNIL.
If you received an FNIL, more than 30 days have elapsed, and you have yet to resolve your tax liability, you are at risk of enforcement. While you no longer have the right to a Collection Due Process hearing, you may have other appeal rights that, if exercised, could drastically reduce the chances of enforcement. If at all possible, seek representation from a tax resolution professional immediately. If you are unable to do so, I recommend that you actively work with the IRS in an effort to resolve your tax liability, comply with all tax laws, and not miss any of their deadlines.