Articles Posted in Tax Debt

Will the IRS Ever Return Seized Property?
The IRS is generally required to send you a notice before levying or seizing your property. You may be able to prevent a levy by timely requesting a Collection Due Process (CDP) hearing, and negotiating a payment plan or otherwise contesting the levy. You have 30 days from the date of the notice to request a CDP hearing.

There are situations where the IRS is not required to send you a pre-levy notice, and can take your property without giving you a chance to contest the levy. State tax refunds can be taken without notice, and the IRS can levy without notice if they believe that collection of the tax is in jeopardy.

There are also other situations where you may not get the chance to contest the levy until after your property has been seized. The IRS sends notices to your last known address, and you may never receive these notices if the IRS does not have your current address. You may also simply be unaware of your CDP rights or the 30-day deadline, and miss your chance to request a CDP hearing. Payroll taxes are also subject to different rules.

Is Certain Property Exempt From IRS Seizure?
The IRS has broad authority when attempting to collect delinquent tax, but there are limitations to what collections actions they can take. The IRS generally has to follow certain procedures before they can levy, or seize, your property, and certain property is exempt from IRS seizure.

Generally, the IRS must send a taxpayer a Notice of Intent to Levy, which gives the taxpayer 30 days to request a Collection Due Process hearing. This gives you a chance to avoid the levy by negotiating an IRS installment agreement, an offer in compromise, or disputing the underlying tax liability, if you have not previously had an opportunity to do so.

The IRS also has a general policy to only seize a taxpayer’s assets as a last resort. If you are attempting to negotiate and cooperate, you should be able to work out an arrangement and prevent your assets from being levied.

What Is an IRS Jeopardy Levy?
The IRS must generally issue a notice to a taxpayer before proceeding with a levy on their assets. The taxpayer is given 30-days to request a Collection Due Process hearing (CDP hearing), where the taxpayer can attempt to avoid the levy action by negotiating an installment agreement, disputing the tax liability that resulted in the levy, or presenting other defenses. The IRS will usually not take any levy actions during the 30-day period, or while the CDP hearing process is ongoing.

There are exceptions to the 30-day notice requirement. One situation where the IRS is not required to provide a notice is when they believe that collection of the tax is in jeopardy, known as a jeopardy levy. In this case, the IRS can bypass the notice requirement and immediately levy the taxpayer’s assets, such as a bank account, the taxpayer’s wages, cars, or other property.

In these situations, the taxpayer has no choice but to request an appeal of the levy after it has taken place. The taxpayer may request a CDP hearing, or hearing under the Collection Appeals Program, to argue that the jeopardy levy was unreasonable.

When to Use the IRS Collection Appeals Program
The Collection Appeals Program (CAP) is an IRS procedure available to appeal a broad range of collection actions. However, it does have some pitfalls when compared to a Collection Due Process (CDP) hearing, so consider consulting with a tax attorney if you are not sure which procedure to use.

The CAP procedure can be used to dispute the following collection actions:

•  Before or after the IRS files a Notice of Federal Tax Lien

The Substitute Return: When the IRS Files Unfiled Returns For You
If you fail to file your tax return when you have a legal obligation to do so, the IRS can use the Substitute for Return (SFR) procedure to file it for you. There are several disadvantages to this scenario from a taxpayer’s perspective, and you should take action immediately upon receiving a notice that you haven’t filed your tax return.

First, the IRS will file your return based on reported information from your employers or businesses that paid you as an independent contractor, usually from W-2 or 1099 forms. However, the IRS has no way of knowing what deductions, exemptions, credits, or losses you are eligible to claim your tax return. Therefore, they will not give you credit for any of these amounts that could substantially reduce your tax liability.

Second, the failure to file a tax return is one of the badges of tax fraud, and the IRS may scrutinize a taxpayer who fails to file a return for other indications of tax fraud. This can result in civil tax fraud penalties of 75% of the amount of tax owed, or criminal tax fraud charges, that could result in more fines or jail time.

What Happens at a Collection Due Process Hearing?
A Collection Due Process (CDP) hearing may be your last chance to prevent an IRS collection action, such as  bank account levy. It is also an opportunity request that the IRS withdraw or release its tax lien.  At a CDP hearing, you may request an installment agreement, offer in compromise, innocent spouse defense, or you may dispute the amount of tax you owe. However, you can only receive a CDP hearing if you request it in writing within 30-days of receiving the IRS Notice of Intent to Levy.

A CDP hearing will be available if you receive any of the following notices:

  • Notice of Federal Tax Lien Filing

IRS Actions Affecting Passports of Delinquent Taxpayers
Your unresolved tax debt could prevent you from taking your next trip overseas. The IRS has the right to certify to the State Department that an individual has seriously delinquent tax debt. Upon receiving this certification, the State Department will generally not issue you a new passport, and will revoke your current passport.

Tax debt is considered “seriously delinquent” if it is unpaid, legally enforceable and assessed, is greater than $50,000 (indexed for inflation annually), and a notice of federal tax lien has been filed, AND the rights to appeal a levy have expired, or a levy has been made. In other words, the IRS has been doing everything it can to collect your tax debt, and you still have a large outstanding balance owed to the Treasury.

There are exceptions where debt will not be included when determining if you have seriously delinquent tax debt. The following amounts will not be included:

Can the IRS Collect From a Non-Liable Spouse?
The IRS may be able to collect delinquent tax debt from a non-liable spouse in some cases. This means that tax debt that was accrued by one spouse on a return filed separately, may still result in collection action being taken on the other spouse. However, the IRS cannot pursue collection from a non-liable spouse in every case.

First, it is important to distinguish between joint tax debt and separate tax debt. Joint tax debt is any tax debt related to a return filed jointly. Separate tax debt could be related to a return filed before the taxpayer was married or a return filed after the marriage using the married filing separately status.

For joint tax debt, the IRS can collect from either or both spouses. They can levy your bank account, or your spouse’s bank account, or both. The Internal Revenue Manual states that wage levies should generally be applied to the spouse with higher earnings. However, in flagrant cases of neglect or refusal to pay, the IRS can levy the wages of both spouses.

How Much of My Wages Can the IRS Levy
An IRS levy on your wages or other income is limited by a defined exemption amount. Your exemption will be determined based on the standard deduction, your filing status, and the number of exemptions you claim. All income that exceeds the exemption amount will be taken by the IRS.

Unlike bank account levies, wage levies are continuous. The IRS will continue to take many out of every paycheck you receive until your full delinquent tax balance is paid off.

A few examples can illustrate how much money you will actually receive while the IRS is levying your wages: