June 14, 2021
Like many government agencies, the IRS was severely impacted by COVID-19. In addition to shutting down various service centers and extending filing deadlines, the IRS suspended most collections and enforcement efforts in late March 2020. For taxpayers with back taxes, the pause from the end of 2020 until now has no doubt been welcome.
As the country continues to recover from the pandemic, however, the IRS is preparing to resume normal collections operations on millions of accounts. Recent public statements by senior IRS personnel indicate that the target reopening date for most collection initiatives is June 15, 2021.
If you owe back taxes, there is a strong chance in the next week you will receive a notice threatening potential liens and levies. But unlike automated notices you may have received earlier in the year, these notices may actually impact your legal rights if you do not act immediately.
When You Need to Act
When the IRS records a tax lien, it attaches to property you own and puts third parties on notice of the debt. Obviously, this can cause embarrassment. A levy is worse than a tax lien; when the IRS levies a taxpayer, it will contact a third-party holding property belonging to the taxpayer and order that the third party instead pay the government. The IRS can levy wages, benefits, and even bank accounts. Because these enforcement actions can cause serious harm to taxpayers, the IRS has to follow certain procedures when it places liens and levies on taxpayer assets.
When the IRS wants to proceed with an initial levy or lien, it is required to give the taxpayer a right to request something called a Collection Due Process hearing. The hearing gives a taxpayer the right to work out a plan to resolve the debt, and in some cases the right to challenge whether the tax is actually due or not. When taxpayers file a Collection Due Process hearing request, the pending lien or levy action is suspended until the hearing occurs.
When a taxpayer receives a true “final” notice of lien or levy, they will have thirty days to request a Collection Due Process hearing. This is a legal deadline that cannot be extended and is the only shot a taxpayer has at getting a Collection Due Process hearing.
What is usually not explained to taxpayers is the fact that they normally will receive several different letters and notices from the IRS threatening liens and levies before receiving a true final notice. For example, in March and April this year, taxpayers may have received something called a CP504 notice that featured the following subject line:
“Notice of Intent to Levy. Intent to seize your property or rights to property. Amount due immediately $*****”
The CP504 also includes a payment coupon, usually reflecting the entire amount due. The CP504 will not mention a taxpayer’s rights to request a Collection Due Process hearing because the IRS takes the position that it is not a final notice. Effectively, the CP504 notice is just an assertive reminder that the taxpayer owes the government money; this notice does not permit the IRS to actually file a lien or levy if the taxpayer doesn’t pay the tax in full or otherwise respond.
After a taxpayer receives a few preliminary collection notices, they will eventually receive an actual final notice of intent to levy or notice of federal tax lien. For example, the taxpayer may receive something called a Letter 11, which includes the following subject line:
“Notice of Intent to Levy and Notice of Your Right to a Hearing. Intent to seize your property or rights to property. Amount due immediately $*****”
The Letter 11 and CP504 look almost identical, but the Letter 11 actually gives a taxpayer their right to file a Collection Due Process hearing because it is considered a final notice. Typically, the text informing the taxpayer of their right to request a hearing is buried on the second or third page in the fine print.
On June 15, 2021, the IRS will resume sending out true final collection notices such as Letter 11. Enforcement actions can begin approximately forty-five days after the receipt of one of these final notices, as the notice gives the taxpayer thirty days to file for a Collection Due Process hearing, and the IRS needs an additional two weeks to process responses by mail. Consequently, if you’ve recently received notices from the IRS concerning your liability, you need to be aware that the next one to arrive may be your last chance to stop collections and protect your assets.
Other Initiatives
In addition to resuming normal collections actions, the IRS is also preparing to aggressively target certain compliance areas. The IRS has publicly disclosed four major enforcement initiatives over the past two months that it intends to roll out:
- Operation HiDef/Surround Sound – Program to target taxpayers with over $100,000 of income reported by third parties, but who have not filed income tax returns.
- Operation Liquidation – Program to use data analytics to match foreign and domestic bank records obtained through FATCA with bankruptcy filings.
- Ghost Employer Project – Program to target employers who issue W-2s to employees but do not file copies with the Social Security Administration and do not report payroll activity on Forms 940 and 941.
- Repatriation Project – Program to use data analytics and FATCA data to locate taxpayer assets and pursue collections actions in foreign countries.
The new programs are aimed at high-dollar tax evasion and criminal matters. They are also coupled with continuing efforts to track income and assets involved with cryptocurrency markets. Taxpayers who may be the subject of these programs should contact an attorney immediately.
What We Can Do
An experienced tax attorney can help you understand where you are in the collections process, what your options are, and what other actions you need to take to protect yourself. If you owe back taxes, our attorneys can help.