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 yu 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 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.