Tax Alert – IRS Change makes it Easier to Levy All Your Assets

There was an important recent change to the format of the IRS’s “final” Notice of Intent to Levy that all tax practitioners and clients should be aware of.  Most of us tax geeks are well aware of the difference between a regular IRS collection notice and a “final” Notice of Intent to Levy that includes the right to a collection hearing under IRC 6330.  This is something that typically confuses the client, but not the tax practitioner. However, the IRS very recently changed the format of the “final” Notice of Intent to Levy and the new version of the “final” notice looks very much like a regular IRS collection notice.   As a result, tax practitioners might, at first glance, be as confused as their clients.

It is unclear why the IRS made this non-publicized change to the “final” Notice of Intent to Levy, but it is definitely more difficult now to tell the difference between the “final” notice and a regular collection notice.  As a result, it is recommended that tax practitioners and clients pay extra special attention to their IRS collection notices because the consequences can be dire.  Tax practitioners can no longer advise their clients to lookout for the IRS collection notice that says “final” or “right to a hearing” on the front page of the letter because the newer version contains no such language on the front page.

It should be noted that the current revision of the “final” Notice of Intent to Levy appears to only apply for notices issued by the IRS Automated Collection Systems (ACS). ACS has stopped using Letter 1058-C “Final Notice of Intent to Levy,” and instead, is using Notice LT11.  I understand that Revenue Officers may still be using Letter 1058.  This will make it extra confusing because one division of the IRS will be issuing a “final” Notice of Intent to Levy that looks completely different than the same notice being issued by the other divisions of the IRS.  Additionally, it is also unclear whether the IRS will change the format of the “final” Notice of Federal Tax Lien Filing and Your Right to a Hearing under IRC 6330.  Previously the “final” notice given for a federal tax lien under 6620 and the “final” notice given for federal tax levy under 6330 used a similar format, making it easier to spot the “final” notice regardless of whether the letter related to a tax lien or tax levy. This is no longer the case.

Obviously this is a rather important change as the “final” Notice of Intent to Levy is the letter that every tax practitioner is on the lookout for in order to freeze IRS collection enforcement by filing a Collection Due Process or Equivalent Hearing.  IRS Notice LT11 looks fairly similar to the CP501, CP503, or a CP504 “Notice of Intent to Levy”.   The IRS CP notices of course do not trigger collection due process appeal rights and if you fail to respond to these notices it will not generally result in an IRS levy aside from tax refunds and other very limited sources.   However, if you fail to respond to LT11 the IRS can levy most assets after the waiting period.

It appears that the LT11 notice has been around for a while.  I have never seen this notice in action until just recently when a client forwarded it to me.  The IRS didn't send me a copy of the Notice LT11 even though I am listed on the Power of Attorney (POA).  Just another reason why I always make my clients forward me copies of any tax notices they receive even though the tax authorities are supposed to send the POA the same notices.  Upon receipt of Notice LT11 from my client I pulled her tax account transcripts to check the activity on her account. Interestingly, there was nothing in the account transcript indicating that she was issued Notice LT11 or notified of any collection appeal rights.  I went to the IRS website and ran a search of the Notice LT11.  The webpage discussing Notice LT11 was recently updated on February 15, 2015.   It appears to be a very recent change.  Perhaps the IRS is having some hiccups with the initial roll out of this notice, which might explain, but not certainly not justify, why the IRS did not send the POA a copy of the notice or why my client's tax account transcript didn't reflect that the IRS issued the notice.   

The bottom line is that ACS is now using Notice LT11 instead of Letter 1058-C.   The new Notice LT11 looks very much like a regular IRS collection notice so it can be misleading even to the tax practitioner.  The regular notices do not contain collection appeal rights and if you don't respond to the regular notice the IRS cannot levy all of your client's assets.  However, Notice LT11 is no regular IRS collection notice.  If you fail to file a collection appeal the IRS can levy most assets.  So be careful and do not miss the collection appeal deadline thinking the LT11 notice is just a regular IRS collection notice. 

Letter 1058 makes clearer on its face that the notice is the “final” collection notice before the IRS will levy most assets and that the taxpayer has a right to file a collection appeal due process appeal.  Notice LT11 does not.  Unlike Letter 1058, Notice LT11 does not explicitly state on the front page that the taxpayer has “collection appeal rights under 6330” and, unlike Letter 1058, Notice LT11 does not state on the front page that it is the "final" collection notice.  You have to read the fine print on the subsequent pages to figure this out.  It sort of resembles a notice from a predatory lending company.  Thus, Notice LT11 makes it very difficult to initially realize that it is the “final” Notice of Intent to Levy and that collection due process appeal rights follow. Because the IRS is shifting its practices and it is unclear how many people know about this extremely important change, tax practitioners and clients are advised to keep an even closer eye on any collection notices issued by the IRS.

If you need assistance concerning a tax collection matter, do not hesitate to contact a tax lawyer in Orange County.   The Orange County Tax Attorneys at Wilson Tax Law Group have experience in federal tax audits, appeals, collections, state and local tax matters, and criminal tax defense.  You can reach the Wilson Tax Law Group at 714-463-4430 or 949-397-2292.