If the IRS levies your bank account, your bank must hold funds you have on deposit ONLY on the particular day the levy is received by the bank. The bank is required to remove whatever amount is available in your account that day (up to the amount you owe the IRS) and send it to the IRS in 21 days. This 21-day holding period allows time to resolve any issues about account ownership of the bank account and also provides a period of time to negotiate with the IRS for a release. After 21 days, the bank must send the money plus interest, earned on the seized amount to the IRS. So you must act quickly! This type of levy does not affect any future deposits made into your bank account unless the IRS issues another Bank Account Levy.
The levy will end when:
The levy is released, through the help of a tax resolution specialist or by working with the IRS directly, or you pay the tax debt the IRS says you owe.
What can I do?
Represent yourself before the IRS or increase your chances of success by choosing a tax attorney, certified public accountant, an enrolled agent or tax resolution specialist to represent you. There are a number of resources for locating these individuals, including the National Association of Enrolled Agents.
Complete IRS Form 2848 Power of attorney (POA). Without this form, a specialist can do nothing for you. IRS requires this form before they will talk to anyone other than you about your case. Fill in your name(s), address, and Social Security number(s) on page one, then sign and date page two.
What you might need to present to the IRS to verify some of your expenses:
- Copy of your bank levy, if you have it.
- Most current pay stub(s) with year-to-date information on you and your spouse
- Copy of divorce documents. Mainly page one and the page(s) that list(s) alimony and/or child support information.
- Copy of three months’ child support and/or alimony checks. If child support is deducted from your paycheck, then your pay stub will be sufficient.
- Copy of three months’ childcare checks and/or invoices.
- Support for medical expenses (checks and receipts).
IRS often begins its collections efforts by levying taxpayer’s wages (or paycheck garnishment). Wage levies are filed with your employer and remain in effect until the IRS notifies the employer that the wage levy has been released. Once a wage levy is filed with an employer, the employer is legally required to collect a large percentage (usually 30-70%, sometimes more) of the taxpayer’s paycheck and send it to the IRS. The wage levy stays in effect until the IRS is fully paid or until the IRS agrees to release the levy. The law applies in all 50 states, the District of Columbia, and all U.S. territories and possessions.
What can I do?
Represent yourself before the IRS or increase your chances of success with an experienced tax representative who can sometimes halt the collections activities or at least reduce the amount that the IRS taxes. Representation may include use of a tax attorney, certified public accountant, an enrolled agent or tax resolution specialist. There are a number of resources for locating these individuals including the National Association of Enrolled Agents.
Depending upon your individual circumstances, the representative may file an Offer in Compromise, arrange for an Installment Agreement, or have your account placed in “Currently Not Collectible” status. Any of these arrangements would allow you to proceed without any fear of the IRS.
Offer in Compromise form can be download from IRS.Gov.
The amount levied is determined by the amount earned and the number of dependents in the taxpayer’s family. The formula for deciding the amount to send the IRS is explained on the levy Form 668-W or the state equivalent.
For various reasons, you may not have filed your federal income tax return for this year or previous years. You may not have known whether you were required to file. You may not have filed because you owe additional tax that you cannot afford to pay in full. You may not have filed because you expect a refund and just have not taken the time to complete the return.
Regardless of your reason for not filing, you should file your tax return as soon as possible. If you cannot pay all of the tax due on your return, you may be able to arrange payments, an Offer in Compromise, or “Currently Not Collectible” status, depending on your situation.
Failure to file your return on or before the due date may result in penalties and interest. However, if you filed on time but did not pay in full, you will be subject only to the failure to pay penalty. Interest is charged on taxes not paid by the due date, even if you have an extension of time to file. Interest is also charged on penalties.
You may be surprised to learn that filing your tax returns can be the quickest way out of tax trouble. Gather your tax documents. If you are missing some you can contact the IRS for assistance
Prepare the tax returns or hire a tax professional. Good reasons to hire a tax professional, if you need advice on how to handle incomplete tax documentation, or an advocate who will negotiate with the IRS on your behalf.
- You should create a plan for how you will pay off your tax debts. You may need to consider an Offer in Compromise (OIC). You also need to plan on how to protect yourself from an IRS investigation, assessment, levy, or lien. It requires patience, good judgment, the ability to talk courteously with the IRS, and the advice of a competent, experienced tax professional. See Enrolled Agent
- For questions, contact a tax professional or find your local IRS Taxpayer Assistance Center
- File your taxes as soon as possible.
