Checklist · Tax

Answering a Notice of Levy or Negotiating a Collection Alternative: A Practical Checklist

26 U.S.C. § 6201

Type: Checklist
Jurisdiction: National
Date: 2024-12-02
Topic: Tax

This checklist covers the four situations a tax collection matter arrives in: a levy that has already landed, a lien that is blocking a transaction, a balance that needs a resolution, and a third party whose property has been taken for someone else's tax. The intake sequence establishes what is assessed, what the lien reaches, and when the collection period expires, because every strategic decision depends on those three answers. The emergency track covers levy release and hardship documentation. The resolution track walks the compliance gate, the financial statement and its verification, and the choice among installment agreement, offer in compromise, uncollectible status, bankruptcy, and running out the clock. Each item names the authority and the document that resolves it.

Answering a Notice of Levy or Negotiating a Collection Alternative: A Practical Checklist

Tax > IRS Collection, Liens, Levies, and Offers in Compromise | Published 2 December 2024 - Updated 13 December 2025 | UpLaw - uplaw.us

How to use this checklist

Track A is intake, and it runs in every matter. Track B is the emergency response to an active levy. Track C is a lien blocking a transaction. Track D is resolution. Track E is a third party whose property was taken.

Do Track A first, always. Advising on a resolution before computing the collection statute expiration date is advising blind.

Authorities: 26 U.S.C. § 6201, 26 U.S.C. § 6203, 26 U.S.C. § 6212, 26 U.S.C. § 6213, 26 U.S.C. § 6301, 26 U.S.C. § 6303 (assessment and demand); 26 U.S.C. § 6321, 26 U.S.C. § 6322, 26 U.S.C. § 6323, 26 U.S.C. § 6325 (lien); 26 U.S.C. § 6331, 26 U.S.C. § 6332, 26 U.S.C. § 6334, 26 U.S.C. § 6335, 26 U.S.C. § 6337, 26 U.S.C. § 6343 (levy); 26 U.S.C. § 6159, 26 U.S.C. § 7122, 26 U.S.C. § 6404 (alternatives); 26 U.S.C. § 6320, 26 U.S.C. § 6330 (due process); 26 U.S.C. § 6502 (period); 26 U.S.C. § 7421, 26 U.S.C. § 7430, 26 U.S.C. § 7433 (suits); 26 U.S.C. § 6672 (trust fund); 11 U.S.C. § 362, 11 U.S.C. § 505, 11 U.S.C. § 507, 11 U.S.C. § 523, 11 U.S.C. § 541 (bankruptcy); 26 C.F.R. Part 301, 26 C.F.R. Part 1.

Track A: Intake

Transcripts

[ ] Pull account transcripts for every period and every tax type.
[ ] Pull return transcripts to confirm what was filed and when.
[ ] Identify each assessment date under 26 U.S.C. § 6201 and 26 U.S.C. § 6203.
[ ] Confirm notice and demand issued under 26 U.S.C. § 6303.
[ ] Break each balance into tax, penalty, and interest components.
[ ] Identify whether a notice of deficiency issued under 26 U.S.C. § 6212 — this determines whether the liability can be challenged in a collection hearing.

The clock

[ ] Compute the collection statute expiration date for each assessment under 26 U.S.C. § 6502.
[ ] Identify every suspension already run: pending offers, collection due process hearings, bankruptcies, absences from the country, innocent spouse requests.
[ ] Record the remaining period in months. This number drives every strategic choice.
[ ] Set a reminder to recompute after any event.

Characterization

[ ] Separate trust fund from non-trust-fund liability; note personal exposure under 26 U.S.C. § 6672.
[ ] Identify which periods could be dischargeable under 11 U.S.C. § 523 and which cannot.
[ ] Identify joint liabilities and screen for relief from joint and several liability.
[ ] Identify any assessed penalty for which abatement is available.

Status

[ ] Has a notice of lien been filed? Where, and when?
[ ] Is a levy active? Wage (continuous) or account (one-time)?
[ ] Is a revenue officer assigned? Name and contact.
[ ] Are any collection due process rights currently open? Calendar immediately.
[ ] Has any deadline passed? Check Boechler, P.C. v. Commissioner — the petition deadline is not jurisdictional.

