An “assessment” is the timely recording of a taxpayer’s liability in accordance with IRS rules.1  Generally, assessments must be made by the IRS within 3 years after the filing of a return.2 The period is extended to 6 years if a return omitted more than 25% of the taxpayer’s gross income.3 The 3- or 6-year limit on assessment is referred to as the Assessment Statute Expiration Date (ASED). This period may be waived by the taxpayer. The assessment period does not begin if a tax return was fraudulent or not filed.4 There is no statute of limitation for assessment of a fraudulent return, and the subsequent filing of a non-fraudulent return does not avoid the unlimited statute of limitation for the original return.5 However, when the original fraud consists of not filing a return, a subsequent return triggers the 3-year limit on assessment.6

The taxpayer has a right to the IRS’s record of assessment. Transcripts of a taxpayer’s records may be ordered by tax professionals from the Practitioner’s Priority Service at (866) 860-4259. These transcripts can also be obtained by tax attorneys with access to the IRS online database through E-services. 

There are three different types of transcripts that are useful to a tax attorney. The first is the “account” transcript which will state the amount of tax liability and provide a timeline of actions taken by the taxpayer and the IRS for that tax year; it will also enable you to determine the expiration date for collections.7 The second is the “wage and income” transcript which show all information reported by third parties, such as W-2 and 1099 information, mortgage interest payments, IRA withdrawals, and cancellation of debt. The third transcript is the “tax return” transcript which provides a summary of the original tax return filed by the taxpayer. If the return is amended by the taxpayer or changed by the IRS, however, the “tax return” transcript will not be updated to show those changes. You will need to get that information from the client or by calling the IRS. 

• 1I.R.C. § 6203.
• 2I.R.C. § 6501.
• 3I.R.C. § 6501(e)(1).
• 4I.R.C. § 6501(c).
• 5I.R.C. § 6501(c)(1)–(2); Badaracco v. Comm’r, 464 U.S. 386 (1984). A preparer’s fraud can extend the statute of limitations. See Allen v. Comm’r, 128 T.C. 37 (2007).
• 6I.R.C. § 6501(c)(3); IRS Nat’l Office Field Serv. Advice, Assistant Chief Counsel Memorandum, No. 200051040 (Dec. 22, 2000).
• 7For guidance in spotting statute of limitations issues, see Am. Bar Ass’n, Effectively Representing Your Client before the IRS ch. 17 (8th ed. 2021). The IRS account transcripts will use code 150 to designate the assessment date. See Transaction Codes, Pocket Guide, IRS Document 11734 (Rev. 5-2012).

Generally, the IRS has 10 years after a timely assessment to collect taxes.1 The date after which the IRS may no longer collect taxes is referred to as the Collection Statute Expiration Date (CSED). The IRS Practitioner Priority Service (866-860-4259) will tell you the CSED. It is common for the IRS to miscalculate the CSED. Therefore, do not rely on the IRS calculation. If the IRS collection employee won’t review and decide a CSED defense, request a Taxpayer Assistance Order by a Form 911 from your Taxpayer Advocate Service office.

The 10-year time limit can be tolled by deficiency notices, Tax Court proceedings, collection due process hearings, requests for innocent spouse relief, Offers in Compromise, bankruptcy, Taxpayer Assistance Orders, and appeals of wrongful levies or liens.2 If the 10-year period is close to expiration, be careful about taking action that may extend limitations period.

Being placed into Currently Not Collectable status does not toll the CSED. If the suspension action was taken by a separated spouse, determine whether that action also suspended the limitation period as to your client. 

If your client lived in a federally declared disaster area, the I.R.S. may have extended the limitation periods under its I.R.C. § 7508 (A) authority. For example, after Hurricane Katrina, the IRS deadlines for collection were extended for 1 year.3

• 1I.R.C. § 6502.
• 2I.R.M. 5.1.19.3. Note that some cases may involve several actions that suspend the statute of limitations. See, e.g., I.R.M. 5.1.19.3.6.3 (giving the IRS’s position on how to calculate the suspension periods that result from an innocent spouse claim made within a collection due process appeal).
• 3IRS Notice 2006-20 (extending limitation periods to August 28, 2006 for taxpayers affected by Hurricane Katrina).