- Late tax returns must be filed on paper, and mailed or walked into your local IRS Service Center. They can not be filed electronically.
- Mail your tax returns in separate envelopes, and send them by Certified Mail. You will have proof each return was received by the IRS. Mailing them in separate envelopes will help prevent the IRS from making any clerical errors in processing your returns.
- Walk your tax returns into a local IRS Office where they will be reviewed and time and date stamped. Find your local IRS office at IRS. Gov.
If you’re audited by the IRS this year, you won’t be alone. Most tax returns singled out by the IRS for audit contain either tax deductions that appear to be too high in relationship to the person’s income, or tax items that are erroneous, tax items that require proof or an explanation, or are on the IRS’ list of hot tax issues (see below).
The following is a list of IRS High-Risk Tax Audit Areas:
The IRS selects those tax returns which, upon preliminary inspection, have high audit potential. Your chances of an audit are higher if you fall into any of the following categories:
- High Wages
- Large Amounts of Itemized Tax Deductions
- Unreported Taxable Income
- Home Office Tax Deductions
- Unreported alimony
- Automobile Logs for people who use their car in business
The statute of limitations limits the time during which an action can be brought by the IRS for an audit and the time for IRS tax collection activities. Generally, there is a 3-year statute of limitations for the IRS auditing a tax return and a 10-year statute of limitations for the IRS collecting a tax debt.
The traditional view of an IRS tax audit is a face-to-face contact with an IRS auditor. About one-third of IRS “tax audits” are in the form of letters asking for explanations of various tax items on a tax return or supporting documentation. If you receive a tax audit letter from the IRS, read the letter to see the nature of the tax audit problem. The IRS may want to audit the entire tax return or could audit just a portion of it, for example, meals and entertainment or automobile and travel expenses.
If the issue concerns documenting a tax deduction or a tax credit, send the IRS copies of the appropriate documents. Do not send the IRS originals, as they may get lost in the mail or at the IRS.
If the tax notice concerns your entitlement to a tax deduction or questions a tax position taken on the tax return, consult a qualified tax representative before responding to the IRS. A satisfactory explanation can end the matter quickly. In any event, it is important to respond to the IRS in writing.
There is also a National Tax Compliance Audit Program IRS tax audit, which is the most thorough of all IRS tax audits. Persons selected for this type of tax audit must verify all data on their tax return. This information could include birth certificates for children, a marriage license for a spouse, and complete documentation of all tax deductions taken on the tax return.
Contact an Enrolled Agent (EA), accountant, tax attorney or a tax resolution company qualified to “stand before the IRS” to represent you
- Bring all the documentation relevant to the tax item(s) in question ONLY, so that the evidence needed to support your tax case is available.
- Organize the papers according to the tax items in question, and make copies of them.
- Bring relevant worksheets to show how the tax figures in question were calculated.
- Do not volunteer tax information not requested by the IRS. Be cordial, but remember, “Loose lips sink ships”.
- At the end of the IRS tax audit, the IRS agent will cite any problems with the tax return.
- After the IRS agent informally advises you of any tax adjustments needed on the tax return a formal report is filed.
- If you owe money on one tax issue and the IRS owes money on another tax issue, the two tax amounts can be netted. In a small number of tax cases, the IRS tax audit results in a tax refund for the taxpayer.
- If the IRS agent’s tax decision is unsatisfactory, you can appeal to the IRS agent’s supervisor, the Appeals Division of the IRS, and if necessary, the U.S. Tax Court.
You can have an Enrolled Agent, CPA or another person who is “admitted to practice before the IRS” represents you.
You also can tape record the meeting, but you have to notify the IRS 10 days in advance of the IRS tax audit.
You have appeal rights in IRS tax collections, such as tax liens, tax levies and property seizures.
You can seek hardship relief from the IRS if a property seizure would create a significant hardship.
The IRS can waive tax penalties if you show you acted in good faith on the incorrect advice of an IRS worker.
You can give your Enrolled Agent (EA), CPA or attorney, a power of attorney for the IRS tax audit; therefore, you can be absent during the actual IRS tax audit, provided you don’t receive a summons from the IRS. This can give your representative more time to respond to tax questions from the IRS agent because they may have to confer with you on some issues, delaying the progress of the IRS tax audit. This may also be a strategic advantage for you.