Compliance gate

[ ] List every unfiled return, all years.
[ ] Confirm current-year withholding or estimated payments are adequate.
[ ] For a business, confirm current federal tax deposits are being made.
[ ] Nothing else can be proposed until these are fixed.

Track B: Active levy — the first seventy-two hours

[ ] Determine the levy type: wage (continuous, attaches to every payment until released) or account (one-time, reaches the balance at service and is held for the statutory period before remittance).
[ ] If an account levy, identify the remittance date — funds can still be released before it.
[ ] Confirm the pre-levy notice was issued and whether a collection due process right under 26 U.S.C. § 6330 remains open.
[ ] Request release under 26 U.S.C. § 6343. Grounds: the liability is satisfied or unenforceable; release will facilitate collection; an installment agreement provides otherwise; the levy creates an economic hardship; or the property value exceeds the liability and partial release does not hinder collection.
[ ] Document economic hardship with a budget showing that the levied amount leaves the household below basic living expenses. Attach pay records, rent or mortgage, utilities, and medical costs.
[ ] For a business levy on receivables or accounts, document that the levy will end operations and reduce total collection.
[ ] Confirm exempt property under 26 U.S.C. § 6334 was respected — wearing apparel and school books, fuel and provisions, trade tools to the limit, unemployment and workers' compensation benefits, certain annuity and pension payments, child support judgments, the minimum exempt wage amount, and the principal residence absent judicial approval.
[ ] If a principal residence is threatened, confirm judicial approval was obtained; absent jeopardy, it is required.
[ ] Confirm the third party's surrender obligation under 26 U.S.C. § 6332 and do not ask a bank or employer to disregard the levy — personal liability plus a penalty attaches to them.
[ ] Simultaneously propose an alternative; a release is far more likely when it is paired with a proposal.
[ ] Fix current-year withholding the same week, so a new balance does not undo the resolution.

Track C: A lien blocking a transaction

[ ] Identify the transaction and the closing date. These take weeks — start immediately.
[ ] Obtain the recorded notice and confirm the filing date, office, and amount.
[ ] Determine which tool applies under 26 U.S.C. § 6325:
- [ ] Release — liability satisfied or unenforceable.
- [ ] Discharge of specific property — for a sale.
- [ ] Subordination — for a refinancing.
- [ ] Non-attachment — the person is not the named taxpayer.
- [ ] Withdrawal of the notice — the lien survives, the public filing is removed.
[ ] For a discharge, establish one of: remaining lien property is worth at least double the liability plus senior encumbrances; the government is paid the value of its interest from proceeds; the interest has no value; or proceeds are escrowed subject to the lien.
[ ] Assemble the discharge application: property description, proposed sale terms, senior encumbrances with payoffs, appraisal, estimated closing statement, and the amount the government receives.
[ ] For a subordination, establish either payment of an amount equal to the subordinated interest, or that subordination will increase the amount ultimately collectible — show the arithmetic: lower payment, freed cash flow, funded installment agreement.
[ ] For a withdrawal, establish premature or improper filing, entry into a direct-debit installment agreement, facilitation of collection, or best interest of both parties.
[ ] Check priority under 26 U.S.C. § 6323 against competing claimants — purchasers, security interest holders, mechanic's lienors, judgment lien creditors — and confirm choateness dates.
[ ] If a lender has frozen a revolving line, note the forty-five-day rule and pursue subordination immediately.
[ ] Confirm the title company's requirements in writing before submitting.

Track D: Resolution

Step 1 — Compliance

[ ] All returns filed.
[ ] Current-year payments adequate.
[ ] Business deposits current.

Step 2 — Financial statement

[ ] List every asset: accounts, vehicles, real property, business interests, retirement accounts, receivables, insurance with cash value.
[ ] Value each at quick-sale value less encumbrances, not market value.
[ ] Document every encumbrance with a payoff statement.
[ ] Document income across a period long enough to show volatility, not a peak month.
[ ] Apply allowable expense standards for food, housing, utilities, transportation, and out-of-pocket health care; use actual amounts where permitted for taxes, court-ordered payments, child care, health insurance, and certain secured debt.
[ ] Substantiate every above-standard expense. Assertions fail at verification.
[ ] Address retirement accounts: availability, penalties on liquidation, and hardship.
[ ] Identify income-producing business assets and argue their necessity.
[ ] Disclose every transfer in the look-back period. An omission found at verification costs the case.
[ ] Have the client read the statement before signing it.

