IRS Notice CP77: Respond Quickly to Avoid IRS Tax Levy

IRS Notice CP77 is a final notice of intent to levy assets and your right to a hearing. You can ignore a lot of IRS notices without facing severe consequences, but if you receive Notice CP77, you must respond by the deadline or the IRS will start seizing your assets. Usually, the deadline is 30 days after the IRS sends the notice, so by the time you receive this letter, you have less than 30 days to respond.

The steps you should take vary based on your situation and your personal preferences. Keep reading for an overview of what to expect and what to do when you receive this notice. Or, get help now by using TaxCure to search for a local tax professional who can help you with your IRS and state tax debt.

What Is Notice CP77?

IRS Notice CP77 is a notice that the IRS sends before seizing someone's assets for unpaid taxes. The notice explains which assets the IRS can seize. It outlines your options for setting up payment arrangements. It also tells you how to appeal by requesting a Collection Due Process (CDP) hearing. 

The IRS stopped sending this notice for several years, but as of mid-2024, the agency plans to send out many of these notices. 

What to Do If You Receive Notice CP77

First, be aware that you should not ignore this notice. To protect your wages, bank accounts, and assets, you must reach out to the IRS by the deadline on the notice. Even if you think that you are too broke for the IRS to take anything, you should contact the IRS or request an appeal. The IRS has a lot of power to take assets and wages when people don't pay their taxes. 

Here's an overview of the options when you receive this letter. 

Appeal the tax levy

Notice CP77 has details on how to appeal the tax levy. To do so, you must file Form 12153 (Request for CDP Hearing) by the deadline noted in the letter. The form is fairly self-explanatory. You note which taxes you owe, explain why the IRS shouldn't seize your assets, and propose a payment plan or resolution option. 

Don't be scared by the word hearing - A CDP hearing is not a formal affair in a courtroom. It's usually just a phone call, and less often, a meeting in an IRS office. During the call, you work with the IRS to make payment arrangements on your tax debt. If you disagree with the outcome of the CDP hearing, you can appeal again in Tax Court.

If you miss the deadline, you still have the right to appeal, but you cannot request a CDP hearing and you risk the IRS moving forward with the asset seizure. For a year after this notice is issued, you have a right to request an Equivalent Hearing. This is similar to a CDP hearing, but the main drawback is that you cannot appeal the results of an Equivalent Hearing in the Tax Court.

Request a payment plan

If you don't want to deal with the appeals process and you can afford monthly payments, contact the IRS to set up a payment plan. To be on the safe side, make sure that you make your request before the deadline on the notice. That way, you will avoid asset seizure and wage garnishment. 

You can request a payment plan online if you owe less than $50,000. However, to qualify, you must set up direct payments from your bank account if you owe over $25,000. The IRS gives qualifying taxpayers up to 72 months to pay off their tax debt if they apply online. 

If any of the following apply, you should apply for a payment plan using Form 9465 or by calling the IRS. In these cases, you will generally have to submit a financial disclosure as well:

• You owe more than $50,000.
• You owe between $25,000 and $50,000 and don't want to set up direct debits for payments.
• You have defaulted on a payment plan in the last two years. 
• You cannot make the minimum payment to pay off the debt in the next 72 months.
• You cannot make the minimum payment to pay off the debt by the collection statute expiration date.

Depending on the specifics of your situation, the IRS may let you set up a payment plan for a high debt balance. They may let you pay what you can afford monthly and then agree to waive the remaining balance when the debt expires, which is referred to as a partial payment installment agreement. Setting up a payment plan will stop the IRS from levying your assets, but the agency may still issue a federal tax lien, and they will also seize your tax refunds until the debt has been paid off. 

Talk with the IRS about relief options if you cannot afford to pay

If you cannot afford to pay anything or can't pay in full, reach out to the IRS as soon as possible about your situation. You want to deal with this situation before the IRS starts garnishing your wages or taking your assets. Waiting until the levy is already underway makes it harder to resolve. 

You can contact the IRS directly using the phone number on your CP77 notice, or reach out to a tax pro to help you. If you cannot afford to pay anything, the IRS may agree to put you on currently not collectible status. To qualify, you must prove that you don't have any assets that you can reasonably liquidate and that your income only covers the basic standard of living in your area. 

If you have some equity in your assets or if you have disposable income, the IRS will expect you to pay something. In that case, you may qualify for an offer in compromise which lets you pay off your tax debt for less than you owe. 

What If You Ignore Notice CP77?

Even if you've ignored every other notice from the IRS, you should never ignore an intent to levy notice like the CP77. As of 2024, if you owe over $62,000, the IRS can label your account as seriously delinquent and notify the State Department to take away your passport. Additionally, if you do not make payment arrangements, set up a hardship plan, or appeal by the deadline, the IRS can seize the following assets:

• Wages - the IRS can contact your employer to set up a wage garnishment, and if you're a freelancer, they can intercept the payments you receive from clients. They can even seize funds that are processed by your credit card processing company if you're a small business owner.
• Social Security Income - The IRS can seize a portion of your Social Security income if you have unpaid taxes. If the agency does an automated levy, it can take 15%, but if it does a manual levy, it may be able to take even more.
• Bank accounts - The IRS can seize all of the funds in your bank account up to the amount you owe. If you have outstanding checks or ACH transfers, they will not be covered. As soon as your bank receives the notice, they will freeze the funds immediately (regardless of what you have outstanding), and then, in 21 days, they will send the money to the IRS.
• Investment accounts - The IRS has the right to seize investment accounts including retirement accounts like 401(k)'s and IRAs. Depending on the type of account, this can lead to an additional tax bill. For example, if the IRS seizes your IRA, you won't get penalized for the early withdrawal, but the seized funds will be considered taxable income.
• Real and personal property - The IRS may seize almost all of your real and personal property. The only exceptions are for tools used to earn income, school books, and a few basic personal possessions. 
• Your home - Although home seizure is very rare, it is a possibility. If the IRS has no other way to collect the tax debt and you have equity in your home, it could be seized.

