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“Don’t Have a Seizure”
Protecting Your Clients From the IRS Collection Division
•All audio is streamed through your computer speakers.
•There were several attendance verification questions presented during
the LIVE webinar to qualify for CPE of the LIVE event only.
•For the archived/recorded version of this webinar, the link at the end of
this presentation will be to final exam on the topics and learning objectives
covered during this webinar plus there are also 3 online review questions
to answer per hour.
National Society of Accountants
1010 North Fairfax Street
Alexandria, VA 22314-1574
Phone: (800) 966-6679
[email protected]
“DON’T HAVE A SEIZURE”
PROTECTING YOUR CLIENTS FROM THE
IRS COLLECTION DIVISION
Robert E. McKenzie
Arnstein & Lehr LLP
Chicago, IL
312.876.6927
www.mckenzielaw.com
1
MCKENZIE’S PRIME DIRECTIVE
GET THE FEE
FIRST!!
2
Learning Objectives
Upon completion of this webinar you will be able to:
• Recognize the methods the IRS is using to enforce collection
activities and dew IRS collection priorities and procedures
• Identify advanced concepts in liens: subordination, subrogation,
discharge and non-filing of liens.
• Represent taxpayers with employment tax liabilities and the trust
fund recovery penalty issues for officers of delinquent companies.
• Protect your clients from increased IRS enforcement.
Collection
2008
2009
2010
2011
2012
Levies
2,631,038
3,478,181
3,606,818
3,748,884
2,961,162
Liens
768,168
965,618
1,096,376
1,042,230
707,768
Seizures
610
581
605
776
733
3
Levying Taxpayer Property Pg. 1
• IRS has the power to collect taxes by levying on taxpayers’
property as a result of the Federal Tax Lien.
• When a person owes taxes, the IRS gains a lien on all that
person's assets after meeting certain statutory
requirements. The lien attaches to all rights, title and
interest of the taxpayer wherever it may be situated. [IRC §
6321]
• Once the IRS has a lien on all of a taxpayer's assets, it may
enforce that lien by administratively levying his or her
assets.
4
Lien Rights Pg. 1
An example of lien rights would be the lien created when a
person buys a car and finances the purchase through a bank.
The purchase price for the car is $10,000. The purchaser
pays a down payment of $2,000 and signs a note with a bank
giving it a lien on the car. The bank then lends the buyer
$8,000 to complete the purchase. If the buyer defaults on the
note, the bank may repossess the car. In the case of the IRS
it gains a lien on all of a taxpayer's assets and therefore it
has the right to seize most of those assets to satisfy unpaid
taxes.
5
Liens Pg. 1
• Assessment
• Notice & demand
• Neglect or refusal to pay
6
Effect of Federal Tax Lien Pg. 2
Effect of the Federal Tax Lien statute is that when any
person fails to pay any assessment of tax, plus interest,
penalties, or costs, a lien in favor of the United States
arises upon all property and rights to property, whether
real or personal, tangible or intangible, belonging to the
taxpayer. Even if the taxpayer makes partial payment, a
lien will arise for the balance of the tax.
7
Statutory Period Pg. 2-3
• 10 years
• Extending events
– Bankruptcy
– Leave country for more than 6 months
– File CDP
– Sign a waiver for up to 5 years in conjunction with an I/A
– OIC
– TAO
8
Notices of Levy
Pgs. 4-6
CDP must have been issued 30 days prior absent
jeopardy
– 668-A
– 668-W
– Exemptions
– 668-C
9
Collection Due Process
Pgs. 6 & 39-42
•
•
•
•
IRC § 6330
Letter 1058
Timely appeal in 30 days
Form 12153
Set forth all defenses to levy
– Offer in compromise
– Amount of the liability
– Spousal defenses
– Currently not collectible
– Penalties
– Request for installment agreement
10
Equivalent CDP
• Up to 1 year to file pursuant to new Sec. 6330 Regs.
• No Judicial review.
11
Review Questions for Self-Study CPE
Now’s the time to answer the review questions.
Follow this link:
http://www.proprofs.com/quiz-school/story.php?title=NTc1ODgz
Please leave quiz window open and wait to submit until prompted
to complete questions 4 through 6. Once completed, press Submit
and close quiz window.
Form 668
• Pg. 28
12
Accounts Receivable Pg. 8
• AR, notes & other assets owed to a taxpayer may be levied
upon.
• Any receivable that is due in a single payment (rather than
installments) may ordinarily be reached by one Notice of
Levy.
• If the taxpayer has an unqualified right to receive
installments on a debt, one Notice of Levy would reach all
such installments.
• In cases where the right to receive installments does not
exist or where there is doubt as to the taxpayer's right to
future payments, the IRS will serve a 668-A as each
installment becomes due.
13
Benefit Income
Taxpayer Relief Act of 1997 allows the IRS to serve
a continuous levy which attaches to 15% of the
following payments:
– Social Security
– Any benefit payment for which eligibility is based on a
payee's income or assets (or both),
– Minimum exempted amount of wages in salary,
– Worker's compensation payments,
– Annuity or pension payments under the Railroad Retirement
Act and benefits under the Railroad Unemployment
Insurance Act, and
– Unemployment benefits and certain means-tested public
assistance payments. [IRC §6331(h)(2)
14
Levy on IRAs and 401K plans
IRS has right to levy upon IRAs, Keoghs, and 401K
plans, but now when it takes such action, it may not
assert an, excise penalty on the involuntarily
converted funds. TPs will still have to pay the
income taxes due as a result of-the involuntary
conversion.
15
Notice of Levy on Bank Accounts Pg. 9
• Bank or financial institution is served with a Notice
of Levy, it is required to hold the monies in escrow
for at least 21 days after service. [IRC § 6332(c)]
• Allow TP time to correct erroneous levies.
