In Jeopardy of Lien or Levy: How to Interpret IRS Notices
IRS notices can be alarming, especially when you’re behind on paying taxes and worried about what the agency is going to do. One especially confusing phrase you may see is “at jeopardy of lien or levy”. This phrase means that the IRS may file a federal tax lien or seize your assets if you don’t pay your tax debt.
However, the IRS uses this language long before actually taking these types of actions. Confused about this language? Wondering what to expect? Keep reading for details, or contact us at East Coast Tax Consulting for help today.
Key takeaways
- Jeopardy of lien or levy means that there’s a risk the IRS may file a tax lien or levy your assets.
- To avoid a lien or levy, set up payments or make other arrangements on your tax debt.
- The IRS doesn’t need to notify you before filing a tax lien, but the agency will send another notice before levying your assets.
- Let a tax expert help you understand IRS notices and get back into compliance.
What Does “In Jeopardy of Lien or Levy” Mean?
This phrase means at risk of facing a lien or levy, which is a fancy way of saying that the IRS may file a tax lien or seize your assets. This language is reminding you that the IRS has the legal right to collect your unpaid taxes with force if you don’t make payment arrangements.
However, you still have some time. You may face a tax lien at any point, but the IRS must give you a 30-day heads-up before seizing your assets or garnishing your wages.
When Will the IRS File a Tax Lien?
The IRS may file a tax lien at any point when you owe a tax debt. Generally, they don’t file a lien unless you owe at least $10,000. But there are exceptions when the agency will file a tax lien on a lower balance.
The agency doesn’t have to notify you prior to filing a lien, but they must notify you within five days of doing so. If you get a notice that says your account is in jeopardy of lien or levy, consider that as your warning that you may face a federal tax lien soon.
When Will the IRS Levy My Assets?
Luckily, the IRS has to give you advance warning before levying your assets. Typically, you’ll receive a CP504 stating that the IRS is going to seize your tax refund and may seize other assets, and then after the CP504, you’ll receive a Final Notice with a 30-day deadline.
Once you receive the final notice, you must appeal or make payment arrangements within 30 days, or the agency will move forward with wage garnishment, bank levies, or asset seizure.
Lien vs. Levy: Understanding IRS Collection Tools
What’s the difference between a lien and a levy? A lien is a legal claim to your assets. A levy is when the IRS seizes your assets through wage garnishments, bank levies, third-party levies, or the seizure of physical assets.
A statutory lien arises anytime you file a tax return with an unpaid balance. However, there’s no public record of the lien until the IRS files a Notice of Federal Tax Lien (NFTL). NFTLs don’t appear on your credit report, but they are in the public record, which means they can be found by lenders and title companies. Federal tax liens attach to all your current and future assets, making it difficult to sell or transfer property.
A levy, as noted above, is when the IRS seizes your assets. You have the right to appeal before the levy starts, but you must act by the deadline. Once the IRS starts garnishing wages or seizing assets, it can be difficult to reverse these actions. However, a tax resolution expert can help.
Notices That Include the Jeopardy of Lien or Levy Language
You may see this language in the following types of notices:
- CP14 – Balance Due Notice
- CP501 – Reminder of Balance Due
- CP503 – Second Reminder of Balance Due
Again, however, all of these notices demand payment and warn you of the risk of additional action. If you ignore these notices, the IRS may send additional notices letting you know that they are moving forward. These notices use the phrase “intent to levy your property or right to property” and include:
- CP504 – Final Notice of Intent to Levy.
- LT 11/ Letter 1058 – Final Notice of Intent to Levy With Your Right to a Hearing
The IRS has a range of different notices classified as Final Notice of Intent to Levy With Your Right to a Hearing, and many of these notices specifically target certain types of assets. For example, the agency often sends CP91 before levying Social Security income.
What If You Ignore These Notices?
If you don’t respond to these notices, the IRS will move forward with the collection process, which may include:
- Filing federal tax liens
- Garnishing wages
- Garnishing payments due to you from third parties, such as rent, accounts receivable, etc.
- Levying the funds in your bank account
- Seizing other assets, such as investment accounts
- Seizing physical assets and auctioning them off to pay your tax debt
How to Respond to IRS Collection Notices
To avoid the lien or levy, you must respond to the notices. Keep these tips in mind.
