Receiving an IRS notice is intimidating already, but when that notice tells you that you are in “jeopardy of lien or levy,” it’s even more alarming. While this language may be frightening, these notices are simply informing you that the IRS may place a lien on your assets or seize them if you fail to make arrangements for your tax debt. Learn more about what these notices mean, how to respond to IRS communications, and how to take action to protect your assets.
To get help now, contact us at the W Tax Group today.
Key Takeaways
- The phrase “jeopardy of lien or levy” means that your assets are at risk of being seized.
- This phrasing appears on many different IRS notices.
- This wording does not necessarily mean a levy is imminent. It all depends on which notice you’ve received.
- By taking swift action, you may be able to avoid liens and levies.
What Does “Jeopardy of Lien or Levy” Mean?
When this language is used in your tax notices, you’ve likely already received several IRS notices that you have not responded to. Before the IRS starts moving toward liens or levies, they first try to get taxpayers to pay their taxes voluntarily by sending a series of notices, but if that doesn’t work, they will jump to involuntary collection actions.
When the IRS uses the phrase “jeopardy of lien or levy,” they are telling you that your assets may be forfeited to cover your tax debt if you continue to let your tax debt sit. Due to the age of your tax debt and the IRS’s failed attempts to secure voluntary payment, they believe that the collection of the tax is in jeopardy.
There are two components to this phrase: liens and levies. When the IRS files a Notice of Federal Tax Lien, they are asserting their legal rights to your property as a result of your tax debt. The lien itself is public record, and even though liens no longer affect your credit score, they can prevent you from using credit to access the equity in your assets.
Levies go one step beyond a lien. When the IRS levies an asset, they actually seize it and use it to pay down your tax debt. For example, if the IRS levies your bank account, they freeze it and seize the funds it holds. Those funds are used to pay your tax liability. Depending on the amount of your debt and what other collection actions the IRS has attempted, they may levy your income via wage garnishment, bank accounts, certain types of Social Security benefits, and physical assets.
IRS Notices That May Include “Jeopardy” Language
There are several different notices that include language referring to your account being “in jeopardy” or that indicate you’re in danger of liens or levies. These include:
- CP90, Intent to Seize Your Assets and Notice of Your Right to a Hearing
- Notice states that “The IRS may seize (levy) your property).
- You should pay the balance or contact the IRS immediately to set up alternate payment arrangements.
- CP501, which states “You have unpaid taxes for (year)”
- In the section “If we don’t hear from you” you’ll find “If you don’t pay the amount due or call us to make payment arrangements, we can file a Notice of Federal Tax Lien on your property at any time.” This notice is still fairly early in the collection process.
- You should either pay your tax debt or look into other payment arrangements, such as an installment agreement or offer in compromise.
- CP503, Second Reminder
- In the “If we don’t hear from you section” you’ll find “We may file a Notice of Federal Tax Lien against you.”
- Pay your tax debt, look into payment arrangements, or discuss options with a tax professional.
- CP504, Notice of Intent to Seize (Levy) Your Property or Rights to Property
- In addition to the reference to levies in the header of this letter, the first paragraph states “We may levy your property or rights to property and apply it to the $x you owe.”
- This is closer to the stage at which the IRS will actually levy your assets, so you should immediately contact the IRS or a tax professional.
- Letter 1058, Final Notice: Notice of Intent to Levy and Notice of Your Rights to a Hearing
- Notice indicates that “This letter is your notice of our intent to levy.”
- This is the last step before a levy, as it satisfies the IRS’s legal requirement to send a certified notice. Pay the debt, reach out to the IRS, or contact a tax professional immediately if you cannot afford to pay.
- LT11, Notice of Intent to Levy and Notice of Your Right to a Hearing
- Text of notice includes “The IRS may seize (levy) your property or your rights to property on or after (date).”
- This letter is similar to Letter 1058 in that it’s the last required notice prior to seizure of assets. Immediately reach out to a tax professional or the IRS.
Why Taxpayers Receive These Notices
There are several issues that may lead to notices threatening levies or liens. Potential issues include:
- Unpaid tax liabilities caused by a failure to pay the amount on your tax return
- Unpaid tax due to a failure to file a tax return, resulting in a Substitute for Return and assessed taxes
- Failure to respond to earlier notices that include less severe language
- Defaulting on a payment plan, which results in the entire amount becoming due immediately
- Failure to pay trust fund taxes, leading to personal liability for that tax debt
- Balance due as a result of an examination or audit causing new tax debt
How IRS Liens and Levies Impact You
Both liens and levies can have a negative effect on your finances and standing with the IRS.
