A notice of federal tax lien (NFTL) filed on Tuesday and a bank levy served on Thursday trigger two different appeal forms, two different deadlines, and two different review scopes. Confusing them forfeits a client's rights.
The collection process starts when the IRS assesses a liability and sends the taxpayer a notice and demand for payment. If the bill stays unpaid, the IRS can move to a lien (a legal claim against the taxpayer's property) and then to a levy (a legal seizure of wages, bank funds or other property). Everything in this lesson is a way to interrupt or redirect those lien and levy steps.
Which tool fits depends on what the taxpayer can actually pay. The table lines up the five tools a taxpayer can use, from an extension of time to pay (full payment soon) to an appeal that disputes the collection action itself:
An extension of time to pay under IRC 6161 is for a taxpayer who can pay the full balance fairly soon but can't pay it on the due date without...
Common mistakes
- Treating Form 1127 as penalty and interest relief. A granted extension of time to pay waives the 0.5% failure-to-pay penalty, but interest under IRC 6601 accrues the whole time. It is also not an extension to file. Form 4868 does that.
- Filing Form 9423 when Form 12153 was required. CAP gives no access to Tax Court and no CSED suspension. After a Letter 1058 or Letter 3172, a Form 12153 request filed within 30 days is the only path to judicial review.
- Missing the 30-day CDP clock and assuming nothing is lost. An equivalent hearing, requested within one year, gives the same officer and the same collection alternatives. But the taxpayer gets a decision letter instead of a notice of determination, no right to petition Tax Court, and no suspension of the collection statute.
Bottom line
- Form 1127: extension of time to pay for undue hardship, filed by the due date, 6 months for return tax and 18 months for a deficiency; penalty relief only, interest still accrues.
- Installment agreements: guaranteed at $10,000 in 36 months; simple payment plan (formerly streamlined) at $50,000, paid off by the CSED with no direct debit, financial statement or lien determination required; above $50,000 a Non-Simple agreement generally needs Form 433 and...
- Offer in compromise grounds: doubt as to collectibility, doubt as to liability (Form 656-L, no fee), effective tax administration; RCP equals net realizable equity plus 12 months of disposable income for lump sum, 24 for periodic.
- Offer mechanics: $205 fee, 20% lump sum down payment, nonrefundable, deemed accepted at 24 months, 5 years of compliance after acceptance, no offer during bankruptcy.
Exam shortcut
Read the stem for the notice, not the taxpayer's mood. Letter 3172 or Letter 1058 in the facts means Form 12153 and 30 days, every time. A rejected agreement, a rejected discharge or a seizure with no statutory notice means Form 9423 and CAP.
The full lesson (about 5,823 words, 39 min read) adds 2 worked examples, all 7 common mistakes, a self-check, free in the app.
Learning objectives
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