Episode 5: In this episode, Timalyn discusses one of the biggest fears taxpayers have. It's when the IRS actually takes money out of your banking account or seizes other property. In Episode 4, she discussed issues related to getting a tax lien removed. This episode focuses on what happens if the tax lien is not successfully resolved.
What Is a Tax Levy?
A tax levy is a legal seizure of your property to satisfy a debt. This could be money in a bank account, a home, a car, a boat, etc. The IRS can legal seize up to 80% of your social security benefit check. Basically, if there's an asset attached to your name, it can be taken. The IRS can and will take this step. However, the process of arriving at a tax levy is worth understanding. It's doesn't have to get to this point.
If you're about to be faced with a tax levy, Timalyn points out that it's decision time. Is enough, enough? You need to take action, if you want to avoid a tax levy.
5 Steps Before a Tax Levy is Issued
Step #1 – The tax must be assessed. The IRS will let you know how much is owed. However, you should have this information from your tax return.
Step #2 - The IRS will issue a Demand for Payment letter. It will include a specific date by which the debt must be paid. Interest will start accruing after that date. Failure to Pay penalties will also be applied. As Timalyn discussed in Episode 2, you could also include a Failure to File penalty, if you didn't file a return or properly request a filing extension.
Step #3 – You've either neglected or refused to pay the amount included in the Demand for Payment letter. This often can be dealt with through simple communication. If your situation is preventing you from paying, you need to explain the situation to the IRS. Ideally, they will work with you to set up an arrangement. Timalyn can also represent you and handle the negotiations on your behalf.
Step #4 – You receive "the nasty letter." This communicates the IRS' Intent to Levy. There is a specific process and series of steps the IRS must take before seizing your money and/or other assets. Normally, you'll have up to 30 days to respond, but don't wait. They are actively trying to identify potential assets attached to your name.
You have the option of filing a Collections Due Process Appeal. You have the opportunity to explain why a levy would not be the best course for either you or the IRS. You should proactively attempt to set up a payment arrangement. It may or may not be accepted by the IRS, but it's worth trying.
Step #5 – The IRS issues an Advance Notification of Third Party Contact. The IRS has a legal right to contact your employer. They may decide to send your employer a Lock-in Letter. This must be completed and returned to the IRS, by your employer. It shows how your W-4 is filled out. The IRS also tells your employer how much the employer must take out of your check for payment to the IRS. They can take up to 80% of the paycheck to satisfy back taxes.
How Can We Try to Prevent a Tax Levy?
The IRS is operating within its rights. There have been steps along the way, during which the tax debt could have (or should have) been addressed. The IRS obviously wants you to make a payment in full. However, this may not be possible. Good communication may make it possible to set up a payment arrangement to satisfy the debt.
It setting up a payment arrangement, you'll let the IRS know the amount you can afford to pay on a monthly basis. If the tax debt is less than $50,000, you do not have to submit financial information, assuming you can get it paid off within 36-months or 72-months.
However, if you are close to the Collection Statute Expiration Date (CSED). The arrangement may not be approved. The CSED is the last date the IRS has to collect on a specific amount. The IRS wants to have a full repayment, prior to the Collection Statute Expiration Date.
If your tax debt is more than $50,000, you have to option of a Partial Pay Installment Agreement. Note: This option is also available if you owe less than $50,000.
The IRS will look at your living expenses to see what you actually can afford to pay. As more funds become available, your repayment amount will increase or until the CSED date expires; whichever comes first.
Timalyn created a Back Tax Negotiation Checklist for you to use. It'll help you to make sure you have your documents and information prepared, before you try to negotiate with the IRS. This is a very helpful checklist.
"Can I Handle this IRS Problem Alone?"
Timalyn receives this question on a regular basis. Timalyn is passionate about tax work. It's what she does every day. She can't actually assess your ability to handle tax issues, on your own. Understanding how to complete tax returns is not the same as handling tax relief issues. It's a different area of the tax law.
If you owe $10,000 or less, you may also be able to use Timalyn's e-book to resolve your tax issues. It's available on her website. It's called: Guaranteed Payment Plan; How to Guarantee a Payment Plan with the IRS.
However, if your situation is more complicated, or you want Timalyn's help, she can speak with you on a discovery call set up via her website at: https://bookingbowens.as.me/schedule.php.
Parting Advice from Timalyn
You control the narrative with the IRS. You can take action TODAY! The next step is up to you.
As we conclude Episode 5, we'd like to encourage you to connect with Timalyn on social media. You'll be able to subscribe to this podcast on Apple Podcasts, Google Podcasts, Spotify, and many other podcast platforms.
Remember, Timalyn Bowens is America's Favorite EA and she's here to fill the tax literacy gap, one taxpayer at a time. Thanks for listening to today's episode.
For more information about tax relief options, visit: https://www.americasfavoriteea.com/ .
If you have any feedback, or suggestions for an upcoming episode topic, please submit it here: https://www.americasfavoriteea.com/contact
Disclaimer: This podcast is for informational and educational purposes only. It provides a framework and possible solutions for solving your tax problems, but it is not legally binding. Please consult your tax professional regarding your specific tax situation.
