Federal Payment Levy Program
If you or your business has unpaid federal taxes and you receive income or revenue from a federal agency, watch out! You could experience a surprise as the IRS and Treasury Department team up to seize payments due to you. This happens under the Federal Payment Levy Program (FPLP), which often catches taxpayers off guard. Many businesses and individuals rely on these funds, expecting them without realizing they may be subject to levy. If you depend on income from federal payments, take action quickly to avoid unexpected financial hardship.
For businesses, particularly those working with government contracts, unpaid tax liabilities can be especially risky. Federal contractors with accounts receivable from government agencies are directly exposed to offset actions by the U.S. Treasury. When you work for a federal agency and owe back taxes, the agency and Treasury effectively become your creditors, and unpaid taxes could lead to payment offsets.
In these cases, you may find yourself blindsided as funds are withheld. The Treasury and IRS use the “Federal Payment Levy Program” to levy contractors who owe the government taxes. If your business depends on federal income, addressing tax liabilities immediately can prevent loss of critical payments.
Why You Should Take Federal Payment Levies Seriously
The FPLP can impact individuals as well. Individuals with tax debt receive a final notice of intent to levy (CP297 or CP90) prior to Treasury offsets, with 30 days to appeal. Business contractors, however, receive no such notice before levies begin. For individual taxpayers, levies are capped at 15% of Social Security benefits, but businesses can face up to a 100% levy on federal payments. This discrepancy underscores the urgency for federal contractors to resolve outstanding taxes.
Preventing Treasury Levies with IRS Intervention
In some cases, the IRS can halt Treasury levies by implementing a code to block future levies. A Revenue Officer handling your case has the discretion to enter this block, but they are more likely to do so only if your tax account is being actively resolved. Generally, this means securing an Installment Agreement or an Offer in Compromise. Without such arrangements, blocking Treasury levies is unlikely.
A Federal Payment Levy Cannot Be Reversed
One critical aspect of the Federal Payment Levy is its irreversibility. Once the Treasury has levied a payment, it cannot be undone. Unlike direct IRS levies, which can sometimes be released, Treasury levies through the FPLP cannot be reversed, making it vital for government contractors to proactively address tax debt and avoid future levies.
Steps for a Quick Resolution
Whether you are an individual or a business, the best way to protect your federal income is to resolve your IRS debt as soon as possible. After a payment arrangement is set up, Treasury levies are blocked automatically. However, if you default on an Installment Agreement or other payment plan, the block is removed, re-exposing you to levy risks from both the IRS and Treasury.
In some cases, an experienced tax attorney can handle negotiations with the IRS to prevent or release levies, allowing you to focus on running your business. Remember, a lawyer’s Power of Attorney only allows communication with the IRS, not directly with Treasury officials. While the IRS can prevent future levies, they cannot recover funds already intercepted by Treasury.
A company’s receivables are its financial lifeline. Losing federal payments due to Treasury levies can jeopardize business operations. It’s essential to work with the IRS as quickly as possible to avoid disruption. If a Revenue Officer requires specific terms before blocking levies, a tax attorney can negotiate these conditions to stabilize your cash flow and protect your business’s future.
