Seven Collection Alternatives the IRS Must Consider Before Sustaining a Levy

IRC § 6330(c)(3) doesn't just require the IRS to consider whether to levy. It requires the Appeals Officer to determine whether the proposed collection action is "no more intrusive than necessary." That word — "necessary" — means alternatives must be considered. Not as a formality. As a legal requirement.

In 25 years of tax practice, I've found that most CDP determinations sustaining a levy don't mention the alternatives that were considered and rejected. They don't explain why a less intrusive option wouldn't work. They just sustain the levy. That's a problem — because the Tax Court has made clear that the balancing test requires meaningful engagement with alternatives, not boilerplate.

The Statutory Framework

IRC § 6330(c)(3)(C) requires the Appeals Officer to weigh "the need for the efficient collection of taxes" against "the legitimate concern of the person that any collection action be no more intrusive than necessary." This is the balancing test — and it governs every CDP determination.

The Tax Court in Sego v. Commissioner, 114 T.C. 604, 610 (2000), held that the determination must have a "sound basis in fact and law." The National Taxpayer Advocate identified the balancing test as one of the most serious problems in the IRS — finding in the 2014 Annual Report to Congress that Appeals Officers routinely used pro forma statements that the test had been performed without citing specific factors. The Advocate recommended that the IRM "specifically prohibit pro forma statements" and instead require descriptions of which factors were considered and how.

The Seven Alternatives

Before proceeding to levy — the most intrusive collection tool — the IRS has at least seven less intrusive options available:

1. Currently Not Collectible (CNC) with NFTL

The IRS places the account in CNC status and files a Notice of Federal Tax Lien to protect its interest. The NFTL attaches to all property, including real estate equity. No money is taken from the taxpayer. The government's position is fully secured. The case is closed, subject to periodic review.

2. Installment Agreement (IRC § 6159)

The taxpayer pays over time from available income. For taxpayers with some disposable income — even a small amount — this provides the IRS with ongoing collection while avoiding the hardship of a lump-sum levy.

3. Offer in Compromise (IRC § 7122)

The IRS accepts less than the full amount owed if the taxpayer can demonstrate inability to pay in full. The OIC process considers reasonable collection potential — which, as we've discussed in the four definitions of equity, may be far less than gross equity suggests.

4. Partial Payment Installment Agreement (IRC § 6159(a))

Like a regular installment agreement, but the monthly payment is based on the taxpayer's ability to pay — not the total amount owed. The full liability may not be collected before the Collection Statute Expiration Date. This option exists specifically for taxpayers who can pay something but not everything.

5. NFTL Alone Without Levy Action

The IRS can file the NFTL to protect its interest without pursuing any active collection. The lien attaches to all property, secures the government's priority position, and costs nothing. If the taxpayer eventually sells or transfers property, the IRS gets paid.

6. Voluntary Payment Arrangements

The taxpayer makes voluntary payments — even small ones — while the account remains open. This demonstrates good faith and provides some collection without the blunt force of a levy.

7. Offset of Future Federal Tax Refunds

The IRS can offset future tax refunds against the outstanding liability. This collects money only when the taxpayer has a refund available — requiring no additional burden on a taxpayer already in hardship.

The "No More Intrusive Than Necessary" Analysis

The determination to sustain a levy should explain why each of these alternatives was considered and rejected. Not all of them — each of them. Because the statute says "no more intrusive than necessary." If even one less intrusive alternative would achieve the collection objective, the levy fails the test.

In most cases involving economic hardship with home equity, the analysis is straightforward. CNC with NFTL fully protects the government's interest. The NFTL secures the equity. CNC pauses active collection that would cause hardship. The government loses nothing. The taxpayer survives.

If that alternative achieves the collection objective, then a levy — which takes money the taxpayer needs to live — is by definition more intrusive than necessary.

The CDP Deskbook Requirement

The IRS's own CDP Deskbook (Chapter 7, Section D) reinforces this: "The notice of determination must discuss all issues raised and should state why arguments and collection alternatives raised by the taxpayer were rejected."

That's not discretionary language. The determination "must" discuss all issues. It "should" state why alternatives were rejected. If the taxpayer's representative raises seven alternatives and the determination mentions none of them — or addresses them with boilerplate — the record is insufficient for abuse of discretion review. The CDP Deskbook identifies this as grounds for remand.

How to Use This in Practice

Raise all seven alternatives in your CDP submission. In writing. With citations. Force each one into the administrative record. Then add: "The determination will need to explain why none of these alternatives was considered appropriate before proceeding to levy — the most intrusive collection tool available to the Service."

The Appeals Officer now has to address each one or leave gaps in the record. Gaps that the Tax Court will notice.

The Bottom Line

The levy is the nuclear option. The IRS has six other tools before it gets there. The statute requires that collection action be "no more intrusive than necessary." A determination that sustains the levy without explaining why seven less intrusive alternatives were each rejected does not satisfy that standard.

If you're a representative, don't just argue against the levy. Argue for the alternatives. Show the Appeals Officer — and the Tax Court — that a better path exists, that it's supported by the Code and the IRM, and that it fully protects the government's interest. That's how you win the balancing test.