Owing back taxes to the IRS sets off an entire chain of events. Understanding this chain of events lets you know what to expect and when, rather than being blind-sided by surprise IRS actions.
Our New England tax resolution experts at Tax Debt Assistance are committed to educating taxpayers via consultations as well as here on our site. Here’s some important things to know if you owe IRS back taxes in New England or anywhere in the United States.
What a Tax Lien Does
First of all, understand what a Federal tax lien really does. A government lien applies against all of your property, and gives the government a claim to all that property. “Property” includes your house, your car, everything in your bank account, your future paychecks, even your retirement accounts.
Second, it’s important to understand what comes after a lien filing. Generally, 30 days after the lien is filed you will receive a notice stating that the IRS can take levy action against you. Then, 30 days after that, you’ll receive a final notice that they can take levy action. This levy action cannot proceed until another 30 days after that letter. So, in other words, the IRS cannot take any levy until at least 90 days after the lien is initially filed.
What Exactly is a Levy?
An IRS levy is the actual action taken by the IRS to collect past due taxes. For example, the IRS can issue a bank levy to obtain your cash in savings and checking accounts or the IRS can levy your wages or accounts receivable, if you run a business.
The person, company or institution that is served the levy must comply or face their own IRS problems. For example, when the IRS issues a levy against your bank accounts, your bank must comply. The bank is required to take the funds out of your account to which the levy attaches on the day they process the levy. They must then hold those funds for 21 days and then after the 21 days, send those funds to the IRS. If they fail to do this, the IRS will come after your bank and penalize them. The additional paperwork that the bank or other company or institution is faced with to comply with the levy usually causes your relationship to suffer with the person or institution being levied.
When a financial institution receives a levy on your bank account, it cannot surrender the money until 21 calendar days after the levy has been served. This 21-day waiting period provides you the opportunity to notify the IRS and correct any errors regarding your accounts. An extension of this 21-day period may be granted by the Area Director of the IRS if there is a legitimate dispute regarding the amount of tax owed. Anytime during the 21-day waiting period the levy can be released. During these 21 days it is imperative that you exercise your appeals rights.
Levies should be avoided at all costs and are usually the result of poor communication with your Revenue Officer. When the IRS levies a bank account, the levy is only for the particular day the levy is received by the bank. As I mentioned, the bank is required to remove whatever amount of money is available in your account that day up to the maximum amount of the IRS levy and send it to the IRS after that 21 day hold period. This type of levy does not affect future deposits. So if your bank account gets levied today and all the money is taken out by the bank to be sent to the IRS 21 days later, you can make a deposit tomorrow that is not subject to that IRS levy.
An IRS Wage Levy is Quite Different.
Wage levies are filed with your employer and remain in effect until the IRS notifies the employer that the wage levy has been released. Most wage levies take so much money from your paycheck that you don’t have enough money to live on. In most circumstances, an IRS wage garnishment will take 70% to 80% of your entire paycheck. For most taxpayers, wage garnishments are the worst thing the IRS can do to them, and everything possible should be done to avoid this debilitating attack on your personal finances.
If you have already experienced the pain of an IRS levy, and either in the 21 day bank window or are having your paychecks or accounts receivable garnished, there are things that can be done to get your money back. Please Tax Debt Assistance a call (207) 741-2400 or contact us online to discuss how we can help eliminate these levies.
We are tax problem resolution experts serving individuals and businesses in New England area.