Step 3 — Compute and choose

[ ] Compute reasonable collection potential: net realizable equity plus disposable income times the applicable months.
[ ] Compare to the balance and to the remaining collection period.
[ ] Evaluate an installment agreement under 26 U.S.C. § 6159, including partial-payment terms and direct debit.
[ ] Evaluate an offer in compromise under 26 U.S.C. § 7122 on collectibility, liability, or effective tax administration.
[ ] Confirm that filing an offer is worth suspending the collection period. For a taxpayer near the end with low potential, it usually is not.
[ ] Evaluate currently not collectible status.
[ ] Evaluate bankruptcy: discharge eligibility under 11 U.S.C. § 523, priority under 11 U.S.C. § 507, stay under 11 U.S.C. § 362, estate property under 11 U.S.C. § 541, and liability determination under 11 U.S.C. § 505.
[ ] Note that a discharge does not remove a lien on property owned at filing.
[ ] For business reorganizations, preserve trust-fund-first allocation under United States v. Energy Resources Co. and note preference immunity under Begier v. Internal Revenue Service.
[ ] Note Florida Department of Revenue v. Piccadilly Cafeterias, Inc. on transfer taxes for pre-confirmation sales.

Step 4 — Reductions

[ ] Request penalty abatement for reasonable cause and, where available, first-time administrative relief. This is frequently the largest reduction and is routinely not requested.
[ ] Evaluate interest abatement under 26 U.S.C. § 6404 for unreasonable error or delay; note Hinck v. United States on exclusive Tax Court jurisdiction.
[ ] Screen relief from joint and several liability in every joint-return case.

Step 5 — Procedural protection

[ ] File any open collection due process request under 26 U.S.C. § 6320 or 26 U.S.C. § 6330 before the deadline.
[ ] Use the hearing to propose alternatives to a decision-maker independent of collection.
[ ] Raise the balancing requirement — no more intrusive than necessary — where a lien filing or levy is disproportionate.
[ ] Note that the underlying liability can be challenged only if no notice of deficiency was received and no prior opportunity existed.
[ ] Preserve the record for Tax Court review.
[ ] Recompute the collection statute expiration date after the hearing concludes.

Track E: A third party whose property was taken

[ ] Confirm the property belongs to the third party and not to the taxpayer.
[ ] Note that levy is provisional and does not determine ownership, per United States v. National Bank of Commerce.
[ ] For a joint bank account, gather deposit records showing the source of funds.
[ ] File an administrative wrongful levy claim promptly; the limitation period is short.
[ ] If denied or the period is running, file a wrongful levy action.
[ ] For property held in the taxpayer's possession but owned by another, assemble title, purchase, and insurance records.
[ ] If a nominee lien has been filed, evaluate: who paid consideration, whether the transfer was for value, the relationship of the parties, whether the transfer anticipated collection, whether the taxpayer retained possession and enjoyment, and whether the arrangement was disclosed.
[ ] If an alter ego levy has been served on an entity, evaluate state veil-piercing factors plus the federal collection interest.
[ ] For an asset purchaser facing state successor liability, obtain clearance certificates and assert the holdback.
[ ] For a fiduciary, confirm federal claims are satisfied before distributing; personal liability attaches to the extent of the distribution.
[ ] Consider whether 26 U.S.C. § 7433 supports a damages claim for reckless, intentional, or negligent disregard of the collection provisions.
[ ] Note that 26 U.S.C. § 7421 bars suits to restrain collection, with the narrow openings recognized in CIC Services, LLC v. IRS and Hibbs v. Winn.

