How to Contest an IRS Notice of Tax Levy

Receiving an IRS Notice of Tax Levy can be stressful, especially when it is inaccurate or you do not have the ability to pay your unpaid taxes. When that happens, you need to know how to contest an IRS notice of levy of unpaid tax liabilities, including what you need to file and when. If you miss your deadlines or are unable to get and stay in compliance with your ongoing tax liabilities, you could lose your opportunity to use an Offer in Compromise or Installment Agreement to settle your tax debt.

Retired Taxpayer Seeks to Contest an IRS Notice of Tax Levy

A recent United States Tax Court decision, Shomo v IRS, offers considerable insight into what a taxpayer must do to contest an IRS notice of deficiency and avoid having a tax levy imposed against them. Paulette Shomo asked the U.S. Tax Court to review the IRS’s Notice of Determination, and to excuse her non-payment for taxes over the course of seven years. In 2016 and 2017, Ms. Shomo filed tax returns but failed to pay the total amount due. She was under-withholding taxes from her pension income, and did not pay the $8,000 difference when her taxes came due.

What to Do When You Receive an IRS Notice of Tax Levy

If you fail to pay your taxes on time, you will be issued a notice of deficiency and given an opportunity to pay. However, if you miss the deadline to bring the account current, you could receive an IRS notice of tax levy as the IRS seeks to collect on the debt. When you receive an IRS Notice of Intent to Levy, it will include a notice that you have a right to a hearing. This is called a Collection Due Process Hearing (CDP).

If you want to contest the IRS Notice, it is wise to speak to an experienced tax attorney right away after receiving that notice. You will have 30 days to either pay the balance of unpaid taxes or request a CDP hearing. You can also request an equivalent hearing within a year of receiving the notice.

In September 2019, the IRS sent Ms. Shomo a levy collection notice for her unpaid taxes in 2016 and 2017. She sent a timely request for a Collection Due Process hearing, requesting an Offer in Compromise, and the case was assigned to the IRS Appeals Office.

Alternatives to an IRS Tax Levy

When your case is assigned to the IRS Appeals Office, you have the ability to request an alternative to the tax levy, including:

• Offer in Compromise, which settles your tax liability in one lump sum that is less than the amount you originally owed.
• Installment Agreement, which allows you to pay the full amount of the tax balance over time.

Ms. Shomo requested an Offer in Compromise in her request for a CDP hearing before the IRS Appeals Office. That hearing occurred on April 22, 2020. At that time, the IRS determined that Ms. Shomo was not “in compliance” with her tax obligations because she had not paid those overdue taxes, and had not filed her 2018 taxes on time. The IRS contacted her listed Power of Attorney, but received no response. On February 4, 2021, the IRS issued a Notice of Determination, sustaining the notice of proposed levy. Its decision was based on the fact that Ms. Shomo had failed to provide the necessary information, her 2018 tax return had not been filed, and her withholdings were once again too low.

Taking an IRS Notice to Tax Court

Once you receive a Notice of Final Determination after a CDP hearing, you have 90 days (150 days for international taxpayers) to file a petition with the United States Tax Court. This civil lawsuit asks the Court to review the IRS Appeals Office’s decision to determine if it abused its discretion in sustaining the tax levy.

Ms. Shomo initially filed her petition with the United States Tax Court in March 2021. She asserted that her listed Power of Attorney had not informed her about the IRS Appeals Office’s inquiries, two of her children had died in the past year, and she was a senior citizen with medical issues. In light of this, the IRS Commissioner asked that the case be remanded for a new CDP hearing. However, when that process was completed two and a half years later, the IRS once again sustained the levy for the reasons discussed below.

Contesting an IRS Notice of Deficiency Requires Ongoing Compliance

If you intend to contest an IRS Notice of Tax Levy or other notices of deficiency or collections efforts, it is essential that you come into and remain in compliance with all your other tax obligations. Because IRS appeals processes can take a significant amount of time, this will mean filing your next years’ tax returns on time (with or without an extension), and pay any taxes owed before the IRS Appeals Office reviews your case. If you are not in compliance with your tax obligations, the IRS has the authority to deny your request for alternative collections methods.

This is what happened to Ms. Shomo. She filed her 2018 tax return sometime before June 1, 2022, but at the IRS Appeals Office conference that day, she had not filed her tax returns for 2018 and 2021. She came into compliance on June 22, 2022, but she never increased the withholdings on her pension income. That meant she fell out of compliance again the following year. The IRS offered Ms. Shomo an Installment Agreement, but required her to come into compliance by filing her 2022 tax return. She had not done so by December 12, 2023, so the IRS affirmed that Notice of Tax Levy again. She filed her 2022 tax return on December 27, 2023, but the IRS’s Notice of Determination was final. Because she was not in compliance when the IRS made its decision, the Tax Court affirmed the decision, requiring Ms. Shomo to pay the entire outstanding tax debt.

Ms. Shomo’s case shows how important it is to work with an experienced tax professional to contest an IRS notice of tax levy or tax deficiency. Doing so can make sure you file everything you need to obtain an IRS Appeals Office review, and to avoid non-compliance creating an obstacle to getting the tax relief you need.

Attorney Joseph R. Viola is a tax attorney in Philadelphia, Pennsylvania with over 35 years experience. If you have questions about contesting an IRS Notice of Deficiency or tax levy, contact Joe Viola to schedule a free consultation.