Getting levied by the IRS is
one of the most dreaded things about owing money to the
government. Most people have no clue how to go about
preventing levy action, but with a little education and by
paying attention to the notices that you receive in the mail
from the IRS, you can actually do quite a bit to prevent the
IRS from levying you.
The first, and most important,
piece of advice that I can give anybody: File your
returns! If you have tax returns for anything that have
not been filed, get them filed. The IRS, and generally the
states also, are far more concerned about you filing your
returns than they are about you paying the tax when you
file. The reason for this is because if you don't file, they
don't know what to bill you for. Because of this, they set
the penalties for failure to file at the highest penalty
rate of anything. As an example, the IRS penalty for failure
to file a return is 5% per month it's overdue, whereas the
penalty to failure to pay the tax is only one half of one
percent per month it's overdue.
Secondly, don't ignore
notices from the IRS. As a taxpayer, you have have certain
rights afforded you by statute and regulation. This often
includes some sort of appeals action on any intention of the
IRS to levy you. Probably the most important thing to look
for in your mailbox is a a notice titled "Final Notice of
Intent to Levy." Note that it will say "Final Notice", not
just "Notice." In the upper right or lower right corner of
the notice will be a form letter number, which will say
"Letter 1058." If it says CP-504, then this is more of an
initial notice, not the final notice. After issuance of the
"Final Notice of Intent to Levy", you have 30 days in which
to request appeals consideration of the levy action. The
final notice will usually include the appeal request form,
which is IRS Form 12153. Fill this out and submit it
within 30 days of receiving your Letter 1058!
Filing for an appeal will
usually buy you 30-60 days of time. This can allow you to do
many things. Perhaps in that time you will have rearranged
your finances such that you can afford to propose a monthly
payment plan to the IRS, called an Installment Agreement.
Perhaps in that time you could have applied for and received
a loan which you could then use to pay off the IRS, since
the IRS penalty and interest rates are likely going to be
higher than just about any loan you get. Perhaps during that
time you were able to borrow the money from friends or
family, or taken an advance at your job. Perhaps it will
give you the time to evaluate your situation fully to see if
you qualify for an Offer in Compromise, and allow you to
file for a tax settlement.
It is important to note
that if you have a pending Installment Agreement proposal in
place, or have filed a legitimate, complete, and accurate
request for an Offer in Compromise, the IRS cannot take
aggressive enforced collections action, including levy
action. You cannot make a frivolous request for an
Installment Agreement or settlement offer simply for the
sake of buying time, but if it's a legitimate proposal, then
the IRS cannot garnish your wages, seize your bank accounts,
or come take your property.
Here's a summary of the
amount of time you can buy with certain actions:
Request Collections Due
Process Appeal: 30 days to 3 months
Request Installment Agreement: 30 days to 4 months
Request Offer in Compromise: 4 to 6 months
Request Collections Appeal Process hearing: 30 days to 4
months
Request Taxpayer Advocate Assistance: 30 to 90 days
You can actually go through
each of these processes, which could allow you to forestall
levy action by as much as a year and a half if the IRS
administrative processes are backed up enough, which they
tend to be. This much time gives you ample opportunity to
figure out what you're going to do to address your financial
matters.
If you have a Revenue
Officer assigned to you, the Revenue Officer will generally
make requests for documents from you relating to your
finances. Meeting deadlines provided by the Revenue Officer,
and asking for additional time if needed, is one another way
to delay levy action. Revenue Officers will commonly issue a
Form 9297, Summary of Taxpayer Contact, with requested
information and deadlines for providing it. For the most
part, most Revenue Officers will not levy your accounts if
they feel you're "playing ball." However, if they feel that
you're severely jerking them around, they won't hesitate to
issue a levy.
Lastly, if you have
exhausted all other avenues to protect yourself and levy
action is certainly coming your way, you can take steps to
minimize the impact of the levy. The IRS can levy many
potential targets, such as investment accounts, bank
accounts, paychecks, even your physical cash register if you
run a business that has one. Bank accounts tend to be the
most common target.
If your bank receives a
levy notice from the IRS, they are required to hold any
funds in the account on the date of the levy and then
forward those monies to the IRS after 21 days. This provides
two things of note. One, it gives you 21 days to attempt to
get the levy released. While the majority of cases by no
means end up with the levy released, it can be more common
than you might think, especially if third parties are
affected (e.g., you can't issue employee paychecks because
the IRS seized your payroll account). Second, bank account
levies are generally issued as a one-time event. In other
words, if you have $4,000 in the account on the date of the
levy, then that's how much the IRS is going to get. If you
deposit $2,000 more the following day, that money is NOT
subject to the levy. If you know that a levy is likely to be
coming, it can be a good idea to keep your bank balances low
by delaying deposits until the the levy hits. Also, if you
can avoid it, don't write checks on the account that might
bounce if you know that a levy is inevitable.
I hope that this article
has been helpful and that the industry insider tips provided
here help you avoid the stress and hassle of dealing with
IRS levies.