- Review the tax owed: If there are mistakes in the tax due or with how the interest or penalties were calculated, have a tax expert appeal the debt with the IRS, amend your return, or apply for a settlement based on doubt of liability. The exact strategy depends on where you are in the tax assessment and collection process.
- Pay in full: If remotely possible, consider paying in full. That way, you don’t have to worry about tax liens or asset seizure.
- Make payment arrangements: If you can’t pay in full, set up an installment agreement with the IRS, apply for an offer in compromise, secure currently not collectible status, or make other arrangements with the IRS.
- If applicable, request a CDP hearing: If you’ve received a notice that explains your right to a hearing, you may want to request a hearing. That pauses all collection actions on the account and gives you extra time to make payment arrangements. However, it also tolls the collection statute of limitations, so you may want to consult with a tax expert first.
Dealing with the IRS involves very specific processes and strict deadlines. To protect yourself from the frustrations of dealing with the IRS, you should strongly consider reaching out to a tax resolution expert.
What if the IRS Has Already Filed a Tax Lien or Levied Assets?
What if the IRS has already taken action against you? Well, you still have options, but it’s a little harder at this point. If the IRS has filed a tax lien, here are the main resolution options:
- Pay in full: The IRS will release the lien and issue a Certificate of Release that will be made part of the public record in 30 days.
- Set up payments eligible for withdrawal: If you owe under $25,000 and set up payments for five years or fewer, the IRS will withdraw the lien from the public record once you make three monthly payments.
- Work with the IRS to sell or transfer assets: You may be able to sell assets if you get a payoff letter from the IRS and the title company sends the proceeds of the sale to the IRS. Alternatively, the IRS may discharge the lien if selling the asset doesn’t cover the full tax debt owed or if doing so would help the agency to collect the tax.
- Get lien subordination: If you want to borrow against an asset or refinance an existing loan, the IRS may agree to subordinate its lien to the lender. A tax resolution specialist can help you apply for subordination.
If the IRS is garnishing wages or levying assets, contact them directly to see if you can stop these actions by setting up payments, or contact a CPA who specializes in tax resolution for help.
How to Protect Yourself in the Future
Receiving IRS notices with confusing language can be scary, and the best way to protect yourself is to avoid incurring any future tax debt. Keep these tips in mind:
- File all returns on time: Even if you can’t pay, filing on time will help you avoid failure-to-file penalties.
- Adjust your W-4 withholding: If you are employed, adjust your W-4 to ensure that your employer takes out more tax. You can increase the withholding at your job to cover taxes due to self-employment or investment income if needed.
- Make estimated payments if self-employed: If you own a business or work for yourself, try to increase your estimated quarterly tax payments. Use Form 1040-ES to calculate payments based on your current year’s income.
- Stay up to date on payment plans: If you do set up an IRS installment agreement, make sure to stay on top of the monthly payments. As long as you stay current with your arrangement, the IRS will not pursue any involuntary collection actions against you.
Finally, make sure you open all IRS notices. Even if you don’t think that you owe a tax debt, open the notice to be sure, and contact a tax expert if you have any questions.
FAQs
Does jeopardy of lien or levy mean the same thing as a jeopardy levy?
No, in jeopardy of lien or levy means there’s a risk of a lien or levy. A jeopardy levy is when the IRS seizes assets without the usual 30-day warning period. This is very rare and usually occurs only when the IRS considers collection to be at risk if delayed.
When does the IRS use jeopardy levies?
The IRS can use a jeopardy levy if there’s a significant risk that they won’t be able to collect the tax if they give you advance warning. For example, they’re worried that you may move yourself and all of your assets out of the country.
Can a jeopardy levy be appealed?
Yes, you have the right to appeal a jeopardy levy. If your appeal is rejected, you may seek a review of the denial in court.
Get Help With IRS Tax Debt Now
You don’t have to deal with the IRS on your own. At East Coast Tax Consulting, we focus on helping individual and business taxpayers resolve their IRS tax debts, and we can help you.
Received a notice you don’t understand? Wondering how to deal with tax debt? Worried about what’s going to happen next? Then, contact us today. We’ll answer your questions and customize a resolution strategy based on your unique problem. Don’t wait. Get help now and put this stress behind you.