TaxAudit Warns the IRS Will Resume Functioning of Automated and Systemic Lien and Levy Programs

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For millions of taxpayers with unresolved federal tax debt, the IRS COVID-19 automated and systemic lien and levy programs moratorium that began in April 2020 have come to an end. The Automated Levy Program allows the IRS to coordinate with other federal, state, and municipal tax agencies to levy certain payments to satisfy a taxpayer’s past-due tax liability. An IRS “systemic” lien or levy happens when the IRS Revenue Officer that is assigned to the taxpayer’s case, initiates a lien or levy order into the system.

On June 14, 2021, the IRS updated their “IRS Operations During COVID-19: Mission-critical functions continue” webpage announcing their systemic and automated lien and levy programs will begin sending out certain levy notices as early as July 15, 2021. It does not mean taxpayers have a reprieve from addressing their past-due federal taxes until a week or two after the July Fourth holiday. Unfortunately, taxpayers should act sooner rather than later to escape potential lien or levy action and gain independence from their unsettled tax debt. Although government agencies and businesses are returning to normal operations, many taxpayers are still financially reeling from the COVID-19 pandemic and cannot pay their past-due tax liability. This is where TaxAudit can step in and help. With over 140 experienced enrolled agents, CPAs, and tax attorneys, TaxAudit is equipped and ready to assist taxpayers with resolving their IRS collections issues.

On June 15, 2021, the IRS began sending balance due reminder notices to taxpayers who have not paid their federal tax liability or entered into a payment plan or other agreement with the IRS. Taxpayers who receive these notices have 30 days (45 days if out of the country) to contact the IRS to make payment arrangements. Those who cannot pay the balance due and do not contact the IRS to enter into an alternative agreement may find themselves facing a lien or systemic levy beginning August 15, 2021. The IRS uses liens and levies as a way to get taxpayers’ attention and motivate them to pay the delinquent tax due, enter into a payment agreement, or supply financial information that verifies the taxpayer is not financially able to pay.

IRS Lien

Many taxpayers interchange the words “lien” and “levy;” however, they are two distinct enforcement actions. A lien is when the IRS makes a legal claim to a taxpayer’s property as security or collateral to pay a tax debt. The most common asset the IRS files a lien against is the taxpayer’s home or other real estate property, such as a second home or rental property. While a lien is in place, the underlying property, such as a person’s home, cannot be sold or transferred without first satisfying the federal tax due. Furthermore, an IRS lien can make a mortgage refinancing very challenging, which can be a catch-22. Refinancing to a lower mortgage interest rate will free up funds to pay the IRS, but the refinance cannot be finalized if the IRS already called dibs on the property.

One way to successfully refinance a home when the IRS lien has been placed on the property is through a process called lien subordination. The tax professionals at TaxAudit are experienced in negotiating lien subordination solutions and understand the complexities that can arise when dealing with the IRS. By handling thousands of cases with the IRS, TaxAudit’s professionals can promptly step in and partner with the taxpayer to develop an effective resolution strategy. Strategies used to resolve an IRS lien include requesting a lien release, withdrawal, or discharge. In some circumstances, a Collection Appeal Program Hearing or Equivalent Hearing may be necessary.

IRS Levies

A levy is the actual seizure of property (which includes income) to satisfy a tax debt. While seizures of homes, luxury vehicles, art collections, and cryptocurrency are what typically make news headlines, the IRS is more likely to garnish wages or levy a taxpayer’s bank or investment account or their state tax refund. There are certain types of income that are exempt from levy. They include unemployment benefits, worker’s compensation, certain public assistance benefits, service-connected veterans disability payments, income needed to provide court-ordered child support or child support received by a delinquent taxpayer, and Supplemental Security Income for the aged, blind, or disabled (also known as SSI). Keep in mind that retirement income, including Social Security retirement benefits, is not off limits regarding the income that can be subject to levy. Most levies fall into one of two categories: one-time levies and continuous levies.

Generally, the IRS has the authority to seize money held in bank accounts within the United States or possessions of the U.S. Only under certain circumstances may the IRS seize property from a taxpayer’s bank account that is located outside of the United States or its possessions. Bank levies are a one-time order where the levy “attaches” only to the amount in the account at the time the order is processed by the bank, whether the balance is $2 or $200,000. Any funds deposited after the levy order is processed are not included in the amount that is “frozen” and set aside for levy. Banks are required to hold the funds for 21 days after processing the levy. This provides the taxpayer time to appeal the levy with the IRS. After the 21 days, if the bank has not received a release of levy from the IRS, the bank is required to surrender an amount equal to the amount instructed in the demand for levy, or the total within the taxpayer’s account, if the account balance is less than the total demand. If the taxpayer can negotiate a levy release before the 21-day period expires, the funds will be restored to the taxpayer’s account.

The most common continuous levy the IRS enforces is wage garnishment. A wage garnishment order will impact every paycheck until the levy is released. When a wage garnishment is ordered, the IRS assumes that all the taxpayer’s wages are subject to levy, except for the exempt amount. The employer determines the exempt amount based on federal income tax information provided by the taxpayer. The gathered information is then applied to a series of tables provided by the IRS in Publication 1494, Tables for Figuring Amount Exempt from Levy on Wages, Salary, and Other Income to determine the total wages exempt from levy.

As previously mentioned, the Automated Levy Program allows the IRS to levy certain federal, state, and municipal payments and apply them to a taxpayer’s past-due federal tax liability. Currently, there are four Automated Levy Program categories.

  •     State Income Tax Levy Program, which levies a taxpayer’s state income tax refund;
  •     Municipal Tax Levy Program, which levies a taxpayer’s local income tax refund;
  •     Federal Payment Levy Program, which levies a taxpayer’s federal retirement income, including Social Security retirement benefits; and
  •     Alaska Permanent Fund Dividend Levy Program, which levies a taxpayer’s Permanent Fund Dividend distributed by Alaska.

For a garnishment or levy to be released, the taxpayer must make sure they are currently compliant with all current tax filings. Many levy remedies require that the taxpayer is in filing compliance. This is where TaxAudit’s tax debt relief program may be beneficial as they work to develop a personalized plan for every taxpayer’s unique situation. Once the best collection remedy is determined, TaxAudit’s team of professionals will contact the IRS to discuss the case and request the levy be released.

After a year of uncertainty, turmoil, and hardship, the last thing any taxpayer needs is to be caught off guard and find the IRS placed a lien on their home or discover their checking account was levied by the IRS while trying to pay for groceries at the check-out counter. The Taxpayer Bill of Rights ensures taxpayers that they have a right to finality. The tax professionals at TaxAudit are ready to partner with taxpayers who are receiving notices regarding their delinquent tax due and who are under the threat of lien or levy to prepare a vigorous defense by providing honest answers, realistic options, and clear communication. With TaxAudit, taxpayers do not have to face the IRS alone.

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