IRS Notice CP 90: Final Notice of Intent to Levy

IRS Notice CP 90:  Final Notice of Intent to Levy

There is nothing more unsettling then the CP 90 or the Final Notice of Intent to Levy.  This notice is usually the last of several notices which warn the taxpayer before the IRS levies a bank account, wages, or other assets.  The CP 91 serves as the final notice before levying social security benefits.  The notice also states that the taxpayer has an option to file a Collection Due Process (CDP) hearing.

Consequences of Not Responding to the CP 90

If action is not taken prior to the deadline, the IRS can issue the levy.  They can also file a Notice of Federal Tax Lien.  The lien gives the IRS a legal claim to a taxpayer’s property as security or payment for the tax debt.

Option #1

The first main option would of course be to pay the balance.  However, many cannot afford this option.  Also, this would not correct the problem if there are any unfiled tax returns.  Before settling any account the IRS usually requires the taxpayer to be in full compliance.

Option #2

The next option would be to set up an installment agreement for the balance.  Usually the installment agreement would be over 60 months, unless the collection statute is less than that time.  This is where a tax professional is useful, as you do not want to pay more than you would be legally obligated to pay.  The amount of the installment would depend on the amount owed to the IRS.  Larger balances require a financial analysis of income, expenses, and assets.  Another item that would help here is a request that penalties be abated.  The abatement request may not be granted until the installments are complete, but if reasonable cause exists, it could be several thousand dollars saved.

Option #3

If the taxpayer cannot afford to pay anything due to low income, attempting Currently Non Collectible (CNC) status may be an option.  If CNC status is approved, the IRS will not pursue collections while allowing the statute of limitations to run.  To be eligible for this status, allowable expenses must be greater than the taxpayer’s income and the taxpayer must file all tax returns when due.  If a taxpayer’s income drastically increases, or if the taxpayer falls out of compliance, the IRS can annul CNC status and reinstate active collection status. 

Option #4

Under Internal Revenue Code Section 6320, every taxpayer has a right to a hearing to determine whether a levy or lien is unlawful.  Filing a CDP hearing temporarily stops collection actions as it is an appeal.  A CDP determination can be contested in tax court.

Option #5

The most publicized option is what is called the Offer in Compromise.  This is the option that is advertised by all the companies on television ads with the slogan “Settle IRS debts for pennies on the dollar.”  Per the Internal Revenue Manual (IRM) section 8.23.1.2, while an offer or its appeal is pending, and for 30days after an offer is rejected, collection activities should not occur.  A notice of federal tax lien may be filed while the offer is pending, however, and it will not normally be released until the terms of the offer are satisfied or until the liability is fully paid.

An Offer in Compromise can be filed on different basis including: doubt as to liability, effective tax administration, or doubt as to collectability.  Except for the doubt as to liability basis, a thorough financial analysis is conducted by the IRS regarding assets, equity, income, and expenses.  Hardship is also considered in some cases.  If, after the financial analysis, it is determined that the taxpayer has the ability to pay in full, the IRS will usually reject the offer, unless substantial hardships are demonstrated.

Option #6

The fifth and most difficult option is bankruptcy.  Per IRM 5.8.10.2.1 the IRS will not consider an Offer in Compromise while a taxpayer is in bankruptcy.  Per federal law, bankruptcy provides an automatic stay that stops all collection actions.

Bankruptcy does not discharge all tax liabilities.  If a notice of federal tax lien has been filed, the lien may survive bankruptcy against certain assets.  Also, bankruptcy extends the collection statute while it is pending and adds another 180 days. 

Whether an income tax debt is discharged by bankruptcy depends on the type of bankruptcy filed, and whether several requirements are met.  The older the tax debt, the more likely the requirements could be met.  However, the tax returns should be filed several years prior as well.

Obviously, filing for bankruptcy has several ramifications on a person’s credit so a qualified attorney should be consulted before pursuing this route.

In Summary

The Final Notice of Intent to Levy is a scary notice, especially when you are unaware of the reasons for it or cannot pay.  However, there are many options to resolve this difficult situation.  A qualified attorney should be contacted before the deadline passes.

Rehan Alimohammad is an Attorney and CPA.  Our office handles all tax law and immigration law issues.  In the past year we have successfully trained over 200 people, including Attorneys, CPA’s, and Enrolled Agents, on how to successfully resolve cases with the IRS and State Tax Agencies.  Please visit our website at www.attorneyrehan.com, or call our offices at (281) 340-2074 or (800) 814-3920.

Disclaimer:  This article is not meant as specific advice regarding a person’s individual case.  An attorney should be consulted.  This article does not create an Attorney-Client relationship.   Any tax information or written tax advice contained herein (including any attachments) is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.  (The foregoing legend has been affixed pursuant to U.S. Treasury Regulations governing tax practice.)