IRS CP77 Notice: How to Protect Your Assets If You Have Unpaid Taxes

When you fail to pay your taxes, the IRS takes several steps to attempt to collect what they are owed. If all other attempts fail, they may move on to levying your assets, which is one of the most devastating outcomes of unpaid tax debt. After the IRS has attempted to reach you multiple times to address your tax debt, they may move forward with sending you IRS CP77 and informing you of their intent to levy. 

If you’ve received this notice, you are in danger of losing ownership of your assets and you must take action now.

What Is the IRS CP77 Notice?

IRS CP77, Intent to Seize Your Assets and Notice of Your Right to a Hearing, is the notice the IRS sends shortly before moving forward and levying a taxpayer’s assets. These assets may include your wages, money in your bank accounts, your vehicles, and your home, among other items. This notice fulfills the IRS’s legal obligations under the Internal Revenue Code. Per the IRC, before levying assets, the IRS must tell taxpayers of their rights to a Collection Due Process hearing and give taxpayers at least 30 days of warning of their intent to levy assets.

When the IRS Sends This Notice

The IRS sends this notice after many other attempts to reach out to you about your unpaid tax debt. Proceeding with a levy takes a significant amount of time, effort, and money, so it is generally a last resort for the IRS. After giving you multiple chances to contact them directly to set up alternate payment arrangements, they send this notice to inform you of their plan to levy your assets if you have not taken action by the date listed on the notice.

Important Information

While it’s normal to panic when receiving an IRS notice, take your time to read this notice thoroughly and identify the important information it includes. This can help you plan your next steps and decide how you plan on proceeding. Important information found in CP77 includes:

• The date of the notice: You have 30 days from the date of the notice to address your tax debt and come up with other payment arrangements, so take note of the notice date and the appeal or payment date listed in the first paragraph of the notice.
• Billing summary: The billing summary breaks down exactly what you owe, which can help you further evaluate your payment options. This section includes the initial amount you owed, the failure-to-pay penalty that has accrued over time, and any interest that has built up since the initial due date.
• Payment address: If you are able to pay in full, you can use the payment information included in this notice to send payment immediately to the IRS. This stops further interest and penalties from adding up and protects you from levies.
• The “What you need to do immediately” section: This section of your notice explains your options in greater detail, pointing you in the right direction as you decide how to move forward.

Note that once you receive this notice, you may have slightly less than 30 days to respond. The IRS sets the deadline based on when the notice was issued, not when it was likely to be received.

How to Respond to IRS CP77 Notice

This notice includes information on how you can respond and what may happen if you fail to contact the IRS within the given timeframe.

There are several different ways you can address your tax debt after receiving a CP77 notice:

• Pay in full immediately: If you have the funds needed to do so, you can pay the amount due immediately. You may pay online or send your payment via snail mail.
• Set up other payment arrangements: The IRS also suggests alternate payment arrangements, especially installment agreements. Installment agreements allow you to pay your taxes over a period as long as 72 months, which can make your payments more affordable and protect you from levies. There are other options available, depending on your financial circumstances and situation.
• Contact the IRS directly: The IRS also provides their direct phone number so you can discuss your payment options with them. For example, if you are in significant financial distress and making any payments would put you in financial hardship, it’s likely that a levy would also cause financial hardship. In this situation, you may be able to work with the IRS directly to come up with payment arrangements that fit your needs.
• Request a Collection Due Process hearing: You are legally allowed to request a Collection Due Process hearing by sending in Form 12153. Note that you must do so by the date listed on the notice, otherwise you can no longer contest the Appeals decision in U.S. Tax Court.
• Request penalty abatement: Further down on your form, the IRS provides information on the failure-to-pay penalty that has been added to your bill. The failure-to-pay penalty is 0.5% of the total amount due for each month or partial month that the taxes remain unpaid. However, they also give you the option to request penalty abatement if you meet certain requirements. You may qualify for penalty abatement if you faced circumstances that left you unable to pay your taxes in a timely manner or if you received incorrect written advice from the IRS.

What is a Collection Due Process Hearing?

The Collection Due Process hearing is your chance to make your case in front of the IRS Independent Office of Appeals. During your hearing, you may be able to dispute the amount you owe if you disagree with it. You can also discuss alternative collection actions that may allow you to satisfy your tax debt without suffering a levy. 

If the IRS Independent Office of Appeals decides in your favor or offers a more suitable payment arrangement, you can move forward with your lower payment amount or your new payment arrangement. If you disagree with their decision and you requested your hearing before the deadline, you can appeal their decision in U.S. Tax Court.

What Happens If You Don’t Respond?

IRS Form CP77 is very clear about what happens if you ignore the notice. If you do not contact the IRS directly, pay what is owed, request a hearing, or get another payment arrangement approved, they can move forward with levies or liens once the due date has passed.

Potential Loss of Assets

Once the IRS has satisfied the notice requirements and a taxpayer has failed to take action on their tax debt, the IRS can levy assets as they choose. Commonly levied assets include:

• Wages and self-employment income
• Bank accounts
• Business assets
• Your car, home, and other personal assets
• Alaska Permanent Fund Dividend
• State tax refund
• Social Security benefits

Note that it is much harder to reverse a levy than it is to prevent one—if a levy would leave you in grave financial hardship, it is crucial to take action immediately, rather than waiting for the IRS to move forward with a levy.

It’s especially important to avoid a wage levy. Having your wages garnished for debt is inconvenient in any situation, but the IRS has different limits than other creditors. In fact, depending on your filing status and how many dependents you have, the IRS may be able to take the vast majority of your paycheck until your tax debt has been paid in full.

Penalties That May Be Assessed

In addition to the 0.5% penalty applied to all tax returns involving unpaid taxes, you may face additional penalties after receiving a Notice of Intent to Levy. If you do not pay the balance due within 10 days of receiving the notice, the penalty increases to 1% per month. However, you can reduce the penalty to 0.25% with an installment agreement.

Payment Options

For the vast majority of people, paying in full is simply not an option; if it were, they would have already done so long before receiving a CP77 notice. If you are unable to pay in full but you want to avoid a levy, you can look into the following options:

• Installment agreements: If you are approved for an installment agreement, you can extend your tax payments for up to 72 months. Note that you must make all payments on time and stay current on all future tax payments to stay in compliance with your agreement.
• Offer in compromise: An offer in compromise allows you to pay less than what you technically owe, based on your financial status and ability. It’s fairly difficult to get an offer in compromise approved, as you must have a limited income and assets for the IRS to accept a lower amount than what you owe. But for those who qualify, an offer in compromise can provide significant relief.
• Currently not collectible: Currently not collectible status is not a permanent solution to tax problems, but it can give you temporary relief from IRS collection actions. The IRS may declare you currently not collectible if your financial situation leaves you with no money to make payments on your tax debt. They will request additional information periodically and resume collection actions when your situation changes.
• Partial payment installment agreement: Like installment agreements, partial payment installment agreements (or PPIAs) require you to make monthly payments. However, the monthly payment is less than what it would take to pay your tax debt in full. You make payments until the Collection Statute Expiration Date. At that point, anything remaining on your balance is forgiven.

We understand that receiving a notice of levy can be stressful and overwhelming. This is a serious situation that can significantly affect your financial well being, so you must take action now. The team at W Tax Group can help you understand your notice, explore different payment options, and find a solution that allows you to avoid a levy. Call us at 877-500-4930 or contact us online to set up your free consultation.

Lead Tax Attorney at The W Tax Group

Stephen A Weisberg