How We Defend Against IRS Levy
Steps should be taken to defend against an IRS levy in three different situations: when you are the taxpayer, when you receive a levy for someone else’s taxes against property you hold and when you are a third party whose property is levied on in the taxpayer’s hands. There are ways to defend against the levy in each situation, as well as what property is subject to levy.
The levy is the IRS’s most powerful collection device. Levies are of several different types, and it is helpful (sometimes crucial) to know which one you are dealing with. The term levy includes the power of seizure by any means. A levy can mean the physical seizure of tangible property or the constructive seizure of intangible property (including money). There is a separate form for wage levies and for non-wage levies. If you encounter a jeopardy levy, the time in which to take action is telescoped into only days or even hours. If the IRS wishes to exercise its levy power by coming onto business premises, the taxpayer may have certain rights to resist such an entry.
The IRS can use its levy power as a pre-judgment right to seize all nonexempt property to satisfy a liability the IRS alone has determined. The constitutionality of this right has often been upheld. The IRS’s power to levy is in addition to other remedies it can exercise as a creditor, but clearly, it is more powerful than most. Contrary to popular belief, however, neither the taxpayer nor a third party hit by a levy is defenseless. The room to maneuver is narrow, but there are systematic ways in which you can at least ease the burden.
Let’s set the scene we often see: The client has undergone a tax audit and begins to get bills from the IRS. The client calls up and cries, “My paycheck has been stopped!” or, “My bank account has been frozen!” If the levy hits out of the blue, we need to gather the facts. Even if we know of your client’s tax problem in general, it is wise to gather all the facts if we have time. Clearly, we need a copy of the levy. That will tell us what the IRS says is due, for what periods, the type of levy, and where the levy was served. Then we secure a power of attorney (IRS Form 2848).
Get the Facts
We try to get from our client all relevant background information. This would include notices of federal tax lien, notices of taxes due (the computer-generated forms from the service centers), and any other correspondence. These should give a fairly complete picture of what is due according to the IRS. If we have any questions, we call the assigned Revenue Officer. If the case is in the Automated Collection System (ACS), and ACS issued the levy, we call ACS. We find out what periods are involved, the entire procedural history of the case, etc. In short, we get prepared with the facts before we develop a game plan.
Early Warnings of Levy
In practice, a levy is almost always preceded by many distant early warnings. These include an assessment, notice and demand for payment, the failure of the taxpayer to pay the tax, usually four computer generated notices from the service center, and a final notice of intent to levy. The latter is required by statute. Furthermore, after January 18, 1999, the IRS cannot make a levy unless it has first notified the person in writing of their right to a hearing before the levy is made. Call us to discuss the steps that must precede an IRS levy. The IRS can serve a notice of levy either by physically handing it to the person levied upon (the property possessor) or by mailing or faxing the notice of levy to that person.
The procedures for a pre-levy notice and the right to a hearing give the taxpayer an opportunity to defend against the levy before it is imposed. The notice of a right to a pre-levy hearing must be given in person, left at the dwelling or usual place of business of the person, or sent by certified or registered mail, return receipt requested, to the taxpayer’s last known address, not less than 30 days before the day of the first levy for the amount of the unpaid tax for the tax period. The IRS does not have to provide a notice of the taxpayer’s right to a hearing before issuing a levy when collection of the tax is in jeopardy. However, the IRS must still give notice of the right to a hearing for a jeopardy levy within a reasonable time after the levy has occurred. Call us for further discussion of pre-levy hearings.
The hearing must be requested within the 30-day period beginning on the day after the date of the notice. The 30-day period is not extended for taxpayers who reside outside the United States. A written request in any form that requests a hearing is acceptable. The request must include the taxpayer’s name, address and daytime telephone number, and must be signed by the taxpayer or the taxpayer’s authorized representative, and dated. Form 12153, Request for a Collection Due Process
Hearing, can be used by the taxpayer in requesting a hearing. Form 12153 should accompany the notice of a right to a hearing. Otherwise, taxpayers may obtain a copy of Form 12153 by contacting the IRS office that issued the notice or by calling 1-800-829-3676.
The hearing is held by Appeals. A person is entitled to only one hearing for the tax period to which the unpaid tax relates. If the taxpayer does not timely request a hearing with Appeals following the notice, the taxpayer cannot have a hearing and judicial review of the determination.
Taxpayers can discuss their concerns with the IRS office collecting the tax, either before or after they request a hearing. If the discussion occurs before a request is made for a hearing, the matter may be resolved without the need for Appeals consideration.
Appeals can determine the validity, sufficiency and timeliness of any notice and any request for a hearing. The taxpayer may raise at the hearing any relevant issue relating to the unpaid tax or the proposed levy, including:
- appropriate spousal defenses;
- challenges to the appropriateness of collection actions; and
- offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement or an offer-in-compromise.
The taxpayer may, at the hearing, challenge the existence or amount of the underlying tax liability for any tax period if the taxpayer did not receive a notice of deficiency for the tax liability or did not otherwise have an opportunity to dispute the tax liability. An issue may not be raised at the hearing if the issue was raised in any other previous administrative or judicial proceeding, including a hearing on the notice of lien and the person seeking to raise the issue participated meaningfully in that hearing or proceeding. Call us to discuss the hearing for a notice of lien.
No further hearings are provided as a matter of right. The taxpayer must raise all relevant issues at the time of the hearing.
The determination by Appeals must take into consideration:
- whether the IRS met the requirements of any applicable law or administrative procedure;
- the issues raised by the taxpayer;
- any offers by the taxpayer for collection alternatives; and
- whether the proposed levy balances the need for the efficient collection of taxes and the legitimate concern of the taxpayer that any collection action be no more intrusive than necessary.
Appeals sends taxpayers a dated notice of determination by certified or registered mail. The notice of determination sets forth Appeals’ findings and decisions and any agreements that Appeals reached with the taxpayer, any relief given the taxpayer, and any actions the taxpayer or the IRS are required to take.
The taxpayer may, within 30 days of a determination by an appeals officer, appeal the determination to the Tax Court or, if the Tax Court does not have jurisdiction of the underlying tax liability, to a district court of the United States. In seeking judicial review, the taxpayer can only ask the court to consider an issue that was raised in the taxpayer’s hearing.
Once a taxpayer has exhausted his other remedies, Appeals retains jurisdiction. This permits it to consider whether a change in the taxpayer’s circumstances warrants a change in its earlier determination. Any subsequent consideration by Appeals is not a continuation of the original hearing and cannot be judicially reviewed.
The periods of limitation for collection after assessment, criminal prosecution under the Code and civil suits are suspended from the date that the IRS receives the taxpayer’s written request for a hearing until the date the determination resulting from the hearing becomes final. The limitation periods cannot expire before the 90th day after the date on which the determination of the hearing becomes final.
Rarely is a levy procedurally improper, for example by its failure to be preceded by a notice of assessment, or failure to meet minimum time requirements. Nevertheless, we check the timing carefully, because an improper levy may buy the time we need to help the client. A taxpayer can challenge the validity of a levy through a quiet title action. A levy can be enjoined if it is made where a notice of deficiency was not first issued to the taxpayer. In some cases, the sale of property seized by the IRS may be set aside if the proper sales procedures were not followed.