Posted on September 9th, 2016
When the IRS can’t seem to make progress in collecting past due taxes from a taxpayer, it resorts to Tax Liens and Tax Levies
Tax Liens are statements put on the public record that an individual owes taxes, and that under the law, the government has a claim against of his property. The Lien is usually filed with the Register of Deeds in the county where the taxpayer lives, or for a business, where the business operates. The lien can be filed with the real property records, in which case the lien must be paid or otherwise removed before real estate can be sold in that county. The lien would also usually be filed in other counties where IRS learned the taxpayer had property. The lien can also be filed with the records of personal property liens, and would have to be satisfied or removed before the sale of personal property (personal furnishings, boats or cars, business equipment or other property).
While Internal Revenue Service has the power to foreclose its tax lien on real or personal property, it often relies on the lien to force the taxpayer himself to approach IRS to have the lien removed, if there is property that he wishes to sell, either now, or sometime in the future. Liens generally expire ten years after their filing.
Tax Levies are orders issued by the IRS to banks, employers or others holding a taxpayer’s property for those holders to give the property to IRS rather than to the taxpayer. Congress has given IRS the power to collect funds to apply to taxes in this manner. IRS generally makes a great effort to collect the tax without a levy. Sometimes, from the government’s point of view, it is necessary to levy someone’s property to convince them to cooperate with the system, and to pay their tax.
Removal of Tax Levies
Taxpayers can request that tax levies be removed, and IRS will often cooperate. IRS is more interested in having Taxpayers pay their taxes than in overseeing taxpayers individually. Generally in order to have a levy removed, the taxpayer must make some arrangement with IRS to pay the tax, or at least pay that portion of the tax that IRS believes the person can pay.
The procedure to have a levy removed is described on the levy notice. Call the number on the notice, and your options will be described to you.
One way to have a levy removed is to enter into an Installment Payment Agreement with Internal Revenue Service. To establish the installment amount, the Taxpayer and IRS review the Taxpayer’s income and living expenses, and hopefully agree on an amount that the Taxpayer can pay monthly against his tax. IRS employees are directed to leave Taxpayers with sufficient income to pay basic living expenses, even if it means IRS can receive no monthly amount at all.
A second arrangement to have a lien or levy removed would be by making an Offer In Compromise in which a smaller payment is accepted in lieu of the larger tax debt. The Offer In Compromise is also based on the Taxpayer’s ability to pay, so it also involves presenting IRS with financial information about property owned and monthly income and expenses. IRS procedures have become more liberal in recent years, encouraging taxpayers to file Offers In Compromise, but the criteria for having offers accepted are still quite strict, and most Offers are declined.
A further way to convince IRS to remove a levy is to show that the levy is causing the taxpayer severe economic hardship.
Levies on Wages
IRS can, when necessary, levy a person’s wages. A portion of one’s wage is exempt from a tax levy. The portion is based on the dependency exemptions and standard deduction available on the taxpayer’s annual income tax return. The exempt amounts are very low: The exempt amount for a single person with no other dependents is based on an annual exemption of about $10,000. The exempt amount for a married person entitled to one dependent is based on an annual exemption of about $17,000.
Wage levies are continuous. Once they have been issued, and the exemption calculated, they continue each pay period until the whole tax debt is paid, unless the taxpayer makes arrangements to have them removed.
Levies on Property
Tax levies on property (often accounts receivable by a business) are one-time events. The levy operates on property held for or owed to the taxpayer when the levy is delivered to the business or person holding the property. The levy does not continue to property coming due the taxpayer at a later time. If the property is a debt or account owed the taxpayer, the business or person pays the debt to IRS, and the levy stops. If the levy is on physical property rather than a monetary account, IRS follows a procedure for selling the property, and applies the proceeds to the tax account.
Tax Levy Due Process Hearing
Taxpayers whose property is being levied are notified prior to the levy, and are entitled to a Due Process Hearing, to verify that IRS has followed proper procedures in making the levy. Taxpayers request the Due Process Hearing by filing Form 12153 within 30 days after receiving a Notice that IRS plans to levy their property. Requests received after the 30 day deadline are also considered, but are not entitled to appeal adverse rulings. The final notice before a tax levy is always entitled: “Notice of Intent to Levy and Your Right to A Hearing”.
Due Process Hearings are very useful to taxpayers, as they stop collection activities while waiting for a hearing, and they give taxpayers a chance to propose resolutions to their tax debts other than the levy proposed by IRS. The proposals can include corrections of tax return information, Installment Payments, or possibly even Offers In Compromise.
If you have your notice of Intent to Levy, call the contact listed on the Notice. If not, call the national IRS levy release department at (800) 829-7650. Call to request release of your levy. If you prefer to deal through a professional tax advisor, give us a call: 734-995-2424.