If you're receiving certified letters from the IRS, it is definitely in your best interest to carefully read these letters and respond quickly. These letters may mean that you are in the Automated Collection System (ACS) of the IRS. The ACS is a computerized collection process which communicates with taxpayers who owe money to the IRS, which is a problem you should never ignore.
If you've been receiving certified letters but have not yet picked them up, don't be deceived into thinking that the problem will go away. Whether you read the letters or not, the IRS will continue to send them and will not wait for your response before they take action to collect from you.
As far as the process involved, after the IRS sends out a series of letters stating the amount that you owe them, asking for payment within 10 days to avoid penalties and interest, the ACS will begin sending out collection letters. The first of these certified letters is the CP504 which says “Urgent,” and states their intention to levy on your assets.
If you don’t take action at this point, you’ll soon receive another letter, Letter 1058, stating a “Final Notice of Intent to Levy”. If you do not take action within 30 days of the date on the letter, the IRS will begin to levy on your assets and will file a lien against you.
It is extremely important to contact a Tax Professional before you begin to get these collection letters. If you are already receiving certified letters from the ACS, a Tax Consultant can still help you resolve the matter and possibly prevent the levies. Remember that the IRS can levy against your bank accounts and/or your paycheck. For w-2 employees, the IRS can take up to 85% of your paycheck. For 1099 employees, they can levy 100%!
To read more about levies see my entry below titled, “Can I get my levy released?”.
Additionally, below is information directly from the IRS website regarding levies. I’ve also copied the link to this webpage at the bottom.
From the IRS...
A levy is a legal seizure of your property to satisfy a tax debt. Levies are different from liens. A lien is a claim used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt.
If you do not pay your taxes (or make arrangements to settle your debt), the IRS may seize and sell any type of real or personal property that you own or have an interest in. For instance,
We [the IRS] could seize and sell property that you hold (such as your car, boat, or house),
We could levy property that is yours but is held by someone else (such as your wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, or commissions).
We usually levy only after these three requirements are met:
We assessed the tax and sent you a Notice and Demand for Payment;
You neglected or refused to pay the tax; and
We sent you a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy. We may give you this notice in person, leave it at your home or your usual place of business, or send it to your last known address by certified or registered mail, return receipt requested. Please note: if we levy your state tax refund, you may receive a Notice of Levy on Your State Tax Refund, Notice of Your Right to Hearing after the levy.
You may ask an IRS manager to review your case, or you may request a Collection Due Process hearing with the Office of Appeals by filing a request for a Collection Due Process hearing with the IRS office listed on your notice. You must file your request within 30 days of the date on your notice. Some of the issues you may discuss include:
You paid all you owed before we sent the levy notice,
We assessed the tax and sent the levy notice when you were in bankruptcy, and subject to the automatic stay during bankruptcy,
We made a procedural error in an assessment,
The time to collect the tax (called the statute of limitations) expired before we sent the levy notice,
You did not have an opportunity to dispute the assessed liability,
You wish to discuss the collection options, or
You wish to make a spousal defense.
At the conclusion of your hearing, the Office of Appeals will issue a determination. You will have 30 days after the determination date to bring a suit to contest the determination. Refer to Publication 1660, Collection Appeal Rights (PDF), for more information. If your property is levied or seized, contact the employee who took the action. You also may ask the manager to review your case. If the matter is still unresolved, the manager can explain your rights to appeal to the Office of Appeals.
If we levy your wages, salary, or federal payments, the levy will end when:
The levy is released,
You pay your tax debt, or
The time expires for legally collecting the tax.
If we levy your bank account, your bank must hold funds you have on deposit, up to the amount you owe, for 21 days. This holding period allows time to resolve any issues about account ownership. After 21 days, the bank must send the money plus interest, if it applies, to the IRS. To discuss your case, call the IRS employee whose name is shown on the Notice of Levy".