Previously, the IRS required taxpayers that could pay a monthly amount towards their liability but could not pay off the entire amount before the CSED to waive the protections of the CSED. It is now possible to request a “partial installment agreement”, which allows taxpayers to pay what they can afford until the CSED extinguishes the rest of their debts. To obtain this kind of agreement, a taxpayer must be able to provide complete financial documentation to show that the monthly amount is the most the taxpayer can afford to pay after paying basic expenses. Documentation includes paycheck stubs, public benefits award letters, bills, leases, and current bank statements. A partial installment agreement is particularly advantageous if a taxpayer can afford to make some payments towards the tax liability and wants to forestall other possible IRS collection actions, such as levies and bank account seizures.

The taxpayer generally wants to delay or defeat the collection process. Potential strategies may include showing that the lien or levy is invalid (e.g., the taxpayer did not receive the required notices), avoiding or suspending the levy, or convincing the IRS to pursue alternatives to collection.

IRS seizure of income and assets may cause a taxpayer to default on other debt, suffer eviction or foreclosure, lose a business or the means to make a living, or find it impossible to pay basic expenses. If a taxpayer seeks your help after a levy is already in place, you should act quickly to resolve the seizure or levy.

The Taxpayer Advocate may issue Taxpayer Assistance Orders (TAO) to stop collection activity. A TAO may be issued if the taxpayer is suffering or about to suffer a significant hardship due to IRS action or inaction or for circumstances set forth in IRS regulations.1

TAOs are most often issued when an actual or threatened seizure of a tax refund, bank account, pension plan, car, or wages will leave a taxpayer without enough money for basic necessities or when the seizure will cause the taxpayer to lose a primary home (including through eviction), a car necessary for work, or access to medical care or education. A Form 911 is used to apply for a TAO. The Louisiana Taxpayer Advocate can be reached at 504-558-3001 (phone) and 504-558-3348 (fax).2 If the levy has not yet started, the attorney should request Currently Not Collectable (CNC) status for the taxpayer before the deadlines to respond.3 This will stop most collection actions.

• 1I.R.C. § 7811(a).
• 2For more information on TAOs, see IRS Publication 1546; I.R.M. 13.1.7.2; 26 C.F.R. § 301.7811.
• 3For discussion of CNC status, see Section 6.6.2.

The IRS may seize property or income through the levy process once proper notice is given. A levy reaches every species of property owned by the taxpayer unless exempted by federal law.1 Essentially, the IRS steps into the taxpayer’s shoes and can reach the taxpayer’s interest in the property. The IRS will seize tax refunds and apply them to prior tax debt. Homes and vested retirement accounts are not exempt from seizure. Unemployment benefits, worker’s compensation, a modest amount of wages, furniture, household effects, and tools of a trade are exempt from seizure.2

• 1Drye v. United States, 528 U.S. 49 (1999).
• 2I.R.C. § 6334; 26 C.F.R. § 301.6334-1.

The IRS must obtain a federal court order to sell a principal residence for tax debts. Such collection actions are rare. A taxpayer’s principal residence is exempt from seizure for tax debts less than $5,000. For debts greater than $5,000, possible defenses to seizure include IRS noncompliance with the laws and procedures applicable to levy and the existence of reasonable collection alternatives. There may be other defenses if the home is jointly owned and the co-owner is not liable for the tax debt.1

Seizure does not automatically require a taxpayer to move out. The IRS will not evict a taxpayer after the sale; eviction can only be accomplished by the buyer, who must bring an eviction action in state court. 

Purchasing the property at a tax sale also does not grant the buyer full title to the house. After the sale, the taxpayer has 180 days (not 6 months) to redeem the property by paying the full bid price plus interest at 20% per annum.2 If the taxpayer plans to redeem, it may be possible to rent from the purchaser until the taxpayer completes the redemption process.

