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Collection Station — Litigation Track

  • Lien Enforcement
  • Government Files Suit in Court
  • Reduce Assessment to Judgement
  • Foreclosure of Tax Lien
  •  Action to Enforce Levy

 

View our interactive tax map to see where you are in the tax process. It could help you navigate your way through the IRS.

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Station Overview

You received various notices or letters from the IRS requesting payment for the tax balance owing and the debt remains unpaid. Since you have a balance owing, the IRS has continued with its collection process.  In certain circumstances, the IRS may have initiated a civil suit against you or a third party to resolve the unpaid tax balance. The two most common types of such suits are actions to foreclose on federal tax liens and to reduce tax assessments or liabilities to judgment. The United States may file a civil action in U.S. District Court under IRC § 7403 to enforce its federal tax lien by subjecting any of your property, right, title, or interest in property to the payment of the delinquent tax liability. Alternatively, the government may file a suit to reduce liabilities or assessments to judgment in U.S. District Court under IRC § 7401.

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Lien Enforcement

A federal tax lien arises when the IRS assesses a tax liability, sends the taxpayer notice and demand for payment, and the taxpayer does not fully pay the debt within ten days of the notice and demand. This is called a ‘silent lien.’ A federal tax lien is effective as of the date of assessment and attaches to all of the taxpayer’s property and rights to property, whether real or personal, including those acquired by the taxpayer after that date. This lien continues against the taxpayer’s property until the liability either has been fully paid or is legally unenforceable. The government may record an NFTL to enforce the ‘silent lien’. Recording of the NFTL becomes public record. The government may enforce the lien by filing a civil suit against the taxpayer for the unpaid federal tax liabilities.

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Government Files Suit In Court

To bring a lien enforcement suit, the IRS must refer a case to the Department of Justice and request it to file the foreclosure suit. The IRS considers several factors when determining whether to initiate an enforcement suit, including the feasibility of administrative collection devices, the statute of limitations, and the economic value of lien foreclosure. Once the Department of Justice receives the IRS referral, it can initiate suit to enforce the lien under IRC § 7403 by filing a complaint in the appropriate district court.

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Reduce Assessment to Judgement

 

IRS refers a case to the Department of Justice to initiate a civil suit to reduce liabilities or assessments to judgement. This extends the time that the IRS can collect from a taxpayer’s assets beyond the normal ten year collection period. Taxpayer participates in litigation by responding to the civil action by the government. The general authority for the United States to commence a court action to reduce liability to judgement is provided by IRC § 7401. 

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Foreclosure of Tax Lien

Once the Department of Justice brings a lien enforcement suit under IRC sec. 7403 (also known as a lien foreclosure suit), the court may foreclose the lien on property in which the taxpayer has an interest to convert it to cash and to apply the proceeds to the taxpayer’s liability. The court is able to sell the property with a clear title to the new buyer.

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Action to Enforce Levy

 

IRS refers a case to the Department of Justice to institute a suit against a person who is in possession of or obligated with respect to property or rights to property that is subject to levy, upon which a levy has been made, to surrender such property upon demand. Any person failing or refusing to surrender property subject to levy is personally liable in sum equal to the value of the property not so surrendered, not exceeding the amount of the taxes, together with costs and interest from the date of such levy. Additionally, IRC § 6332(d)(2) provides that if the failure or refusal to surrender the property was not due to reasonable cause, the person not surrendering the property shall be liable for a penalty equal to 50 percent of the amount of the recoverable taxes, costs and interest and the penalty is not credited against the underlying tax liability. A suit to enforce a levy is generally brought against a third party, not against you (e.g., your employer fails to honor a levy served to reach your wages).

What does this letter or notice mean to me?

Lien Enforcement:

When the IRS files the NFTL, it gives public notice to creditors, establishing the priority of IRS’s legal claim against all your current and future property and rights to property versus the claims of other creditors. The filing of the NFTL may limit your ability to get credit, however, an NFTL will no longer appear on your credit report

The lien attaches to all assets, personal or business (such as real estate, securities, vehicles), as well as future assets acquired while the lien is in place. For more information, refer to Publication 594, The IRS Collection Process.

If you file for bankruptcy, your tax debt may not be discharged and the lien may continue after the bankruptcy.