CPAs, Enrolled Agents and tax specialists say the best way to avoid a tax audit is to:
- File a complete and accurate tax return.
- Double check your math.
- Make sure you have used the correct IRS tax forms and IRS tax schedules.
- If you think the IRS may question a large tax deduction or tax credit, attach an explanation to your tax return when you file it.
A levy is a legal seizure of your property to satisfy tax debt(s). Levies are different from liens. A lien is an instrument used as security for the tax debt, while a levy actually takes or seizes the property to satisfy the tax debt.
If you do not pay your tax debt (or make arrangements to settle your debt), the IRS may seize and sell any type of real or personal property that you own or have an interest in.
IRS could seize and sell property that you hold (such as your car, boat, or house), or
IRS could seize property that is yours but is held by someone else (such as your wages, retirement accounts, dividends, bank accounts, rental income, accounts receivables, the cash value of your life insurance, or commissions).
What can I do?
You got into this dire situation most likely by failing to communicate with the IRS. The way to get out of it is to open a dialogue immediately with the IRS. An Enrolled Agent or tax specialist may be able to negotiate with the IRS to settle your debt – if you qualify — in a much more reasonable and beneficial manner. They may be able to help you with an Offer in Compromise, Installment Agreements or maybe Currently Not Collectible. If an asset seizure would cause severe hardship, a Taxpayer Assistance Order can be requested to protect you.
Employment taxes are:
- • The amount you should withhold from your employees for both income and social security tax, plus
- • The amount of social security tax you pay on behalf of each employee.
To encourage corporate business owners to make prompt payment of their employees withheld income and employment taxes, including social security taxes or collected excise taxes, Congress passed a law that provides for the Trust Fund Recovery Penalty. (These taxes are called trust fund taxes because you the employer actually hold the employee’s money in trust until you make a federal tax deposit in that amount.) If the IRS plans to assess you for the trust fund recovery penalty, you will receive a letter stating that you are a responsible person. You have 30 days after the IRS sends the letter to appeal. If you do not respond to the letter, the IRS will assess the penalty against you and send you a Notice and Demand for Payment.
Please note, the IRS can apply this penalty whether or not you are out of business. A responsible person is an individual or group of people who had the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes. This person may be:
- an officer or an employee of a corporation.
- a corporate director or shareholder.
- a member of a board of trustees of a nonprofit organization.
If you do not pay your employment taxes on time the IRS will charge you interest and penalties on any unpaid balance.
What can I do?
Download the various business forms to complete your overdue payroll and employment taxes.
Contact a qualified Enrolled Agent , CPA, tax attorney or a tax resolution company that is “admitted to practice before the IRS”.
Liens are different from levies. A lien is an instrument used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt(s).
A tax lien is a negative record on your credit report, severely lowering your credit score. This often makes it difficult for a taxpayer to obtain financing on an automobile or a home, get a credit card, or sign a lease. Tax Liens are public records that indicate you owe the IRS money. They are filed with the Clerk in the county where you live or where your business operates. Once a Federal Tax Lien is filed against your property you cannot sell or transfer the property without a clear title. You need to act NOW!
Liens mark the priority of IRS against other creditors and attach to all your assets as payment for your tax debt. A Notice of Federal Tax Lien may be filed only after:
- IRS has assessed the liability;
- IRS has sent you a Notice and Demand for Payment – a bill that tells you how much you owe in taxes; and
- You neglect or refuse to fully pay the tax debt within 10 days after IRS notifies you.
By filing notice of this lien, your creditors are publicly notified that the IRS has a claim against all your property, including property you acquire after the lien is filed.
Releasing a Lien
The IRS will issue a Release of the Notice of Federal Tax Lien:
- Within 30 days after you satisfy the tax due (including interest and other additions) by paying the debt or by having it adjusted, or
- Immediately upon payment with cash or the equivalent of cash, or
- Within 30 days after IRS accepts a bond, guaranteeing payment of the debt or
- A mortgage is given to IRS against property that is worth twice the amount of your tax liability, or
- Usually 10 years after a tax is assessed, a lien releases automatically if the IRS has not filed it again.
What should I do?
Download IRS Form 1450 – Request a Federal Lien Release. A lien must be released if it is fully paid or legally unenforceable. The IRS must also release when they accept a bond for payment of the taxy
You should have an Enrolled Agent, CPA, tax attorney or a Tax resolution company to represent you. You should compare pricing and note that Enrolled Agents and CPA’s have the exact same practice rights before the IRS. Attorney-client privilege was extended to EA’s and CPA’s in the IRS Reform and Restructuring Act of 1998. Except for criminal cases, EA’s and CPA’s now stand on equal footing with attorneys. It is worth noting as well; EA’s generally have more tax matters and training then tax attorneys in most cases.
You may try to appeal the filing of a lien. The law requires notifying you in writing not more than 5 business days after the filing of a lien. You may ask an IRS manager to review your case, and you may request a Collection Due Process hearing with the Office of Appeals by filing a request for a hearing with the office listed on your notice. You must file your request by the date shown on your notice.
Some of the issues you may discuss include:
- You paid all you owed before IRS filed the lien,
- IRS assessed the tax and filed the lien when you were in bankruptcy, and subject to the automatic stay during bankruptcy,
- IRS made a procedural error in an assessment,
- The time to collect the tax (called the statute of limitations) expired before IRS filed the lien,
- You did not have an opportunity to dispute the assessed liability,
- You wish to discuss the collection options, or
- You wish to make spousal defenses
It is important to attack tax liens that are invalid. The trustee or the debtor has the power to avoid an invalid tax lien. A tax lien could be invalid if a lien is on property which is not owned by the debtor, a lien was filed during the automatic stay, a lien was recorded in the wrong county, or it was for discharged taxes now being asserted on future-acquired assets.
Time is of the essence. Do not just try to ignore this lien process. The IRS will file a lien against a business or individual when they continue to be ignored. An individual has 10 days and a business has 30 days to protest the action. You must adhere to the guidelines or you will lose your rights to protest.
Many taxpayers find themselves in a position where they can never pay off the IRS. It’s mathematically impossible with all the penalties and interest the IRS continues to add everyday vs. the income or lack thereof, the taxpayer may have access to.
What many taxpayers don’t realize is just about everything is negotiable with the IRS – if you know how. The amount you owe may be reduced to an amount you can afford to pay with the help of our Tax Team.
If you qualify (see below), the IRS Program called Offer in Compromise (OIC) is an agreement between the taxpayer and the government that settles a tax liability (including all penalties and interest) for payment of less than the full amount owed. When the IRS accepts your Offer and you pay it, then all federal tax liens are removed. You must remain compliant by filing and paying your tax returns for the next five consecutive years, or the liability will be re-assessed and all penalties and interest will be assessed as well. If you do comply, though, you will get your life back!
The IRS will generally accept an OIC when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. An OIC is a legitimate alternative to declaring a case currently not collectible or to a “protracted installment agreement.” The IRS goal of an OIC is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to government.
Preparing and successfully negotiating an Offer in Compromise is a very complicated process and can take more than 6-18 months. Once your offer has been submitted to the IRS all collection activities against you stop.
An offer in compromise is an agreement between a taxpayer and the IRS that resolves the taxpayer’s tax debt. The IRS has the authority to settle, or “compromise,” federal tax liabilities by accepting less than full payment under certain circumstances. A tax debt can be legally compromised for one of the following reasons:
- Doubt as to Liability – Doubt exists that the assessed tax is correct
- Doubt as to Collect ability – Doubt exists that you could ever pay the full amount of tax owed.
- Effective Tax Administration – There is no doubt the tax is correct, and no doubt that the amount owed could be collected, but an exceptional circumstance exists that allows the IRS to consider a taxpayer’s OIC. To be eligible for a compromise on this basis, the taxpayer must demonstrate that collection of the tax would create an economic hardship or would be unfair and inequitable.
What Should I do?
Represent yourself before the IRS or increase your chances of success by choosing an Enrolled Agent, tax attorney, CPA, or tax resolution specialist to represent you.
- Review the step-by-step procedure followed by professionals that can help assist you.
- Complete IRS Form 2848 Power of attorney (POA). Without this form, a specialist can do nothing for you. IRS requires this form before they will talk to anyone other than you about your case. Fill in your name(s), address, and Social Security number(s) on page one, then sign and date page two.
- Read the IRS FAQ’s about Offer in Compromise
- Understand that there is an IRS application fee of $150.00 for the Offer in Compromise (OIC) in addition to any representation fees.