• 1The district courts have some discretion under I.R.C. § 7403 to deny a foreclosure sale where the IRS holds a lien on only part of the house. See, e.g., United States v. Rodgers, 461 U.S. 677 (1983); United States v. Winsper, 3:08CV-631-H, 2010 WL 4638598 (W.D. Ky. Nov. 4, 2010) (finding that expectation of non-liable spouse was a factor weighing in favor of denying foreclosure), rev’d on other grounds, 680 F.3d 482 (6th Cir. 2012) (reversing denial of foreclosure due to district court’s abuse of discretion on other factors); United States v. Jensen, 785 F. Supp. 922 (D. Utah 1992) (harm to terminally ill nondebtor outweighed delay to IRS); United States v. Jones, 877 F. Supp. 907 (D.N.J. 1995) (nondebtor wife kept house in return for ½ rent payments to IRS); see also United States v. Craft, 535 U.S. 274 (2002) (holding that I.R.C. § 6321 federal tax lien attaches to taxpayer’s rights in “entireties property” even though state law exempts entireties property from creditors’ claims that are only against one spouse); IRS Chief Counsel Notice 2003-60, (IRS position on Craft).
• 2I.R.C. § 6337.

Generally, levy cannot be made on wages or property until the IRS has given the taxpayer the 30-day written notice of intent to levy required by I.R.C. § 6331(d).

The IRS uses a Form 668-W to levy wages. If the taxpayer has a levy notice, determine the current stage of the levy process. Generally, the taxpayer will receive 3 statutory notices before the actual levy:

• 10-day Notice and Demand for Payment1
• Final Notice Before Levy2
• Final Notice of Intent to Levy and Collection Due Process hearing opportunity at least 30 days before proposed levy3

The last notice is CP notice 90. However, if the IRS is going to levy Social Security benefits, it must issue a CP notice 91. The IRS can levy up to 15% of Social Security Retirement, Railroad Retirement, Spousal and Survivor, and Disability benefits. The IRS will not levy Supplemental Security Income (SSI). 

• 1I.R.C. § 6331(a).
• 2Id.
• 3See I.R.C. §§ 6330(a), 6331(d).

There are various strategies for responding to a wage levy:

• Claim the highest exemption possible. Generally, the IRS will levy based on 1 exemption and single-filing status. A taxpayer who is married or has children may claim a higher exemption amount and a more favorable filing status. The amount the taxpayer pays for support established by court order is exempt from levy. If the taxpayer or the taxpayer’s spouse is at least 65 years old or blind, an additional standard deduction is available. Use Form 668-W.1
• Ask for a reduction of the levy based on economic hardship. If the levy will cause economic hardship, but the taxpayer can afford to pay a lesser amount, file for a reduced levy. The IRS will require the taxpayer to complete and sign a Form 433-A and list income, expenses, and assets.
• File or call for “Currently Not Collectible” (CNC) status if the taxpayer cannot afford to make any payments toward the tax liability after paying basic expenses and does not have an asset that can easily be liquidated to pay the liability. Many low-income taxpayers can be placed in CNC status if collection would cause undue hardship by leaving them unable to meet necessary living expenses. Basic living expenses include food, household items, rent or mortgage payments, a car note, gas, homeowners or car insurance, and funds for medications. The IRS website contains the list of standard costs for each of these expenses, which may be based on the number of people in the household or the parish in which the taxpayer lives. These costs are known as Collection Financial Standards. If your client’s expenses are higher than these standard amounts, you will have to submit documentation of the expense and argue that it is justified. The IRS will usually not expect taxpayers to sell their residence. The agency also allows one vehicle per taxpayer, and so a married couple with joint liability can keep two vehicles. This analysis may change if the home or vehicle has a lot of equity. The IRS may then require the taxpayer to obtain a mortgage if the taxpayer can afford to make the monthly payments and pay the liability with the loan proceeds. If a vehicle is very valuable, the IRS may require the taxpayer to sell it for a cheaper vehicle and give the IRS the difference. If the tax liability is less than $10,000, the attorney can request CNC status by calling the number on the collection form and providing the financial information. You may be asked to fax supporting documentation to the IRS agent. This could be Social Security award letters, paycheck stubs, bills, or recent bank statements. If the taxpayer owes more than $10,000 for all years of liability, the IRS will require a Form 433-A or 433-F that is signed by the taxpayer. This can be faxed to the IRS agent when you call in. The IRS must release a levy upon a determination of CNC status.2 The IRS agent may say that the taxpayer needs to file missing tax returns before the request for CNC status can be processed, but this is not true. The IRS may not deny a release for hardship because the taxpayer has failed to file tax returns.3 If an agent makes this demand, you should ask to speak with a manager. You may need to enlist the help of the Taxpayer Advocate Service if the IRS refuses to release a levy on the ground of the taxpayer’s failure to file returns. Although CNC status will stop most collection actions, the IRS can still file liens after CNC status has been approved, and it often does, which may be a consideration when seeking this remedy. The IRS can also still seize tax refunds for past liability even if the taxpayer is in CNC status.
• File a collection due process appeal on Form 12153 if you need more time to gather information or financial documentation. A collection due process appeal will generally stop the IRS from making a levy while the appeal is pending. Collection alternatives and other defenses can be pursued in a collection due process appeal.4
• Ask for a brief suspension of the levy if the taxpayer can pay the liability. The IRS has authority to suspend collection activity for up to 120 days for individuals to allow the taxpayer to gather the funds to pay the liability.5 This is often referred to as the “Fresh Start” program. Interest and penalties will not accrue during the 120-day period. If the taxpayer fails to pay the liability in full by the requested deadline, however, all accrued interest and penalties will be added to the amount owed.
• Submit a proposal for an Installment Agreement or Offer in Compromise. Levies are suspended while an Installment Agreement or Offer in Compromise is under consideration or in effect. The suspension continues if denial of the Installment Agreement or Offer in Compromise is appealed to an IRS appeals officer.

