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Showing posts with label seize. Show all posts
Showing posts with label seize. Show all posts

Saturday, December 23, 2023

Notice(s) Of Intent To Seize And Levy

 

I received the following notice under power of attorney for a client.  

Another accountant at Galactic Command works with the client. I am the tax nerd should problems arise.

Yeah, we have a problem.

For more than one year, too.

Combine the two and I can get cranky. Just because I know the route doesn’t mean I want to revisit the site.

But back to our topic.

The notice seems terrifying, doesn’t it? The IRS is talking about seizing and levying and all matters of unkindliness.

Let’s go through the sequence of these notices.

First, you owe the IRS. There is a sequence of four notices, sometimes referred to as the “500” sequence.

  • CP501         You have unpaid taxes somewhere.
  • CP502         We have not heard from you about unpaid taxes.
  • CP503         Hey, dummy! Are you there?
  • CP504         We intend to levy if you do not do something.

This is the fourth notice in the sequence for our client for tax year 2022. As you can see, he/she/they are moving through the IRS machinery rather quickly. Then again, almost $225,000 in taxes and penalties buys you a better spot in line.

The CP504 is however not the final:final notice.

Let’s talk IRS procedure.

Before the IRS can go after your stuff (bank account, car, John Cena collectibles), it must (almost always) allow you a hearing. This is called a Collection Due Process (CDP) hearing, and it entered the tax Code with the 1998 IRS Restructuring and Reform Act. The Act was Congress’ response to IRS horror stories, including aggressive collection actions.

The IRS is not allowed to go after you until you have been offered that CDP hearing. You can turn it down, blow it off or whatever, but the IRS must provide the opportunity before it can unleash the tender attention of Collections.

 Except …

There is a short list of stuff the IRS can levy before a CDP. The list is uncommon air, except for:

Your state tax refund

That’s it. For most of us, the IRS can only go after our state tax refund – at this stage.

Then you have the FINAL BIG BAD notice: either the 1058 or LT11.The difference depends on whether you have been assigned to a Revenue Officer (RO).

LIFE TIP: Avoid having your own Revenue Officer.

 

If you get to a 1058 or LT11, you are at the end of the line. You will be dealing with Collections, and it is unlikely you will like the experience.

You may want an attorney or CPA, depending upon.

Not that having a CPA seems to matter – because clearly not - to our client.

Wednesday, July 24, 2013

Dealing With A Tax Lien




A client contacted me this past week. He received a Notice of Federal Tax Lien, and he wanted to find out if (1) he should worry about it and (2) if I could do anything about it.

Here is the pat answer in tax practice: it depends.

A lien is different from a levy. Odds are you and I would worry more about a levy than a lien.

A levy means that the IRS comes in and takes your money. The two classics are the wage garnishment, where they contact your employer and have him/her send them part of your paycheck, and the bank levy, where they swoop in a drain your bank account.

The IRS places a lien on a taxpayer’s property when he/she has unpaid tax debt. It does not mean that they are going to garnish your paycheck or seize your house, but it does mean that they have filed something at the courthouse alerting the world that you have unpaid debt. That lien can cost you over a hundred points on your credit score. In today’s world, that could affect you being offered a job or being approved for an apartment.



A lien can stay on your credit report for years, even after the tax is paid-off.

The IRS has realized the injurious effect of its previous lien policy. It has taken steps, albeit small, to alleviate some of the sting:
(1) The IRS has increased the minimum amount of tax debt that prompts the filing of a tax lien from $5,000 to $10,000.
(2) If you owe less than $25,000, the IRS will withdraw the lien if you set up a direct debit installment plan. This means they automatically draft money from your bank account every month. You have to pass a probationary period of three months (and three payments). The IRS will then withdraw the lien.
OBSERVATION: Words are important here. Record of a lien can remain on your credit report, even after it is removed. You prefer a withdrawal of the lien, as a withdrawal is as if nothing ever happened.
(3) Even if you owe less than $25,000 and have made at least three payments under a direct debit plan, you still have to request that the lien be withdrawn. You should submit Form 12277 Application for Withdrawal of Filed Notice of Federal Tax Lien, although any written request that provides the necessary information likely will suffice.
(4) Even after all this, you want to contact the credit bureaus to be certain that your records have been updated.
What if you owe more than $25,000? This is my client’s situation, and there are not many good options.
(1) Pay off the tax debt in full.
OBSERVATION: This one ranks a ‘duh.” Nonetheless, the point to consider is that you might be able to borrow and pay off the IRS. Granted, you still owe money, but at least you can stop the ongoing ding to your credit.
(2) Post a bond.
OBSERVATION: Again, if you have enough money to post a bond, you likely can pay-off the debt. I have never seen someone post a bond to release a lien.
(3) Request a partial release
You own several assets encumbered by the lien. If you need to sell an asset, you can request partial release from the lien. Expect the IRS to want the money from the sale, of course.
(4) Offer in Compromise
This is the “pennies on the dollar” commercial on radio or overnight television. The idea here is that you offer the IRS what you have, plus a portion of your future earnings, to pay-off a tax debt. If you still have years to go in the workforce and have reasonable earnings potential, you likely will not qualify for “pennies on the dollar.” The IRS can also see your earning power over the next few years, and they will be loathe to let you walk away. However, if you have modest assets and are disabled, retired or near retirement, the OIC may pack a punch.
What did I recommend to my client? He owes more than $25,000, and enough more where I cannot have him pay-down to $25,000. He is young enough, and has enough earning power, where any offer in compromise would yield little (if any) more benefit than a payment plan. In that case, I would prefer to remain in a payment plan, as an offer will toll the statute of limitations.  That takes away my last ditch option…
(5) Run the 10-year statutory collection period
The IRS has 3 years to audit your return and 10 years to collect. Sometimes they overlap, and the two periods run concurrently.  Think of running the bulls in Pamplona for 10 years, and you can visualize this tax strategy. Still, sometimes it works, which is why tax advisors continue to talk about it. 
The trap here is “tolling,” which means that the collection period is suspended. Toll enough and the 10 years can become 15 or 20 years. What causes a toll? A bankruptcy application causes it. So does an offer in compromise.

There is no releasing my client’s lien early. Why? The IRS will generally not release a lien if it knows it will not be fully paid-off.  My client has a partial pay plan, which means that his full liability will not be paid off unless the plan payment or period changes.  

He owes over $25 thousand and will not pay-off the IRS in full as the plan now stands. He is hosed.