If you are an individual who owes money to the IRS, the last thing you want is for them to freeze your bank account or levy (garnish) your wages. The good news is that there are some very effective methods you can use to avoid such a potentially devastating situation. I’ll cover those below, along with what to do if you actually have been levied or garnished.
KEEP IN CONTACT WITH THE IRS
The most important action you can take is to be in regular contact with the IRS. The vast majority of personal liabilities under $250,000.00 are handled by IRS Automated Collections (ACS), as opposed to a Revenue Officer in your local area. That means calling a toll-free phone number, and waiting quite a while to speak with an operator about your problem.
That contact is worth the effort though. As long as you continually follow up by the deadlines set by Automated Collections, you can usually ask for a hold on collections that will last until your next follow up deadline. Be diligent in your follow up, and provide the requested information, and you can generally avoid levies entirely. Ultimately, though, if you accrue new liabilities, or are unable to agree on terms to resolve the back taxes, the IRS may move to enforce collections.
KNOW YOUR RIGHTS
It is important to note that, before it can legally take your property, the IRS must meet its requirements for due process of law. That means the IRS will always work through its notice progression with respect to any liability you owe. You can review my previous article on IRS notice progression for a detailed explanation of what notices the IRS will issue regarding back taxes, what each of those notices indicates about the status of your case, and what taxpayer rights are activated by the issuance of certain notices. In certain situations, you may be able to avoid enforcement by exercising your appeal rights.
KNOW WHAT POWERS THE IRS HAS
Eventually, if you fail to respond to IRS notices, and they move through their notice progression, they may issue a levy to collect from you involuntarily. The IRS can levy your bank account, your wages or any asset that you own that is not considered “exempt.” A “levy” is simply a taking of property or your right to property by force.
A bank levy (Form 668-A) attaches to whatever funds are available in the bank account at the time the bank receives the levy notice from the IRS. Those funds are then held by the bank for 21 days before being sent to the IRS. Any subsequent deposits into the bank account, after the levy notice is processed, will not be affected by the levy, and will remain yours to use. During the 21-day hold period, you may be able to negotiate a release of levy.
A wage levy (Form 668-W), or garnishment, attaches to a portion of every paycheck, and will continue to attach to each paycheck until it is released or the debt is paid in full.
It is also possible for the IRS to levy other non-exempt assets (e.g. real estate, vehicles, financial accounts, etc.). However, generally speaking, there is little risk of this happening unless your case has been assigned to a local Revenue Officer for collections. Further, even if a Revenue Officer has been assigned, levies against property other than bank accounts and wages is typically only used by the IRS as a last resort (though, if you own a business, levies against accounts receivable are not uncommon).
WHAT TO DO IF YOU HAVE BEEN LEVIED
Typically, the first time the IRS enforces, it is either due to lack of contact from the indebted taxpayer or due to a failure to meet a deadline. Sometimes, those “warning shot” levies can be released by a simple phone call and a request for release. In many instances, if your debt is relatively small, you may be able to enter into an Installment Agreement in one phone call. If that is not possible, the operator will leave you with a list of information needed, and a deadline to call back.
Eventually, you may be able to negotiate a plan to resolve the debt voluntarily. Once that plan is approved and formalized by the IRS, they will be prohibited from enforcing collections, unless you default on the agreement. The IRS will also release any levies that are currently in effect once an installment agreement is approved.
If you are in a situation where you truly cannot afford to make monthly payments on your tax debt, consider requesting Currently Not Collectible Status (CNC). Approval of CNC will also stop the IRS from levying. If you have minimal equity in assets and very little excess income, you might be a candidate for an Offer in Compromise (tax settlement). The IRS generally will not levy if you are in the process of working out an Offer in Compromise (e.g. it is pending).
DEMONSTRATE AN ECONOMIC HARDSHIP
If you are unable to negotiate an Installment Agreement or other acceptable plan, or if you are unable to easily convince an operator to release a levy, the IRS can release a levy when you demonstrate that the levy is causing a personal economic hardship. The IRS considers a situation an economic hardship when, due to the IRS enforcement, you will be unable to meet your and your family’s necessary living expenses.
The income and expense information that goes into proving an economic hardship is often very similar to the information required to consider an Installment Agreement or CNC status. Therefore, calling with an understanding of your average monthly income and your necessary living expenses may convince the IRS to release the levy, while also laying the groundwork for a more permanent solution to your Collections problem.
BE COURTEOUS AND POLITE
While the technical aspects of negotiating with the IRS are fairly straightforward, there are some more personal and practical considerations that could significantly affect the outcome of any contact with Collections.
First, keep in mind that, in a toll-free call to Automated Collections, the person who answers the phone is almost certainly not the person who issued the levy. While you may be very angry and frustrated with the IRS and the situation, being rude or confrontational with an IRS operator will not help. I have seen operators shut down entirely, and refuse to honor even simple requests when they feel attacked. Due to the nature of their job, it is easy to believe that operators deal with irate people quite often.
If you are calm and reasonable, you are much more likely to convince an operator to be more helpful. So, if you are seeing red, it may be wise to wait a little before initiating your call. It is also important to remember that, if the IRS has gotten to a point where it is levying, you share some of the blame for letting the situation deteriorate to that level. Be humble, apologetic and genuine, and you will get much further.
GET HELP IF NEEDED
If you are unable to resolve an issue on your own, of course there are other resources available. Every IRS operator has a supervisor, and they are required to put you in contact with that person if you request it. In some situations, especially those of economic hardship, the IRS Taxpayer Advocate can be of great assistance.
And, finally, there are many tax resolution professionals who can and will help. In many of the situations that I touch on above, knowing your rights, and having confidence about what the IRS is and is not allowed to do can make a huge difference. It is a tax professional’s job to know those taxpayer rights and IRS limitations, so a good tax pro can often obtain results that you would not be able to obtain on your own.
Many tax resolution firms will offer a free telephone consultation. This may be quite helpful and almost certainly won’t hurt. Just be careful. If you are considering hiring a tax resolution firm, spend a little time researching them. While the more reputable firms may succeed at negotiating an incredible savings on your behalf, there are some less reputable firms who might leave you in worse shape than you were to begin with.
Being levied is not the end of the world. There is almost always some other deal to be made if you’re patient and prepared in your response. The best strategy is to avoid neglecting the debt in the first place, but there are absolutely resources available to bail you out of a bind with IRS Collections.