• 1See IRS Pub. 1494.
• 2I.R.C. § 6343(e).
• 3Vinatieri v. Comm’r, 133 TC. 392 (2010); IRS Notice CC-2011-005; I.R.M. 5.11.2.2.1, .19.1.7.1.5.
• 4The taxpayer has 30 days to appeal a levy to an IRS Appeals Officer. I.R.C. § 6330(b); 26 C.F.R. § 301.6330-1(b)(1). If a taxpayer timely requests an appeal, the IRS may not levy while the appeal is pending. I.R.C. § 6330(e). Use Form 12153 to appeal.
• 5I.R.M. 5.14.5.5.

An employer who fires an employee because of an IRS wage levy may have violated 15 U.S.C § 1674.1 The taxpayer does not have a private cause of action to enforce this law.2 The U.S. Department of Labor polices employer violations and may seek reinstatement and back pay.3

• 1Martin v. Hawkeye Int’l Trade, Inc., 782 F. Supp. 1320 (S.D. Iowa 1991).
• 2Smith v. Cotton Bros. Bakery Co., 609 F.2d 738 (5th Cir. 1980).
• 3Martin, 782 F. Supp. 1320.

A bank levy is a one-time levy that reaches the deposits at the time of the levy. I.R.C. § 6332(c) only requires banks to hold funds subject to levy for 21 days. So, a taxpayer or a joint account holder must act quickly to prevent the levy from being executed. The IRS may ask the bank to hold the funds longer than 21 days if another person claims ownership of the funds.

The IRS may seize a taxpayer’s bank account even if it includes exempt wages or exempt Social Security benefits.1 The IRS may even seize an account that the taxpayer does not own but from which the taxpayer has the right to withdraw funds. When this happens, account owners must act quickly to convince the IRS that they—not the taxpayer—own the funds. 

If the bank transfers the levied funds to the IRS, non-liable account holders must use the wrongful levy procedures to recoup their funds from the IRS. To do so, they must file a Form 4528 within 9 months. If you can’t secure the returns of the funds within 9 months, you should file suit before the 9-month period elapses.2

• 126 C.F.R. § 301.6334-2(b); I.R.M. 5.11.4.5.
• 2I.R.C. § 7426(a)(1); EC Term of Years Tr. v. United States, 550 U.S. 429 (2007). There may be a due process exception to the 9-month rule in some circumstances. See Scheafnocker v. Comm’r, 642 F.3d 428 (3d Cir. 2011).