Liens
A federal tax lien secures the government’s rights to your property. The IRS’s lien generally takes precedence over other liens, which makes it very difficult to sell your property or borrow against it without first paying off the lien. Liens are publicly filed, so potential creditors can see them and choose not to lend to you. While there are ways to get around a lien in order to sell property, these methods take time and are at the discretion of the IRS.
Levies
When the IRS levies a taxpayer’s assets, they generally do so as a last resort. If they cannot secure payment from taxpayers voluntarily, they secure payment by force with levies. After fulfilling the requirements outlined in the Internal Revenue Code, they can freeze your bank account and seize your funds, garnish your wages, intercept your tax returns, or seize other assets to satisfy your tax debt.
Obviously, a levy can severely disrupt your financial stability. For example, when it comes to wage garnishment, the IRS has far more relaxed limits than other creditors. These limits often allow them to take a large portion of a taxpayer’s income until their tax debt is paid off.
What About Jeopardy Levies?
One confusing aspect of the language used in IRS collection efforts is the fact that “jeopardy” shows up both in “jeopardy of lien or levy” notices and “jeopardy levies.” While both of these topics use the word “jeopardy,” they are entirely separate concepts.
When you see the phrase “in jeopardy of lien or levy” in a notice, jeopardy simply serves as a synonym for “danger.” A jeopardy levy, on the other hand, is a much more serious concept.
A jeopardy levy is a rarely used IRS tool that allows them to seize assets without notice if they believe their ability to collect is in imminent danger. For example, if a taxpayer is attempting to move property abroad or transfer assets to avoid seizure, the IRS may need to act immediately in order to get the assets they need to satisfy the tax debt.
Your Action Plan: How to Respond Effectively
While it’s normal to panic when you see this language in an IRS notice, it’s important to stay calm and be proactive. Unless your letter was delivered via certified mail, your assets are likely not in immediate danger.
Review the Notice Carefully
Start by reading the notice in full and taking note of important details. You can use the specific notice number to look up more information on what it means. You should also look for the deadline to respond to the notice, how much you owe, and which tax years they’re trying to collect for. Use this information to verify the amount due.
Understand Your Resolution Options
There are multiple ways to address outstanding tax debt, and while the IRS prefers payment in full, they generally prefer any voluntary form of payment over the time and expense of a levy. You may set up an installment agreement to pay your debt in full over time, an offer in compromise if your financial situation leaves you unable to pay your tax debt in full at all, or currently not collectible status if you cannot pay anything.
Take Prompt Action
While the thought of reaching out to the IRS or a tax professional might make you nervous, this is a situation where every day counts. Working with a tax professional may allow you to explore different payment options, find out how each option will affect your finances, and negotiate an agreement that fits your needs.
You may also want to look into requesting a Collection Due Process (CDP) hearing. In a CDP hearing, you can dispute both the amount you owe and how the IRS plans to collect it. Not sure whether or not you qualify? An attorney should be your next call.
Consider Seeking Professional Guidance
Talking to a tax professional should be your top priority if you are completely unsure of how to proceed. We understand that tax law is confusing and complex, and in many cases, just talking about your issues with a tax professional can give you some clarity.
Preventing Future IRS Collection Actions
Once you handle this tax issue, you’ll likely never want to see another collection from the IRS again. Make sure you take steps to prevent future IRS collection actions and stay in good standing with them. Consider these tips to stay in compliance:
- Start by filing all of your tax returns on time. Even if you cannot pay in full, filing on time can save you money on penalties and put you in a position to start looking into payment options.
- Change your withholdings at work or adjust your estimated payments to make this happen so you can stay on top of annual tax liabilities.
- If you run into any difficulties regarding payments, contact the IRS as soon as you know you cannot pay. They are generally very willing to work with taxpayers.
- Finally, make sure you know the terms of any payment arrangements you make for your current tax debt. You do not want to break the rules and end up back in this situation.
If you’ve received a Final Notice of Intent to Levy and you’re anxious about the IRS seizing your property and assets, you do not have to go through this alone. The team at W Tax Group is here to help you understand your IRS notices, come up with payment arrangements, and get caught up. Call us at 877-500-4930 or reach out online to set up a time to talk now.
Sources:
https://www.irs.gov/pub/notices/cp90_english.pdf
https://www.irs.gov/individuals/understanding-your-lt11-notice-or-letter-1058
https://www.irs.gov/pub/notices/cp504_english.pdf
https://www.irs.gov/pub/notices/lt11_english.pdf
https://www.experian.com/blogs/ask-experian/tax-liens-are-no-longer-a-part-of-credit-reports/
https://www.irs.gov/appeals/collection-due-process-cdp-faqs
