IRS and State Tax Levies
The Internal Revenue Service has the ability to levy a taxpayer’s “property and rights to property” per IRC section 6331. Without going into the different sub sections and a detailed explanation of each, basically what IRC code sections 6331 through section 6335 allows IRS to do is attach a taxpayer’s bank account, wages, salary or other sources of income. Sources of income may constitute many forms, e.g. commissions, accounts receivables, royalties, dividends, etc.
These code sections also provide the legal authority for IRS to seize assets of a taxpayer, including real property (personal residence, rental property, commercial property) as well as personal property (vehicles, boats, other personal assets, business assets, etc.). Seizure of assets is done by serving the appropriate parties the proper documents, including the Notice of Levy. IRS may, or may not take physical possession of the property being seized. The IRS can also levy intangible property such as accounts receivable, contract rights, promissory notes, stock, etc.
Certain property up to specific limits may be exempt from an IRS levy, e.g. tools of your trade, personal effects such as clothing and necessary books, etc.
The purpose of this article is not to go into depth on what can or can’t be levied but to discuss why IRS and state tax authorities levy and what can be done when a taxpayer’s bank account, income or assets have been levied or seized.
This article is also not intended to discuss the difference between a levy and a lien.
Levies may be issued for multiple reasons but procedurally, levies are generally issued as a means to collect unpaid tax liabilities and/or to motivate a taxpayer to do something. If you been levied after making contact with a tax agency and thought you were in the process of resolving you tax problems, you most likely missed a deadline to pay an agreed amount or submit information, including filing delinquent tax returns. Levies are one of the most effective tools IRS and state tax agencies possess to collect tax liabilities. Federal law, Title 26 U.S. Code section 6331 through section 6335 provide broad authority to IRS to levy (attach or garnish) an individual’s or business’ sources of income, and/or seize assets.
State tax agencies have similar authority based on the particular laws of that state to also take levy action.
As stated, levies not only serve the purpose of enabling collection of billions of dollars in taxes, but also serve as an enforcement tool to motivate a response from a particular taxpayer.
The IRS and state tax agencies have a record of income received by a taxpayer via the W-2 forms and forms1099 that are required to be sent to the IRS on an annual basis by employers and other third party payers. Other documents that assist tax agencies in identifying assets and accounts are the forms 1098 mortgage interest paid documents that are required to be submitted to IRS by lenders, as well as a variety of other “source” documents. The IRS and most state tax agencies have a mutual agreement to share information. State tax agencies also have records of employment per requirements for employers to provide wage and income information on their employees via various state tax filing requirements.
These documents provide a ready levy source of potential income that can be levied by the IRS and state tax authorities.
Both the IRS and state tax agencies are well aware that levying a bank account or a taxpayer’s wages or source of income is likely to result in collection of funds and/or a response from the taxpayer. Whether that response is from a tax professional the taxpayer has retained, or the individual taxpayer, makes a big difference in what occurs from that point forward.
If you attempt contact with IRS without retaining a tax professional, be aware that you will be contacting an individual employed to collect taxes. The copy of the notice of levy will tell you which type of IRS collection employee you will be contacting. The levy was either generated from the IRS Automated Collection Site (ACS) or if your case is assigned to IRS field collections, your assigned revenue officer will be identified on the levy. Whether you are speaking to an ACS tax examiner who works in the unit that handles levy responses, or a revenue officer, keep in mind it is their job to not only collect the tax liabilities but to gather as much financial information from you as possible to enable further collection action as needed. Be aware that you will be asked to provide information and verify where you work, where you bank, as well as what assets you own. If you are unable to commit to paying your liabilities in a short timeframe (or within timeframes established based upon the amount owed), you will be asked for information to enable completion of certain Collection Information Statement forms. ACS uses a form 433-F and revenue officers use a more detailed form 433-A. If you have a business or are self employed, you may also be required to submit sufficient information to enable a form 433-B to be completed. These forms serve multiple purposes, including providing IRS with sufficient information to determine an appropriate case resolution and to provide possible additional sources that can be levied if you fail to comply with the demands of the IRS tax examiner or revenue officer. You will be asked numerous questions regarding your income and expenses and be required to provide proof of your income and expenses.
State tax agencies have similar procedures and forms as well as the ability to take enforcement action such as levying.
There can be numerous problems in trying to resolve tax problems without the assistance of a tax professional.
Even if you answer all of the questions asked and provide all of the required information, the IRS (or state tax agency) employee is not required to release the levy. The only absolute requirement to release the levy is if you pay the entire amount due as stated on the notice of levy. The employee can also require the payment be in the form of certified funds, e.g. cashier’s check, to ensure payment before releasing the levy.
If you are not paying the liability in full, the employee can still consider a full release, a partial release or refuse to release the levy. In addition, they will also address any tax years for which you have not filed tax returns and ask questions regarding income earned in those years.
I highly recommend you seek professional help instead of dealing directly with IRS or any state tax agency, particularly if you are in active collections and have been levied. A tax professional can negotiate a release of levy and work with you to get your case resolved without further enforcement action. If the tax professional specializes in tax representation work, they will know exactly what is needed to resolve your case.
Keep in mind there are only 3 categories of tax professionals that can represent you before IRS Collections; an Enrolled Agent (EA), CPA and attorney. Tax preparers that are not EAs, CPAs or attorneys may not represent you in a collection matter. Not all EAs, CPAs or attorneys handle tax representation work. You should seek a tax professional that specifically states they specialize in tax representation in collection matters.
Your tax professional will require a power of attorney form to be signed. IRS uses a form 2848. State tax agencies have their own power of attorney forms. By signing a power of attorney form, you authorize your representative to represent you before the appropriate tax agency. Most tax professionals will also require some form of Retainer or contract for services. The tax professional should go over each of these forms and documents with you. Once the power of attorney is on record with the particular tax agency, that agency is required to contact the tax professional for information and whatever else is needed to resolve your case. You should not receive any further direct contact from the tax agency unless the power of attorney is revoked by either you or the tax professional you’ve retained.
I specialize in representing taxpayers before the IRS and all state tax agencies. If you’ve been levied or have other tax problems, call me today or complete the FREE CONSULTATION form on my website for a call back. Don’t let the IRS and state tax agencies take advantage of you. I’m here to help and can resolve your tax problems once and for all.