The IRS may issue a continuous levy which takes 15% of a taxpayer’s Social Security check on a monthly basis.1 The IRS has decided not to levy on SSI benefits even though the law allows this. Ask for release of the levy based on economic hardship or seek Currently Not Collectible status based on hardship.2 If the tax liability is $10,000 or more, the IRS will require Form 433-A collection information statement from the taxpayer and will conduct the analysis of hardship based on its financial standards. If the taxpayer’s only income is Social Security, a collection information statement may not be required for the hardship determination.3

• 1I.R.C. § 6331(h).
• 226 C.F.R. § 301.6343-1(b)(4); I.R.M. 5.11.2.2.1.2, .4.
• 3I.R.M. 5.16.1.2.9.

Circumstances under which a levy may be released include:

• The liability is satisfied or becomes unenforceable.
• The release will facilitate collection (i.e., the property will be sold and proceeds transferred directly to the IRS).
• The taxpayer enters an installment agreement.
• The levy causes economic hardship to the taxpayer (e.g., Currently Not Collectable status).
• The fair market value of the asset exceeds the liability and release will not hinder collection.1

• 1I.R.C. § 6343(a); I.R.M. 5.11.2.2.1.

A federal tax lien is the IRS’s legal claim to property as security or payment for a tax debt. The claim arises “automatically” under I.R.C. § 6321 and attaches to every interest in property and rights owned by a taxpayer without regard to their location.1 This statutory lien is often referred to as a “secret lien” because it arises even if not publicly recorded.2 The lien also attaches to after-acquired property other than property acquired after a bankruptcy in which taxes were discharged. Federal tax liens even attach to property exempt from seizure under state law.3 Exemption from levy under federal law does not bar a lien on the exempt property.4 The IRS may seek to enforce the lien against exempt property by a foreclosure lawsuit under I.R.C. § 7403, but this is unlikely.

If a taxpayer does not pay a bill, the IRS will generally send a Notice of Federal Tax Lien which demands payment within 10 days.5 The Notice will threaten the filing of a tax lien in the public records office if the bill is not paid.6 A tax lien is not self-enforcing. To enforce a tax lien, the IRS must administratively levy the property or income or bring a foreclosure suit under I.R.C. § 7403.

• 1Drye v. United States, 528 U.S. 49 (1999).
• 2IRS Chief Counsel Memorandum, No. 200634012 (June 23, 2006).
• 3Drye, 528 U.S. 49; Medaris v. United States, 884 F.2d 832 (5th Cir. 1989).
• 4Matter of Sills, 82 F.3d 111 (5th Cir. 1990).
• 5IRS personnel are directed to file liens for tax debts that are $10,000 or more and may file for lesser debts.
• 6Note that the filing of a lien on a taxpayer’s home may trigger a technical default if the mortgage has a “‘no lien” clause.

Because a lien attaches to inherited property, renunciation of an inheritance won’t defeat the lien. It will still attach to the property despite Louisiana succession law that allows for renunciation that defeats creditors’ claims.1 If the IRS has filed a lien in the parish conveyance records, attempts to evade payment by transferring the property with a donation or renunciation could be construed as fraud.

• 1Drye v. United States, 528 U.S. 49 (1999).

A taxpayer may appeal a Notice of Federal Tax Lien by filing a Form 12153 within 30 days.1 Grounds for appeal include:

• IRS noncompliance with law or administrative procedures2
• Spousal defenses, such as innocent spouse relief
• Challenges to the appropriateness of collection actions
• Collection alternatives such as an installment agreement or an Offer in Compromise (OIC)3
• Assessment of tax or filing of lien while a bankruptcy stay was in effect
• Expiration of the time to collect the tax prior to the lien
• Taxpayer’s opportunity to dispute the asserted liability
• Full payment of taxes before the lien was filed

Lien appeal decisions by the IRS Appeals Officer are reviewed by the Tax Court under an abuse of discretion standard. The petition for judicial review must be filed within 30 days.4

• 1See 26 C.F.R. § 301.6320-1.
• 2In a “CDP” appeal, check for compliance with all applicable I.R.M. procedures. See Murphy v. Comm’r, 125 T.C. 301, 307 (2005).
• 3If a taxpayer appealing a lien seeks an OIC, the IRS Appeals agent will then transfer the case to the IRS office that processes OICs. Unlike with a “standalone” OIC, the denial of an OIC as part of a lien appeal can be judicially reviewed by the Tax Court. For a complete discussion of Offers in Compromise, see Section 7.3.
• 4I.R.C. §§ 6320(c), 6330(c)–(e). Joint Comm. on Taxation, Summary of the Conference Agreement on H.R. 2676, No. JCX-50-98R, at 132 (June 24, 1998).

