Being leveraged by the IRS is one of the most feared things about owing money to the government. Most people have no idea how to avoid garnishment, but with a little education and paying attention to the notices you receive in the mail from the IRS, you can actually do a lot to prevent the IRS from placing a garnishment on you.
The first and most important piece of advice I can give to anyone: Submit your statements! If you have tax returns for something that hasn’t been filed, please do so. The IRS, and states in general, are far more concerned with filing your returns than with whether you pay taxes when you file. The reason for this is because if you don’t file, they don’t know what to bill you for. Because of this, they set the penalties for failing to apply at the highest penalty rate of anything. As an example, the IRS penalty for not filing a return is 5% per month in arrears, while the penalty for not paying the tax is only half of one percent per month in arrears.
Second, don’t ignore IRS notices. As a taxpayer, you have certain rights afforded to you by statutes and regulations. This often includes some type of appeal action on any intent by the IRS to levy you. Probably the most important thing to look for in your mailbox is a notice titled “Final Notice of Intent to Seize.” Note that it will say “Final Notice,” not just “Notice.” In the upper right or lower right corner of the notice will be a form letter number, which will say “Letter 1058.” If it says CP-504, then this is more of an initial notice, not the final notice. After the “Final Notice of Intent to Lien” is issued, you have 30 days to request appeals consideration of the levy action. The final notice will usually include the appeal request form, which is IRS Form 12153. Please complete this and submit it within 30 days of receiving your Letter 1058!
Filing an appeal will generally give you between 30 and 60 days of time. This can allow you to do many things. Perhaps in that time you will have reorganized your finances in such a way that you can afford to propose a monthly payment plan to the IRS, called an Installment Agreement. Perhaps in that time you could have applied for and received a loan that you could then use to pay off the IRS, since the IRS penalty and interest rates will likely be higher than any loan you get. Perhaps during that time you were able to borrow money from friends or family, or take an advance on your job. It may give you time to fully evaluate your situation to see if you qualify for an offer in compromise and allow you to file for a tax assessment.
It is important to note that if you have a pending installment agreement proposal or have submitted a legitimate, complete, and accurate request for an offer in compromise, the IRS cannot take aggressive enforcement action, including garnishment action. You can’t make a frivolous request for an installment agreement or settlement offer simply to buy time, but if it’s a legitimate proposal, then the IRS can’t garnish your wages, garnish your bank accounts, or come take your property.
Here’s a summary of the amount of time you can buy with certain actions:
Collection Due Process Appeal Request: 30 days to 3 months
Request Installation Agreement: 30 days to 4 months
Request Offer in Compromise: 4 to 6 months
Request collection appeal process hearing: 30 days to 4 months
Request Taxpayer Advocate Assistance: 30 to 90 days
In fact, you can go through each of these processes, which could allow you to avoid garnishment action in up to a year and a half if IRS administrative processes are sufficiently supported, which they usually are. This amount of time gives you ample opportunity to figure out what you are going to do to address your financial issues.
If you have a Revenue Officer assigned to you, the Revenue Officer will usually request documents related to your finances. Complying with the deadlines provided by the Revenue Officer, and requesting additional time if necessary, is another way to delay garnishment action. Revenue Officers will normally issue a Form 9297, Taxpayer Contact Summary, with the requested information and the deadlines for providing it. For the most part, most revenue officials will not tax your accounts if they feel you are “playing ball.” However, if they feel that you are severely harassing them, they will not hesitate to issue a lien.
Finally, if you have exhausted all other avenues to protect yourself and the foreclosure action is indeed coming, you can take steps to minimize the impact of the foreclosure. The IRS can tax many potential targets such as investment accounts, bank accounts, paychecks, even your physical cash register if you have a business that has one. Bank accounts tend to be the most common target.
If your bank receives a levy notice from the IRS, they are required to hold the funds in the account on the levy date and then resubmit those monies to the IRS after 21 days. This provides two things to keep in mind. One, it gives you 21 days to try to release the lien. While most cases by no means end with the release of the lien, it may be more common than you think, especially if third parties are affected (for example, you can’t issue employee paychecks because the IRS seized your account payroll). Second, bank account liens are typically issued as a single event. In other words, if you have $4,000 in the account on the date of the levy, that’s what the IRS will get. If you deposit an additional $2,000 the next day, that money is NOT subject to the lien. If you know a lien is likely, it may be a good idea to keep your bank balances low by delaying deposits until the lien hits. Also, if you can avoid it, don’t write checks on the account that might bounce if you know a lien is unavoidable.
I hope this article has been helpful and that the industry expert advice provided here helps you avoid the stress and hassle of dealing with IRS liens.