• Also allows time to negotiate with the Service
regarding the tax liability and release of the levy.
• Monies held in escrow are not available to the
taxpayer or the Service during 21-day period.
• Bank may not clear outstanding checks from the
escrowed funds.
16
Joint Account Holders
• IRS may levy on property in which the taxpayer's interest is
unclear. For example, the Service may issue a f Levy to a financial
institution at which the taxpayer has an account in joint ownership
with another party.
• IRS takes the position that if the taxpayer or innocent third party
can show the origin of funds in the account was other than the
taxpayer, they will release those funds from the effects of the
levy. The burden of proving the levy was improper is on the
account holder.
• The Supreme Court has upheld the IRS position regarding joint
accounts. The innocent joint owner must initiate a wrongful levy
suit if the Service and/or financial institution refuse to release his
respective funds.
17
Levy on Wages
Pgs. 9-10 & 29-30
• IRS effectuates a levy of wages by serving a Form 668-W,
Notice of Levy on Wages and Other Income, upon the employer.
• Permits a continuous attachment of the nonexempt portion of
the wage or salary payments due TP
• Exemption
– 1/52 of the sum of the standard deduction plus the aggregate
amount of personal exemptions allowed for the taxpayer that
year.
– Example, if TP were single with a $4,000 personal exemption
and a $5,000 standard deduction, he could take home $173.08
per week. Balance of TP’s net pay is remitted to the Internal
Revenue Service.
– Statutory allowance for dependents is increased to extent of
court ordered child support payments. IRS will not recognize
non-court ordered support arrangements.
18
Duration of Levy
• The service of a Form 668-W, Levy on Wages, Salary,
and Other Income, is prospective. The levy remains in
full force and effect until the obligation recited on the
levy is paid off. [IRC § 6331(e)] Interest and failure to
pay penalty continue to accrue on the liability while
under levy.
• Levies made with the Form 668-A are not prospective.
They are "one-shot deals."
19
Release of Levy Pgs. 11-12
• Levy should be released whenever any of the following
conditions apply:
– A levy was issued prior to the expiration of the
taxpayer's 30 day notice period in a non-jeopardy
situation.
– Liability is no longer owed (or a pending adjustment
will fully satisfy liability).
– FPLP levy is creating an economic hardship (Form 911
or hardship CNC).
– The CP 90/297 (or equivalent) was sent, but not to the
most recent taxpayer confirmed address available to us
when we requested the letter.
20
Release of Levy
• Release facilitates the collection of the liability. The IRS, not
the taxpayer, makes the determination that a release
facilitates collection.
• Statutory collection period has expired.
• The taxpayer makes an installment agreement.
• The taxpayer indicates that bankruptcy has been filed.
• Wrongful levy or erroneous levy conditions apply.
• The taxpayer makes an Offer in Compromise.
• Entity is a limited liability company (LLC) that we are told
has one owner and is a disregarded entity, i.e., it is not
taxed as a corporation. Accept the taxpayer's word about
the LLC. [IRM 5.19.9.3.6]
21
Bargaining for a Release of Levy
• Tell IRS of hardships
• Offer I/A
• Full release
• Partial release
• Collateral
22
Bargaining for a Release of Levy
• Appeal to group manager
• Appeal to territory manager
• Appeal to area manager
23
Form 911
If the IRS refuses to release the Notice of Levy and you
believe it creates a significant hardship for your client, you
may apply to the Taxpayer Advocate for a Taxpayer
Assistance Order. [IRC § 7811] The process is begun by
submitting a Form 911 to the Taxpayer. Advocate. That office
has authority to order release a levy.
1. The existence of an immediate threat of adverse action;
2. A delay of more than 30 days in resolving the taxpayers
account problems;
3. The payment by the taxpayer of significant cost (including
fees for professional services) if relief is not granted; or
4. Irreparable injury or a long standing adverse impact, if relief
is not granted.
24
Levy
Pgs. 14-19 & 32-34
• 668B
• Notice of Seizure
• Writ of Entry
25
Taxpayer’s Physical Property
• IRC § 6331 authorizes the Internal Revenue Service to
take physical property belonging to the taxpayer. Except
when seizing a personal residence, the IRS is not
required to seek judicial approval prior to seizing
property.
• All seizures require a minimum approval level of Territory
Manager.
26
Entry Into Private Areas
• TP must consent or;
• IRS must secure a writ of entry or;
• There must be exigent circumstances
27
Levy Exemptions
• Personal effects rises to $8,790 in 2013 and books
• Tools of trade goes to $4,400 in 2013.
• The increases have the practical effect of preventing
seizure of books and tools in trade and personal effects
from many lower income taxpayers. [IRC §6334(a)]
28
Redemption of Property
• The taxpayer has no right to redeem personal property
subsequent to sale. Subsequent to the sale of real
property, the taxpayer has redemption rights.
• IRC provides that the taxpayer has the right to redeem
his or her real property from the successful bidder by
paying the bid price plus interest at the rate of 20% per
annum within 180 days of sale. [IRC § 6337]
29
Extensions of Time to Pay
• Up to 120 days
• Form 433-D is not to be used.
• The IRS will not file a lien.
• No Notices of Intent to Levy, Notice of Hearing (LT 11
or Letter 1058DO) or levies during granted extension
periods, unless collection is in jeopardy or at risk.
30
Installment Agreements
• Less than $50,000
• Granted upon request
• Up to 7 years to pay
• Income taxes
• Must stay current on future obligations
• Form 9465-FS
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Review Questions for Self-Study CPE
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Follow this link:
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Please finish the remaining review questions and press Submit.
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National Society of Accountants
1010 North Fairfax Street
Alexandria, VA 22314-1574
Phone: (800) 966-6679
[email protected]