IRS Tax Levies – How to Prevent a Tax Levy
In my last post, I talked about what to do if you find you have been levied. You can find that and prior posts on tax levies here, here, and here. In this post, I will discuss how to prevent a tax levy in the first instance. Otherwise known as how to not put your foot into it.
Just as a reminder, if you don’t want to peruse my prior posts, an IRS levy is meant to hurt. The IRS only uses a levy to seize your assets if you disregard the IRS’ attempts to resolve your tax debt. Commonly, a tax levy takes the form of wage garnishments, bank levies, and seizure of state tax refunds. That is not all – The IRS can seek to foreclose on your home and attempt to seize money due you from customers, clients and patients. So, with that, let’s talk about how to prevent an IRS tax levy before it causes you a great deal of pain.
How to Prevent an IRS Tax Levy
Most levies take the form of bank levies so I will describe the process of getting a bank levy released but the process is the same regardless of type.
1. Don’t Wait – Call the IRS Immediately
I know this is easier said than done. For most people the thought of calling the IRS sends shivers down their spine. I get it. Trust me when I tell you that your shame and embarrassment will be considerably more if you call AFTER you’ve been levied. Be proactive and solve the problem.
When you call the IRS, you will let them know that you are aware of the problem and want to set up some sort of payment arrangement. The IRS agent often times will have you prepare what is called a collection information statement or 433 form. You should gather bank statements, utility bills, mortgage statements, etc. in advance. If you are not sure what you need, click on this link to see the 433 form which includes instructions which will give you an idea what documentation you will need.
You should try to get as much time to provide this to the IRS, we recommend at least 30 days, so you have time to prepare any forms and consider your options. You may only be given 7 to 14 days. If that seems like it is not enough time, demand to speak to their manager so you can explain why you need more time.
During this call, the IRS agent will investigate your account to make sure you have filed all required returns. You may be told that you have missing returns. You will need to get those returns prepared, if they have not, or provide copies to the IRS if they have been filed but not yet processed.
Make sure before you end the call that you have the IRS agent repeat what is needed and the deadline to provide it to the IRS. Write it down! Make sure to also get the agent’s badge number and log the date and time of the call.
2. What to Do Once the Call is Over
Start working immediately on the required documentation (as well as getting any missing returns prepared). Do not wait. You will be surprised how quickly the deadline will creep up on you. You want to make sure you provide an organized and complete response. Enough on that.
Additionally, you are going to need to make sure you are tax compliant. Failure to do so will mean your payment arrangement will not be accepted. What do I mean by tax compliant?
If you are self-employed, you need to immediately start making estimated tax payments. What are those? Big problem! Talk with your accountant to figure that out; otherwise, you can research that using this link: Estimated Taxes | Internal Revenue Service (irs.gov) Biggest cause of problems for the self-employed is failing to keep up with estimated tax payments.
If you are an employee, you should make sure enough is withheld from your paycheck to cover any taxes due. You can talk with your accountant, or you can go to this link and use the withholder estimator to figure that out: Tax Withholding | Internal Revenue Service (irs.gov)
Beyond having enough paid in to cover your taxes, you need to file your current and future tax returns on time. Filing late, especially if you have a balance due, is bad just for penalties alone but also because the IRS treats this as being noncompliant with your tax filings. Don’t do it. File on time and pay any balances due before you file (through estimates) or with the return.
3. What If I Get the Final Notice of Intent to Levy?
All hope is not lost if you get the final notice of intent to levy. You have 30 days to work something out or file a collection due process hearing. I prefer to file the hearing notice myself but it you have an uncomplicated situation you can get this over and done with by just calling the IRS. Just follow the same directions as above. Once you get a payment arrangement set up, you will be protected from any future levies.
If you need time and the IRS will not give it to you then request the collection due process hearing. That will allow you to get protection from the levy generally. You will then have a chance to work something out with IRS Independent Office of Appeals. I find that appeals officers are experienced and capable agents and that makes it easier to work something out. Just keep in mind that your case will be tossed from appeals if you are not in current tax compliance (see above).
Being levied sucks. You want to avoid an IRS tax levy at all costs. Follow the above instructions to prevent being levied and get into some payment arrangement. Just make sure to be honest and keep your promises. Often the IRS is willing to work with you but unkept promises will hurt you down the road if you need relief in the future.
I am Maine’s IRS Problem Solver. My firm helps Maine taxpayers in trouble. If you or someone you know in Southern Maine wants more information on how to resolve your unpaid taxes, please feel free to contact me directly at 207-502-7181 or by filing out my contact form. A Maine tax attorney can help you consider your options.
James D. Wade, Esq.
Law Office of James D. Wade
57 Portland Road, Unit 3
Kennebunk, ME 04043