As most people know, the IRS and state taxing authorities have a tremendous amount of power to collect unpaid taxes by way of enforced collections. “Enforced collections” refers to methods the government can use to collect unpaid taxes forcibly, and almost always involve taking something of value from an indebted taxpayer without the taxpayer’s consent.
The most common forms of IRS enforced collections include bank levies, wage or other income levies, and accounts receivable levies. Note that the states generally have similar powers, though many use the term “garnishment” instead of the term “levy.” In more aggravated cases, the IRS (and states) can and will resort to seizing assets.
It goes without saying that a swept bank account, an ongoing garnishment on one’s paycheck, or levied accounts receivable (a legal order directing people or businesses who owe you money to send that money directly to the IRS instead) can wreak absolute and total havoc on the finances of a business or a household. Accordingly, avoiding enforced collections is rightly among the foremost concerns of individuals and businesses who have unpaid taxes.
But, is it possible to stop the IRS or states from taking enforced collection action? Alternatively, if it can’t be stopped, is it at least possible to “buy time” by postponing enforced collections? It may come as a surprise, but the answer to both of these questions is very often “yes”—if you know how to do it. If you’re interested in learning what exactly can be done to stop or postpone enforcement, read on.
The Top 7 Ways To Prevent IRS and State Tax Levies And Wage Garnishments
#1 Get Into Compliance
If you have unfiled tax returns or if you are “pyramiding” tax liabilities, meaning that you are continuing to incur new tax liabilities on top of old ones, you are not in compliance with the tax laws. Generally speaking, you cannot enter into a tax resolution agreement such as an installment agreement or an offer in compromise (a tax settlement) if you are not in compliance.
Moreover, in simple terms, being out of compliance is a bit like waving a giant red flag telling the taxing authorities that going after you should be a top priority. Contrary to popular belief, the IRS and states don’t have unlimited resources. They tend to go after the biggest offenders first, and being out of compliance can help catapult you to the top of their list.
#2 Enter Into A Tax Resolution Agreement
If you aren’t able to get into compliance for whatever reason, I’ll explain what to do to stop or postpone enforcement later. If, however, you are in compliance, then entering into a resolution agreement with the IRS will prevent enforced collections. Either set up an installment agreement, negotiate an offer in compromise (tax settlement) or negotiate currently not collectible status (prove that you are financially unable to pay anything towards your tax debt). In the case of an installment agreement or an offer in compromise, simply filing the correct paperwork to request the agreement should prevent the IRS from taking enforcement against you while the paperwork is under review (provided that you are in compliance).
If the IRS rejects your proposal for an installment agreement or an OIC, the rejection letter will explain your appeal rights. If you appeal, the IRS should not take enforcement against you while your appeal is under review.
#3 File A Request For A Collection Due Process Hearing
With few exceptions, the IRS cannot legally take most forms of enforced collections against you until it has issued you a Final Notice of Intent to Levy (“FNIL”), and waited at least 30 days after issuing you that notice. The FNIL will come with instructions on how to request a Collection Due Process Hearing (“CDP”). If you file a properly prepared Request for a Collection Due Process Hearing within 30 days of the date on the FNIL, the IRS generally may not take enforced collection action against you until you’ve had a hearing, and also for at least 30 days after the IRS issues a Notice of Determination (a letter issued after you’ve had your hearing explaining the outcome).
Note that a timely filed CDP request will normally prevent enforced collections even if you are out of compliance. Accordingly, for taxpayers who are unable to get into compliance for whatever reason, the CDP request can be an invaluable tool for buying time. It can take months to get a hearing. During this time, hopefully, you can get into compliance. If you do, you may be able to negotiate a resolution agreement with your Settlement Officer (appeals officer) at or after your hearing.
If you miss the 30-day deadline to file a CDP request, you may still be able to request an Equivalent Hearing. While the IRS may levy while an Equivalent Hearing is pending, in my experience, filing the request for the Equivalent Hearing will drastically reduce the chances of enforced collections—especially if you are in compliance and are not “pyramiding.”
#4 Respond To The IRS or State And Meet All Deadlines
Whether you are in compliance or not, one of the single most important things you can do to reduce the chances of enforced collections is to respond to the IRS (or state) in a timely fashion. When you get mail from the IRS or state, read it. If they are asking that you take some kind of action by some future date, do what is asked of you if at all possible.
If it is impossible for you to do the things that are asked of you by the deadline that they set, do as many of the things that you can. Then contact the IRS (or state) on or before the deadline, make sure they are aware of the requirements that you did fulfill, explain why you were unable to perform the requirements that you did not fulfill, and request additional time without enforcement for you to fulfill the remaining requirements.
Doing something is a lot better in their eyes than doing nothing, and it demonstrates that you are at least making an effort. If you have a good reason why additional time is needed, chances are pretty good that they will give you additional time within reason. The last thing you want to do is simply miss their deadline and fail to contact them to request additional time. If they view you as uncooperative (e.g. you miss their deadlines), your chances of enforced collections skyrocket. If asking you nicely failed to get your attention, they know darn well that a swept bank account or a garnished paycheck will get your attention.
The same is every bit as true, if not more so, when it comes to human contact from the IRS (or a state). If your case has gotten to the point where there is a revenue officer or revenue agent (a human tax collector) assigned to collect from you, make sure that you are meeting deadlines and staying in contact. Revenue officers absolutely will take enforced collections against you if you aren’t meeting their deadlines.
#5 Send Them Money
Send as much as you can each month and designate that it be applied to your unpaid taxes. You do have the right to designate how you wish any voluntary payments to be applied. Ask a tax professional the best way to designate given your situation.
Even a token monthly payment (e.g. $50) can reduce the chances of enforced collections or postpone the commencement of enforcement, and having a pattern of voluntary payments can score you a few brownie points when an IRS employee looks at your account some day. Again, doing something is better than doing nothing.
Just know that this is not nearly as important as getting into—and staying in—compliance. In other words, if you cannot afford to stay current with new tax obligations and make payments towards old ones, it is almost always far better to focus on staying current with new obligations.
#6 Ask To Speak With A Collection Manager
Whether you are speaking with a collection representative at Automated Collection Services (the IRS 800 number) or a local revenue officer, if they will not agree to refrain from taking enforced collection action, ask to speak with a collection manager. Perhaps you can convince a collection manager to overrule the decision of their subordinate. If you cannot convince the collection manager to hold off on enforcement, explain that you will be filing a Collection Appeal Request (aka “CAP”), and file the CAP that day. You will then be given an opportunity to plead your case to a settlement officer (appeals officer).
#7 Seek Professional Assistance
While the above advice can definitely help do-it-yourselfers reduce the chances of enforcement, it is a poor substitute for having an experienced tax resolution attorney on your side. A good tax resolution attorney has handled thousands of tax collection cases, has a thorough understanding of all applicable tax laws and collection procedures, and understands the most effective methods of working through the IRS (or state) collection bureaucracy.
A good attorney possesses outstanding advocacy skills, knows how to protect your rights, and can build and present the most compelling case possible given the facts. Not only can a good attorney minimize or eliminate the chances of enforced collections, they can make sure that you get the best terms possible for resolving your tax debt. That could mean settling your tax debt for a fraction of the total, getting rid of your penalties, or getting you a monthly payment that is a lot lower than what you could have negotiated on your own. Particularly with larger tax liabilities (e.g. $15,000+), it’s a good idea to at least consider bringing in a tax resolution professional.
Fortress Financial Services, Inc. has caring and knowledgeable professionals on staff who would be happy to evaluate your situation at no charge. Pick up the phone and give us a call.