There are several ways to remove an IRS lien.

Release–I.R.C. § 6325(a). A recorded lien can be released if the tax liability is satisfied or becomes legally unenforceable.1 A lien becomes unenforceable upon expiration of the 10-year statute of limitations for collection unless the IRS brings timely suit and wins judgment, at which point the lien is extended indefinitely.2 Since the 1980s, the IRS has used “self-releasing” liens that contain the date that the lien is released due to the 10-year statute of limitations. This date may not be correct, however, as the taxpayer may take actions that toll the statute of limitations, such as filing a bankruptcy or submitting an Offer in Compromise. The tax attorney should calculate when the liability becomes legally unenforceable after reviewing the account transcript of all actions taken by the taxpayer. If needed, the IRS will issue a certificate of release within 30 days after the lien is paid or becomes legally unenforceable, but the taxpayer must request the certificate. Absent a request, the IRS will not take action to cancel or release a lien and will instead rely on the expiration date listed on each lien. IRS Publication 1450 explains how to request a certificate of release.

Surprisingly, taxpayers often don’t know whether the lien has been satisfied or has expired. You may be able to review the actual lien in the public records; in Louisiana, these records are maintained by the Clerk of Court for each parish. Information on the lien’s payment status can also be obtained from the IRS lien staff or from an IRS account transcript. Inquiries about routine lien releases and current payoff amounts can be made to IRS customer service unit, 800-913-6050.

Withdrawal–I.R.C. § 6323(j). A withdrawn lien is treated as if it never existed. The IRS may withdraw a lien if the filing was premature or made in violation of administrative procedures or if the liability is being paid through an installment agreement or an Offer in Compromise.3 If these conditions are met, a Certificate of Release of Lien (Form 668Z) may be obtained from the IRS and filed in the public records. If the lien was filed in error, the IRS Certificate of Release should so state to minimize damage to the taxpayer’s credit rating.4 Use Form 12227 to request a withdrawal of a lien.

Discharge–I.R.C. § 6325(b). A discharge may be sought by a taxpayer who wants to sell or refinance a specific property. The taxpayer will have to agree that the tax liability will be paid at the time of sale/refinancing, with a check going directly to the IRS. If the taxpayer owns property with co-owners, only the taxpayer’s share of the proceeds will be affected. A certificate of discharge can also be issued if the taxpayer’s other property has value double of unpaid balance secured by lien, the taxpayer pays the value of interest IRS has in the property, or the taxpayer agrees that proceeds of sale will be substituted for the property (while parties sort out priorities of their claims). Use Form 14235 to discharge a lien on a specific asset.

Subordination–I.R.C. § 6325(d). Liens may be subordinated to a lender or other creditor. Subordination is a process whereby the IRS allows a creditor to move ahead of the IRS’s lien position. For example, the IRS may consent if the property will be mortgaged, and the funds used to pay the tax liability. IRS Publication 784 sets forth the procedures for the subordination of federal tax liens. To obtain a certificate of subordination, contact the IRS Advisory Group Manager for your area. The addresses can be found in IRS Publication 4235. Request subordination by filing a Form 14134 along with supporting documents.

Non-attachment–I.R.C. § 6325(e). A certificate of non-attachment states that the lien does not attach to the property of a person. This procedure is used when your client is not the person who owes the taxes but is being hurt by the lien because that person has the same or a similar name.5

• 1I.R.C. § 6325.
• 2I.R.C. §§ 6322, 6502(a); Markham v. Fay, 74 F.3d 1347, 1353 (1st Cir. 1996).
• 3I.R.C. § 6323; Internal Revenue Serv., Pub. No. 1468, Guidelines for Processing Notices of Federal Tax Lien Documents (2014).
• 4I.R.C. § 6326(b).
• 5See Internal Revenue Serv., Pub. No. 1024, How to Apply for a Certificate of Non-Attachment of a Federal Tax Lien (2016).