The Pending Threat of an IRS Levy

The Pending Threat of an IRS Levy

 

If you have ever had our wages garnished by the IRS, or suddenly noticed you were missing a significant amount of money in your bank account, then you might have been levied by the IRS. Federal tax levies are essentially a seizure of your liquid assets. Typically, the IRS will levy your wages or bank account first. Liquid assets such as these are most desirable as they don’t take additional work for the IRS (like selling them) once they have been levied. However, if you don’t have any liquid assets available the IRS can seize property, such as a car or a house as well. The only distinction between a levy and a seizure is whether an asset is liquid or not. If you want to ensure that your assets are not levied, there are some important things to know.

The IRS is required by law to inform a taxpayer if they intend to levy them. They must send a hard copy letter to the taxpayer’s last known address. You will know when you receive this notice when it reads, “Final Notice of Intent to Levy and Your Rights to a Hearing.” Understanding your rights when you receive one of these notices guarantees you take the best course of action and can legally defend yourself and your assets. When a final notice is received, it should inform the taxpayer that under Internal Revenue Code section 6330 the taxpayer has a right to appeal. This is a special type of appeal called a Collections Due Process Appeal and comes with a particular set of advantages and disadvantages. Importantly, if you receive a notice threatening to levy, but when read carefully there is no mention of IRC code 6330 or Collections Due Process Appeal, the IRS is not going to legally levy you in 30 days.

If the taxpayer doesn’t request the appeal in that 30 day period they lose all options of judicial review i.e. taking the IRS to court. While it is unlikely that a taxpayer will need to go to tax court, having the option serves as a bargaining chip (the threat of litigation) because the IRS usually doesn’t want to spend the money to litigate. If you don’t request an appeal before the 30 day period runs out the IRS is legally allowed to begin enforced collections and your chance at going to tax court for those given tax years and matters is gone forever. The urgency of responding to this notice is often a disadvantage as it will usually require the taxpayer to get all of its financial information organized and accompanying documentation available to make a good case to negotiate. Importantly, you are still allowed to request a hearing, called an Equivalent Hearing, post 30 days but it does not come with the option of tax court.

A Collection Due Process Appeal can be used to dispute the need for a levy or discuss potential payment plans with the IRS. All of the aspects that wish to be discussed need to be stated in the appeal request and need to be on hand during the appeal. For that reason, it is a good idea to have appropriate IRS forms and sufficient documentation on hand to make your case. If you forget to bring up something at the CDP appeal you will not be able to discuss it in tax court, so it is important to be organized and take all the time you need to discuss each and every topic. In addition, the IRS Appeals Division, is an independent entity within the IRS that conducts CDP hearings. The Internal Revenue Manual states, “the mission of the Appeals division is to resolve tax controversies, without litigation, on a basis which is fair and impartial to the government and the taxpayer.” Thus, appeals can be much more understanding and accommodating to a taxpayer’s circumstances than the Collections Division.

It is important to realize that if you do not want your assets levied, some sort of resolution strategy will need to be employed. This may sound like a therapist finally getting across to you what you don’t want to hear, and it is, but having a representative will make the process much smoother and less stressful on you. Just like you and I, the IRS has to follow the laws of the land and a competent representative can ensure they follow the rules and get you a reasonable agreement. Stay tuned for more writings on specific resolution options and other fun tax topics!