When a balance is due to the IRS, eventually that balance will enter the IRS’s collection notice stream.  In most instances, the IRS will send a CP501 notice shortly after the balance is incurred and not paid in full.  In subsequent months, the IRS will send out additional notices in the collection stream: CP502, CP503, and CP504 notices.  While these notices are written with language indicating that the IRS may take enforced collection action if the balance is not paid in response to the notice, the IRS is generally prohibited from taken enforced collection action (bank levies, wage garnishments, asset seizures), until they have sent out a Final Notice of Intent to Levy, which, depending on your situation, is issued either as an LT11 Notice, a CP90 or Letter 1058.  The easiest way to tell if the IRS has sent you a Final Notice of Intent to Levy is whether the notice you received includes Form 12153, which can be submitted within 30 days of the date of the Final Notice of Intent to Levy to Request a Collection Due Process Hearing.

While the CP50X series of notices sound threatening, they usually do not require a response or immediate action.  However, the same cannot be said for a Final Notice of Intent to Levy. The ability to request a Collection Due Process Hearing in response to a Final Notice of Intent to Levy makes the Final Notice of Intent to Levy the most critical notice in the IRS collection stream, and a timely response to the notice can sometimes mean the difference between having the time to properly prepare the necessary paperwork to negotiate a resolution with the IRS and having to negotiate with the IRS under the ongoing threat of enforced collection.

By timely requesting a Collection Due Process Hearing in response to a Final Notice of Intent to Levy, the general prohibition on IRS collection action with respect to the balance covered by the notice is extended until the taxpayer has had the opportunity to speak with an IRS Appeals employee and propose a collection alternative.  It typically takes several months after you’ve requested a Collection Due Process Hearing for the hearing date to be scheduled, time which should be utilized to focus on current compliance (getting caught up with current-year withholding or estimated tax obligations and filing any unfiled returns during the IRS’s 6-year look back period), as well as putting the necessary paperwork together to negotiate for a resolution with the IRS Settlement Officer assigned to hear your appeal.

If you’ve missed the deadline for requesting a Collection Due Process Hearing, you may still file the Form 12153 up to one year after the date the levy notice was sent to you, however you will only be afforded “Equivalent Hearing” rights.  Generally speaking Equivalent Hearings operate identically to Collection Due Process Hearings, save for the fact that the IRS is not prohibited from taking enforced collection action while the hearing is pending, and a taxpayer is not entitled to appeal an adverse determination in an Equivalent Hearing to Tax Court (CDP Hearings can be appealed in Tax Court).  However, if you’ve missed your deadline for requesting a CDP hearing, it is often still beneficial to request an Equivalent Hearing, as the IRS will still typically hold off on collection action while the hearing is pending (but is not required to do so), and you will still be afforded the opportunity to speak with an IRS Appeals employee, who by and large are going to be more knowledgeable, flexible, and easy to work with their your average IRS call-center collections employee.

It is worth noting that Forms 12153 are also included with IRS lien filing notices, and also give you the option to request Collection Due Process Hearings to contest the lien filing in Appeals.  However, Collection Due Process Hearings in the context of IRS lien filings operate differently than those requested on Notices of Intent to Levy.  First, while in the context of a levy IRS Appeal rights are provided in advance of the proposed levy action, appeal rights on lien filings are only afforded after the lien has already been filed.  Second, a CDP Hearing requested on a lien filing does not afford a collection hold, as it would if it were filed on a notice of intent to levy.  Still, it is often worthwhile to request a CDP hearing on a lien notice, as it will still afford you the opportunity to negotiate directly with Appeals.  You have separate appeals rights for both notices of intent to levy and lien filing notices, so requesting a hearing on one will not impact your ability to request a hearing on the other notice.

An additional benefit to requesting a Collection Due Process Hearing arises in the context of submitting an Offer in Compromise.  If a request for a Collection Due Process Hearing is pending when an Offer in Compromise is submitted, the CDP Hearing will be put on hold pending an initial review of the Offer in Compromise by an Offer Examiner at the IRS.  Typically, if an OIC is rejected by the initial Offer Examiner that reviews the OIC, the rejection can be appealed, and Appeals will review whether the Offer was properly rejected.  However, under a standard OIC appeal, Appeals will generally only determine whether the proposed Offer is acceptable or not, they will not consider other collection alternatives that may be available if the Offer is deemed not acceptable.  If there is a CDP hearing pending, however, when the Offer is rejected, the Offer will be forwarded to Appeals under the umbrella of a CDP Hearing, which gives the Settlement Officer at the IRS more discretion to consider other collection alternatives, such as an installment agreement or Currently Not Collectible.  Having a CDP Hearing pending while your Offer is under consideration can therefore mean the difference between having an Offer rejected and going back to square one in your negotiations with the IRS, and being able to negotiate an alternative resolution with the IRS based on the financial information submitted along with the Offer.

If you’ve received a Final Notice of Intent to Levy, don’t wait to reach out to a tax professional to assist you in resolving your tax liability, as a timely response to the notice could have a drastic difference in your ability to successfully resolve your tax balance with the IRS.