What To Do When Your IRS Account Is in Jeopardy of Lien or Levy
Being in jeopardy of lien or levy with the IRS is a serious matter that could have a significant impact on your financial life.
As the nation’s most powerful collection agency, the IRS can turn your financial life upside down.
Here’s what you need to know about your IRS account being in jeopardy of lien or levy.
Table of Contents
What Does “In Jeopardy of Lien or Levy” Mean?
In a nutshell, being “in jeopardy of lien or levy” means that that you are in danger (“jeopardy”) of the IRS filing a Notice of Federal Tax Lien against you (“lien”) and/or the IRS seizing your assets (“levy”).
What Is a Lien?
A Notice of Federal Tax Lien is a document that the IRS files in county — and sometimes state — records that makes public the amount of your tax debt to the IRS.
The Notice of Federal Tax Lien, therefore, doesn’t really change anything about your situation with the IRS; it simply lets everybody else — or at least those folks interested enough to search public records about you or file a lien search for your name — know about your situation with the IRS.
Note that the Notice of Federal Tax Lien does not specifically attach to specific assets of yours, such as specific pieces of real estate you own; it simply attaches to all property you presently own and will own in the future until the lien amount is satisfied, i.e., paid or otherwise written off.
Although not necessarily harming you directly upon filing, a credit or potential creditor discovering that you have a Notice of Federal Tax Lien filed against you may make it difficult for you to borrow money or obtain credit. These individuals or companies will likely discover the lien filing when they do a title search, and they will not likely like what they see.
Also, when you go to sell or refinance a property, the title or escrow company will discover the Notice of Federal Tax Lien filing, and the IRS will be paid off what you owe them before you see any of the proceeds from the sale or refinance; this is the situation where the Notice of Federal Tax Lien actually financially harms you.
That said, Notices of Federal Tax Lien no longer appear on credit reports.
Also, whether or not the IRS has filed a Notice of Federal Tax Lien against you has implications if you are considering filing bankruptcy to clear your tax debt.
This is all to say that being “in jeopardy of lien” means that if you don’t rectify the situation soon — that is, pay off or enter into a resolution for your tax debt with the IRS — the IRS may file a Notice of Federal Tax Lien against you.
What Is a Levy?
A levy is a legal seizure of your property to pay a tax debt — in this case, tax debt you owe to the IRS.
IRS levies can take several forms, including:
- Wage garnishments
- Bank levies
- Accounts receivable levies
Therefore, being “in jeopardy of lien” means that if you don’t contact the IRS to negotiate with them regarding your tax debt — pay it off entirely — the IRS may start seizing your assets and sources of income.
Lien vs. Levy
They’re both four-letter “L” words having to do with the IRS, so it’s natural that people will confuse the concept of a “lien” with that of a “levy.”
Just remember, a lien is simply the IRS putting a sticky note in public records that says, “This guy’s stuff goes to us first!”, while a levy is the IRS actually taking your stuff.
And the IRS can do both — file a Notice of Federal Tax Lien against you as well as levy your assets and sources of income.
How Does One End Up in Jeopardy of Lien or Levy?
A taxpayer ends up in jeopardy of lien or levy after the following things have happened:
- The taxpayer filed a tax return — or the IRS prepared a substitute for return (SFR) — indicating a balance due.
- The taxpayer did not pay this balance due.
- The IRS sent the taxpayer several collections notices — such as the CP504 or LT11 — demanding payment or some kind of resolution for the debt.
- The taxpayer did not respond to these notices in a manner satisfactory to the IRS.
Once these things happen, the IRS decides to threaten the taxpayer with a lien or levy, and the “your account is in jeopardy of lien or levy” warning appears when the taxpayer logs into their IRS account online.
Notices That Indicate You Are in Jeopardy of IRS Lien or Levy
While you probably saw on your IRS account that you are in jeopardy of lien or levy with the IRS, official IRS notices sent to you can communicate the same information but in more detail.
Below are some of the notices that the IRS sends to taxpayers who are in jeopardy of lien or levy.
IRS Notice CP14
Notice CP14 is the first notice that the IRS send you after you file a tax return showing a balance due.
The IRS sends this notice because it is required by law to send you notice when you have a new balance due — i.e., a new assessment — with the IRS.
Read this article to learn more about IRS Notice CP14.
IRS Notice CP504
Notice CP504 is the notice the IRS sends you to inform you that it is considering levying you — at the top, this notice reads, “Notice of Intent to Levy.”
This notice should serve as a “wake-up call” to taxpayers with tax debt. They need to either pay off their balance with the IRS or enter into negotiations with them regarding what they owe.
Read this article to learn more about IRS Notice CP504.
IRS Notice LT11 or CP90
Both the Notice LT11 and the Notice CP90 serves as a taxpayer’s final notice of intent to levy as well as their notice of their right to a collection due process (CDP) hearing.
If you do not address your tax issue or request a CDP hearing within 30 days of the date of this notice, the IRS may take actual levy action against you.
Read this article to learn more about IRS Notice LT11.
Read this article to learn more about IRS Notice CP90.
What Should I Do If I Am in Jeopardy of Lien or Levy?
If the IRS informs you that your account is in jeopardy of lien or levy, take the steps below.
Step 1: Check your IRS account for accuracy.
Don’t assume that the IRS did their math correctly — review the IRS’s numbers against your own.
Step 2: Correct any errors with the IRS.
If you do find an error in the IRS’s math, take it up with them.
You can call the IRS Automated Collection System at (800) 829-7650 to discuss your disagreement with the IRS’s numbers.
You can always reach out to us at at 866-8000-TAX to go to bat against the IRS for you.
Step 3: Seek Penalty Abatement.
For most of our clients with penalties on their account, we at least seek some sort of penalty relief for them.
Sometimes the IRS grants it; sometimes they don’t.
But it’s generally at least worth a shot.
For more information about seeking abatement for the penalties on your account, check out this article.
Step 4: Pay the Balance Due OR Seek Tax Relief
Finally, you have to figure out what to do with the amount you owe the IRS after you’ve cleared up any disagreements with them concerning the amount as well as obtained any possible penalty relief for your account.
You can, of course, pay off your balance in full. This will (obviously) stop future penalties and interest from accruing.
However, a better option — if you qualify for it — is an offer in compromise. An offer in compromise is an agreement you make with the IRS in which the IRS agrees to accept a lower amount to satisfy your tax debt than you actually owe.
That said, not all taxpayers qualify for an offer in compromise, so there are other options, such as a temporary hardship placement called currently not collectible status as well as installment agreements for taxpayers who wish to pay their balance over time.
For an overview of how tax relief works, read our article What Is Tax Relief and How Does It Work?.
Author:
Logan Allec, CPA, Founder and Owner
Logan Allec has been serving taxpayers as a CPA for over 14 years. After leaving his role at a "Big 4" firm, he started Choice Tax Relief to help everyday Americans who have found themselves behind on their taxes. He also educates thousands of people daily about tax relief on his YouTube channel. In addition to his CPA license, Logan also has a Master's Degree in Taxation from the University of Southern California (USC). He lives with his wife and children in the Los Angeles area. Learn more about Logan here.