Property-reach analysis

[ ] Apply the two-step inquiry of Aquilino v. United States: state law defines the rights, federal law decides whether they are property.
[ ] Entireties property — reached, per United States v. Craft.
[ ] Disclaimed inheritance — still reached, per Drye v. United States.
[ ] Life insurance — cash surrender value reached, excess death proceeds generally not, per United States v. Bess.
[ ] Jointly held real property — a forced sale of the whole is available with compensation to the co-owner, per United States v. Rodgers, subject to limited equitable discretion.
[ ] Property levied before a bankruptcy filing — turnover required, per United States v. Whiting Pools, Inc..
[ ] Refund claims and limitation periods — no equitable tolling, per United States v. Brockamp; look-back interaction per Commissioner v. Lundy; refund procedures apply even to constitutional claims per United States v. Clintwood Elkhorn Mining Co..

Client instructions to deliver in writing

[ ] How to handle an unannounced field visit: be polite, provide the representative's contact information, say nothing else.
[ ] Do not make asset transfers of any kind without discussing them first.
[ ] Do not close a sale or refinancing without giving several weeks' notice.
[ ] Notify counsel immediately of any levy, notice, or letter, on the day it arrives.
[ ] Keep current-year taxes paid; a new balance defaults every agreement.
[ ] Understand that a discharge in bankruptcy does not remove a lien already attached to property.
[ ] Understand that a corporate resolution does not resolve personal trust fund exposure under 26 U.S.C. § 6672.

Strategy decision matrix

Complete after Track A. The remaining collection period is the pivot.

Situation	Remaining period	Collection potential	Indicated path
Wage earner, modest balance	Any	Meets or exceeds balance	Streamlined installment agreement under 26 U.S.C. § 6159
Wage earner, large balance, limited assets	Long	Well below balance	Offer in compromise under 26 U.S.C. § 7122
Same, but period nearly expired	Short	Well below balance	Do not file an offer — it suspends the period. Partial-payment agreement or uncollectible status
Retired, home only asset, fixed income	Any	Home equity only	Uncollectible status; evaluate effective tax administration offer
Business, current on deposits, cash-flow constrained	Long	Moderate	Non-streamlined agreement with direct debit and lien withdrawal
Business, still accruing employment tax	Any	Any	Fix deposits first. Nothing is available until then; trust fund exposure compounds under 26 U.S.C. § 6672
Old income tax, timely returns, no fraud	Any	Low	Screen bankruptcy discharge under 11 U.S.C. § 523
Trust fund penalty against an individual	Any	Any	Not dischargeable; offer or agreement only
Lien blocking a closing	Any	Any	Discharge or subordination under 26 U.S.C. § 6325 — start weeks ahead

Documents to request from the client at intake

[ ] Every notice received, in order, with envelopes if available.
[ ] Two years of bank statements for every account.
[ ] Current pay records or business profit and loss.
[ ] Mortgage statements and payoff figures.
[ ] Vehicle titles, loan balances, and values.
[ ] Retirement account statements and plan loan terms.
[ ] Insurance policies showing cash value.
[ ] Deeds for all real property and recent appraisals or comparable sales.
[ ] A list of every transfer of property in the last several years.
[ ] Prior returns for all open years, including any not filed.
[ ] Any prior offer, agreement, or hearing determination.
[ ] Divorce decrees, support orders, and any judgment against the client.

Sequencing rules that save cases

[ ] Compliance before proposal. Nothing is available until returns are filed and current payments are being made.
[ ] Transcripts before advice. The collection period determines the strategy.
[ ] Release before negotiation where a levy is active and creating hardship.
[ ] Discharge and subordination weeks before closing, never days.
[ ] Penalty abatement in every case, requested affirmatively.
[ ] Recompute the collection period after every offer, hearing, bankruptcy, or spousal relief request.
[ ] Separate finances where only one spouse is liable — before a levy, not after.
[ ] Never let the client speak to a revenue officer alone once represented.

Answering a Notice of Levy or Negotiating a Collection Alternative: A Practical Checklist

How to use this checklist

Track A: Intake

Track B: Active levy — the first seventy-two hours

Track C: A lien blocking a transaction

Track D: Resolution

Track E: A third party whose property was taken

Property-reach analysis

Client instructions to deliver in writing

Strategy decision matrix

Documents to request from the client at intake

Sequencing rules that save cases

Related Documents