As outlined in the notice, the IRS can also seize your state tax refunds, Alaska Permanent Fund Dividends, and federal contractor payments. In most cases, the IRS will seize these assets whether you ignore the notice or not, and they may do so before the 30-day deadline noted on the letter. These are all assets that the IRS can take without giving you a 30-day notice.

Generally, the IRS starts with the assets that are the easiest to get. For example, it's relatively easy to send your employer a notice to garnish your wages or a letter to the bank to freeze your account. In contrast, it's more complicated and time-intensive to seize your RV, vacation home, or other physical assets.

What to Do If You Disagree With Notice CP77

There are different strategies you can use depending on what part of the notice you disagree with. If you just disagree with the idea of the IRS seizing your assets, you should follow the steps outlined above to set up a payment plan or appeal the levy. Otherwise, consider the following:

• If you disagree with the balance due - Contact the IRS or a tax pro immediately. Depending on the specifics of the situation, you may be able to amend your tax return, request an offer in compromise based on doubt as to liability, or pay the tax and request a refund.
• If you think your former spouse should be responsible for the tax debt - You are legally responsible for taxes due on a jointly filed return, but if this tax debt is due to a tax return where your ex- or late spouse underreported income without your knowledge, you may be able to get relief through the innocent spouse program.
• If you disagree with the penalties - If you think the penalties were added to your account incorrectly, contact the IRS and explain the mistake. If they made an error, they will remove the penalties. 
• If you disagree with the interest - The IRS will not remove any interest unless it was applied in error. If you get erroneous penalties removed, the IRS will also remove the interest related to those penalties. Contact the agency about this issue.
• If you disagree with the levy because you have already made payment arrangements - If you recently paid in full or set up a payment plan, this letter may have been issued before you made those arrangements. To be on the safe side, double-check with the IRS to make sure they received your payment or have a record of your payment arrangement.
• If you believe the tax debt was due to identity theft - Usually, you will have discovered cases of tax-related ID theft long before you get this type of notice, but in rare cases where this is the first alert you have received about the tax debt, you should contact the IRS about the issue as soon as possible. 

Note that most of the above disagreements cannot be addressed through a CDP hearing. For example, you cannot dispute your tax balance in a CDP hearing, and you cannot use a CDP hearing to contest the idea of taxes in general. In fact, you may face fines if you bring forward a frivolous argument about the constitutionality of taxes. 

FAQs About Notice CP77

Here are some of the questions you might have if you receive this notice about an intent to levy.

When will the IRS seize my assets after I receive a CP77 notice?

The IRS may take your state tax refunds and Alaska Permanent Fund Dividend (if applicable and you are a resident) at any point. The agency will give you at least 30 days from the notice date before seizing your wages, bank accounts, and other assets.

Does CP77 mean the IRS has issued a tax lien?

By the time you receive CP77, the IRS will have likely already filed a notice of federal tax lien against you. The IRS doesn't have to send you a notice before filing a tax lien.

What if I cannot afford the balance due on the CP77?

If you cannot afford to pay in full, you should look into payment arrangements or settlement options like an offer in compromise.

Is the IRS going to take my passport?

If you owe over the seriously delinquent threshold, the IRS can tell the State Department to take away your passport. As of 2024, the level is $62,000, but it increases annually with inflation. The IRS will not send you another notice before notifying the State Department. To avoid losing your passport, make a payment to get your account under the seriously delinquent level or set up a payment plan by the deadline on your CP77.

Why are there so many penalties on Notice CP77?

The IRS adds failure-to-pay penalties to unpaid tax debts, and if you filed late, the agency also applies failure-to-file penalties to your account. Together, these penalties can get up to 50% of your tax balance. For example, if you owe $100,000, the penalties can be up to 50%. If you're dealing with a tax bill due to an audit, you may have other penalties on this statement as well.

How do you get IRS penalties removed?

You can request to have penalties removed over the phone or by filing Form 843. The IRS removes penalties in the following situations 1) you're normally compliant and these are the first penalties you've incurred in four years, 2) you incurred the penalties due to a reasonable cause such as a death, serious illness, or natural disaster, or 3) the IRS assessed the penalties in error. 

How does the IRS add interest to tax debts?

The interest rate applies to the amount you owe and is backdated to the tax debt's due date. The rate adjusts quarterly, and it's the short-term federal rate plus 3 percent. If you're dealing with unpaid taxes for a big corporation, the interest will usually be a bit higher. 

How do I find out more about Notice CP77?

The IRS's website IRS.gov/cp77 has info on this notice, but note that the IRS tends to use templates for its notice pages. You will actually get more specific information by reading the notice itself. Also, a tax pro can help you figure out this notice and what it means. 

Get Help With IRS Tax Debt

Dealing with the IRS on your own can be scary and confusing. A tax pro can help you deal with the IRS and find the best path forward for dealing with your tax debt. To get help now, use TaxCure to search for a local tax pro today.