Generally, within five business days of filing the NFTL, the IRS will send you a Notice of Your Right to a Collection Due Process Hearing. You’ll have until the date shown on the notice to request a Collection Due Process (CDP) hearing with Appeals. See Publication 1660, Collection Appeal Rights, for a full explanation of the CDP process. For more information go to Liens the TAS website.

This notice also explains the possible denial or revocation of your United States passport. Visit Revocation or Denial of Passport in Case of Certain Unpaid Taxes for further information.

How did I get here?

You received various notices or letters from the IRS requesting payment for the tax balance due and the debt remains unpaid. Since you have a balance due, the IRS has continued with its collection process, which could include initiating litigation action against you or a third party to resolve the unpaid tax balance.

What are my next steps?

Lien Enforcement:

The first thing to do is to check the return address to be sure it’s from the Internal Revenue Service and not another agency.

If it’s from the IRS, the notice will have instructions on how to respond and provide a specific website link for you to visit for additional information located at the end of the notice or letter. Visit I Got a Notice From the IRS for further details including what to do if the notice is not from the IRS.

First and foremost, don’t ignore notices from the IRS. Even if you can’t pay the taxes you owe, responding to a notice before the due date could prevent a lot of trouble. Be sure to keep your address up to date with the IRS so you receive all notices and letters.

  • If you can’t pay the full amount you owe, you have payment options to help you settle your debt over time.
  • If you disagree with the IRS that you owe the debt, you may be able to raise your arguments in a CDP hearing, an equivalent hearing or request an audit reconsideration. See also Publication 1660, Collection Appeal Rights, and Publication 5, Your Appeal Rights and How to Prepare a Protest If You Don’t Agree.
  • You can hire an attorney, certified public accountant (CPA), or enrolled agent to help you if you wish. If your income is below a certain level, you may qualify for Low Income Taxpayer Clinic (LITC) representation.

Also, if the IRS has already issued a CDP notice for that particular tax debt, then you can still request a hearing with Appeals either before or after the IRS files a Notice of Federal Tax Lien. You will need to request a conference through the Collection Appeals Program (CAP), but unlike a CDP hearing, you may not seek review of Appeal’s determination in the U.S. Tax Court. See Publication 1660, Collection Appeal Rights, for a full explanation of the CAP regarding Lien Enforcement.

You can also ask that the IRS manager review your case informally. You can obtain the manager’s name and phone number by contacting the employee listed on your notice. IRS employees are required to give you their manager’s name and phone number.

Once a lien arises, the IRS generally can’t release it until you’ve paid the tax, penalties, interest, and recording fees in full or until the IRS is no longer legally able to collect the tax. However, in certain circumstances a lien may be withdrawn, discharged, or subordinated. Visit Liens on the TAS website for further information.

Where can I get additional help?

Understanding your notice or letter

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If you still need help

The Taxpayer Advocate Service is an independent organization within the IRS that helps taxpayers and protects taxpayers’ rights. We can offer you help if your tax problem is causing a financial difficulty, you’ve tried and been unable to resolve your issue with the IRS, or you believe an IRS system, process, or procedure just isn’t working as it should. If you qualify for our assistance, which is always free, we will do everything possible to help you.

Visit www.taxpayeradvocate.irs.gov or call 1-877-777-4778.

Low Income Taxpayer Clinics (LITCs) are independent from the IRS and TAS. LITCs represent individuals whose income is below a certain level and who need to resolve tax problems with the IRS. LITCs can represent taxpayers in audits, appeals, and tax collection disputes before the IRS and in court. In addition, LITCs can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Services are offered for free or a small fee. For more information or to find an LITC near you, see the LITC page on the TAS website or Publication 4134, Low Income Taxpayer Clinic List.

Related Letters or Notices

  • Letter 3172, Notice of Federal Tax Lien Filing and Your Rights to a Hearing Under IRC 6320
  • Letter 3171, Notice of Additional NFTL Filing (Notice of Federal Tax Lien Filing and Your Rights to a Hearing Under IRC 6320)
  • Letter 3886, Special Condition Notice of Federal Tax Lien Filing – Taxpayer
  • Letter 3177, Special Condition Notice of Federal Tax Lien Filing – Third Party
  • Form 668 (Y)(C), Notice of Federal Tax Lien
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Where am I in the tax system?

Collection Station — Litigation Track

  • Lien Enforcement
  • Government Files Suit in Court
  • Reduce Assessment to Judgement
  • Foreclosure of Tax Lien
  • Action to Enforce Levy