I was
minding my own business. My partner sweeps into my office and says we have to
take care of something right away – hopefully that very afternoon.
Hey, I am a
career CPA. Some level of ADD is almost requisite to longevity in this
profession.
He drops an
IRS Form 668-W on my desk.
There is
something I had not seen in a while.
What is a
668-W?
A wage
garnishment. The IRS refers to it as a “levy.” If you get to this point, you
have almost gone through the belly of the whale. The IRS has sent notice after
notice, giving you a chance to contest, request abatement, defer collection or
set up a payment plan. You have ignored them all. They got angry. They are now garnishing
your paycheck.
This notice
goes to your employer, and your employer is charged with notifying you. Your employer
is going to garnish your next paycheck. Your employer does not want to go
resistance here, as an employer becomes liable should they just blow it off.
And then there is a 50% “hi there” penalty on top of that.
The IRS
publishes tables telling you how much you get to keep. Say that the you are married,
have one kid and receive a weekly net check of $1,017.65. The table indicates
that you can keep $541.35. The employer withholds and remits the $476.30 balance
($1,017.65 – 541.35) to the IRS.
On the
upside, the IRS is not touching your health insurance or 401(k) withholding. On
the down side, it is jonesing the rest of your paycheck.
Can you live
on $541.35?
That is not
the point.
The point is
that the IRS wants you to reenter the grid and establish a payment plan. Once
you do so, the IRS will release the levy. As far as they are concerned, you
should have done so already. The levy is to slap you into reality.
And you have
forfeited some (at this point) important procedural rights.
Say that
there is a question whether you actually owe some or all of the tax. Had you
paid attention to the increasingly strident string of IRS notices, you would
have noticed one titled “Notice of Intent to Levy.”
That one is
serious. Not as serious as the 668-W, of course, but serious.
At that time,
you had the right to request an IRS appeals hearing, called a Collection Due
Process hearing. That puts you in front of an Appeals officer to plead your
case, including whether you actually owe some or all of what the IRS wants.
Say you ignored
the Notice of Intent.
It is a year
or two later and you receive the 668-W.
You bring it
to me. You may note that I am not humored.
Guess what
important right you forfeited by ignoring the earlier notice?
That’s
right: being able to argue whether you actually owe some or all of the tax.
That is dandy
if there is no question whether you owe the money.
Not my
situation. The friend has a very good case that he does not owe (at least some)
of the tax.
But we are
past the point where I can force a collection hearing to talk about the matter.
Is it
hopeless?
Nope. A
proficient tax practitioner still has tricks.
Like?
Like an
offer in compromise. You know, those middle of the night commercials to settle
millions of dollars of tax debt for the change in your pocket.
Is the friend
broke?
Not the
point.
What is the
point then?
There is more
than one type of offer. The one I am considering has nothing to do with your
ability to pay. It instead has to do with whether you actually owe the money.
The first addresses doubt as to collectability. The second addresses doubt as
to liability.
It is one
way to get the IRS to review the file with an eye as to liability.
Is this what
we are going to do?
Doubt it.
Why not?
Because an
offer will stay that levy only so long. The IRS can still demand a weekly wage
levy WHILE they are considering the offer. Will it happen? Maybe yes,
maybe no, but why run the risk?
What is an
alternative?
File an
appeal.
An appeal
shuts down all collections action, meaning that I do not have to bank on the
IRS’ better nature to stay that levy. Appeals allows me to introduce evidence
that the friend does not owe all the assessment. I am also hoping to get
penalties abated, at least some, but that would be a bonus.
Should the friend’s
situation have gotten to this point?
I am
sympathetic. Those who have followed me know that I am generally pro-taxpayer,
but that is not what we have here. There were notices, which were ignored.
There was a statutory notice of deficiency, which was ignored. After the statutory
notice, taxes and penalties were officially assessed, which was also ignored.
There was a chance for reconsideration, which was ignored.
During all
this there was ALWAYS a chance for a payment plan.
As I said, you
may note that I am not humored.
