What is an IRS Letter 11 and Why is it so Important?
Imagine getting a letter from the IRS that says they’re about to start taking your money or property. That’s essentially what an IRS Letter 11 is. It’s the IRS’s way of saying, “We’ve tried to work this out, but now we’re moving to the next step.” Receiving this letter means you’re at a critical point in dealing with your tax issues, and ignoring it will have serious consequences. Let’s delve deeper into what this letter means and what you need to do about it.
Why Does the IRS Send Letter 11?
Before the IRS resorts to seizing your assets, they usually send a series of notices asking for payment. Think of it like this:
- Initial Notice: You might get a CP14 notice if you haven’t paid the full amount due, or a notice about an adjustment to your return.
- Follow-up Notices: The IRS will keep sending notices if you don’t pay, and these notices get progressively more serious.
- Letter 11: The Final Warning: The Letter 11 is essentially the final “we mean business” letter. It’s not the first notice you’ll receive, but it is the most critical. It signals the IRS is moving toward enforcing collection of your unpaid taxes.
The IRS sends the Letter 11 to provide a final notice and a last opportunity to resolve your tax debt before they begin using levies to collect what you owe. It’s designed to ensure taxpayers are aware of the serious nature of the IRS action and what rights they have before the IRS proceeds.
Understanding “Intent to Levy”
The term “intent to levy” is a fancy way of saying the IRS is planning to take your property. This isn’t limited to just your bank account. The IRS can levy various assets to satisfy your tax debt, including:
- Wages: The IRS can garnish a portion of your paycheck.
- Bank Accounts: The IRS can seize funds directly from your bank accounts.
- Retirement Accounts: They can even go after retirement funds (with some limitations).
- Personal Property: They can seize and sell items like cars, boats, or even jewelry.
It’s a serious power the IRS holds, and they don’t take issuing a Letter 11 lightly.
What Exactly Is a “Levy”?
A levy, in the context of the IRS, is a legal seizure of your property to satisfy a tax debt. The IRS has the legal right to collect outstanding taxes through levy action when taxpayers do not make a full and timely tax payment. This power allows the IRS to take hold of assets when taxpayers ignore previous notifications and fail to make arrangements to pay their tax debts.
Think of a levy as the IRS sending a request to your bank or your employer, saying they need to send the IRS the money that usually would have gone to you. This process can happen fast, which is why it’s important to respond to the Letter 11 quickly.
“Notice of Your Right to a Hearing” Explained
The most important part of Letter 11 is that it includes a “Notice of Your Right to a Hearing”. This is a vital protection for taxpayers. Before the IRS can seize your assets, you have the right to request a hearing with the IRS Independent Office of Appeals (previously known as the IRS Appeals Office). This is your opportunity to:
- Explain Your Situation: You can tell the IRS about any hardships, errors, or circumstances that contribute to your tax problems.
- Explore Payment Options: You can discuss options like payment plans (installment agreements) or an offer in compromise, which might reduce your debt.
- Challenge the IRS Actions: If you believe the IRS has made a mistake or that you do not owe the tax, you can challenge the levy.
- Avoid the Levy Action: Requesting a hearing immediately stops the levy action until the appeal is resolved, giving you time to explore options.
This isn’t just a formality. The IRS is required by law to give you this opportunity, and it’s a crucial part of their collection process. It is important to understand you must request this hearing within the time provided on the letter which is usually 30 days.
Key Information on IRS Letter 11
- Time is of the Essence: The Letter 11 will specify the timeframe you have to respond to request a hearing which is usually 30 days from the date of the letter. Missing this deadline can lead to the IRS taking action without further notice.
- Specific Amount Owed: The letter will clearly state the total amount you owe, including penalties and interest.
- Contact Information: The letter provides the necessary contact information for the IRS and the Appeals Office. It’s essential to call this number and not just your local IRS office, to make sure you request the right hearing.
- Tax Periods: The letter will identify the tax years you owe for. This is critical to ensure you understand exactly the reason for the levy action.
- Required Action: The letter outlines the necessary steps you must take to resolve your debt or request the hearing.
How to Respond to IRS Letter 11
The first thing you should do after receiving this letter is to carefully read it and take action. Here is a breakdown of how to respond to an IRS Letter 11:
- Read Carefully: Don’t panic. Read the letter thoroughly. Understand the amount you owe, the tax periods, and the deadlines.
- Request a Collection Due Process (CDP) Hearing: The IRS is required to provide taxpayers the opportunity to request a hearing with the Independent Office of Appeals before a levy can proceed. To formally request the hearing you must respond to the IRS before the stated deadline and fill out the required paperwork to begin the process. This is crucial if you think the IRS has made an error, you cannot afford to pay the debt, or you would like to propose an alternate payment plan. It will also temporarily halt the levy.
- Contact the IRS: Call the IRS using the number provided on the letter to confirm your request and to discuss your options. The call can help clarify the amounts you owe, why the levy action is being taken, and any other questions you may have.
- Gather Your Financial Information: You’ll need to provide the IRS with financial information if you want to explore payment plans or hardship options. Gather pay stubs, bank statements, and other relevant financial documents.
- Explore Payment Options: Talk to the IRS representative about options like installment agreements, where you can pay off your debt over time, or an Offer in Compromise (OIC), where you might settle your debt for less than you owe.
- Consider Professional Help: If you are overwhelmed or uncomfortable dealing with the IRS on your own, consult with a qualified tax professional (CPA or Enrolled Agent) to guide you through this process.
What Happens If You Ignore Letter 11?
Ignoring an IRS Letter 11 is the worst thing you can do. If you don’t respond within the stated time and don’t arrange a payment agreement, the IRS will proceed with the levy. That means:
- Your Assets Could Be Seized: The IRS can seize your money, property, and even wages without further notice.
- Financial Hardship: Levies can severely impact your finances, making it difficult to cover living expenses.
- Penalties and Interest: Penalties and interest will continue to accrue on your outstanding tax debt.
Common Mistakes & Misconceptions about Letter 11
- Misconception: It’s a Fake Letter: Some people might mistake it for a scam. While it’s wise to verify any IRS correspondence by calling the number on the IRS website, if the letter matches your tax info and it’s from the IRS, treat it as valid.
- Mistake: Ignoring It: As discussed earlier, doing nothing is the most damaging mistake. It won’t make the problem go away.
- Misconception: They will take everything: The IRS usually only takes what’s necessary to cover the tax debt and related costs. However, this can be a lot, depending on your debt.
- Mistake: Not Keeping Records: Keep copies of all notices, correspondence, and payment records related to your tax debt.
- Misconception: You can’t fight it: You absolutely have the right to a hearing and options to resolve the debt if you act promptly.
Related Concepts and Terms
- Tax Lien: A legal claim against your property for unpaid taxes, which comes before a levy.
- Installment Agreement: A payment plan with the IRS.
- Offer in Compromise (OIC): An agreement to settle your tax debt for less than the full amount.
- Garnishment: A legal order requiring your employer to withhold part of your wages for payment of tax debts.
- Collection Due Process (CDP) Hearing: Your right to request a hearing with the IRS Independent Office of Appeals before a levy.
- CP14 Notice: The initial notice the IRS typically sends when you owe taxes.
Practical Advice and Tips
- Don’t Panic: Receiving a Letter 11 can be stressful, but it’s crucial to remain calm and take decisive action.
- Act Quickly: Time is of the essence. Don’t delay. Contact the IRS right away to explore your options.
- Keep Accurate Records: Maintain good records of all communications with the IRS and any actions you take.
- Get Professional Help if Needed: If you’re unsure how to proceed, don’t hesitate to seek assistance from a qualified tax professional.
- Prevent the Issue: If possible, be proactive in paying your taxes on time and in full. Avoiding tax debts in the first place is always the best approach.
Understanding an IRS Letter 11 and what it means is the first step in resolving your tax issues. By taking the letter seriously, understanding your rights, and acting swiftly, you can prevent a potentially devastating levy of your assets.