How to deal with a Federal Tax Levy

How to deal with a Federal Tax Levy

Last week’s article discussed how to avoid a federal tax levy.  It is linked here. But what do you do if you already have been levied?

My firm, By The Book Taxes, located in Norwalk, CT specializes in income tax preparation for individuals, families and self-employed people. By the Book Taxes also helps clients resolve their tax debts by preparing and filing Installment Payment Agreements, Offers-in-Compromise, Currently Not Collectible and Innocent or Injured Spouse applications.

You should do the same things after a levy has occurred as you would to avoid a tax levy:

  • Hire a tax professional with experience in tax resolution
  • File all delinquent tax returns (last six years)
  • Ensure your W-2 withholding or estimated tax payments are sufficient and up to date

You should also have the tax professional request that the IRS release the levy in full or at least partially in order to pay necessary living expenses while the taxpayer gets into compliance.

 The bank has twenty-one (21) days from the time the funds are removed from the taxpayer’s account to send them to the IRS so the taxpayer and tax professional must act quickly.

Once the tax returns are all filed, work with your tax professional to tailor the best collection alternative for you with the IRS whether it’s an installment payment agreement, offer-in-compromise or currently not collectible status.

Please don’t ignore the IRS collection letters!

If you have years of unfiled tax returns or owe the back taxes, please call me. I can help.

Avoiding a Federal Tax Levy

Avoiding a Federal Tax Levy

As the IRS escalates its collection process, taxpayers receive letters called the “Final Notice” before a levy occurs. Depending on which area of the IRS is threatening to levy, the taxpayer may receive a “Letter 11”, a “Letter 1058” or even a “CP 90” or “CP 91”.

The best way to avoid a federal tax levy is to get into tax compliance. Engage a tax professional who does tax resolution work immediately. Request a collection due process or “CDP” hearing to stop the levy process to give you time to propose a collection alternative to the IRS.

My firm, By The Book Taxes, located in Norwalk, CT specializes in income tax preparation for individuals, families and self-employed people. By the Book Taxes also helps clients resolve their tax debts by preparing and filing Installment Payment Agreements, Offers-in-Compromise, Currently Not Collectible and Innocent or Injured Spouse applications.

What is tax compliance? It comes in two forms, being current on the filing of your tax returns and being current in your tax payments.

For the filing of your tax returns, the IRS defines compliance as having returns filed for the last six (6) tax years. If you have unfiled returns during this period, get them filed!

For tax payments, there are three (3) requirements:

  • W-2 withholding for employees
  • Estimated payments for the self-employed and
  • Payroll tax filings and payments for businesses with employees

W-2 employees need to have at least 90% of their current year tax liability paid through withholding or 100% of last year’s liability withheld in the current year (110% of last year’s number if their income exceeds $150,000).

Once the tax returns are all filed, work with your tax professional to tailor the best collection alternative for you with the IRS whether it’s an installment payment agreement, offer-in-compromise or currently not collectible status.

Please don’t ignore the IRS collection letters!

If you have years of unfiled tax returns or owe the back taxes, please call me. I can help.

Federal Tax Levies

Federal Tax Levies

It’s an awful feeling to go to the ATM, attempt to withdraw cash and get a message that there are zero dollars in your account. You contact the bank and are told that the IRS “levied” your account. A levy is a taking or seizure of your property in order to resolve tax debts.

My firm, By The Book Taxes, located in Norwalk, CT specializes in income tax preparation for individuals, families and self-employed people. By the Book Taxes also helps clients resolve their tax debts by preparing and filing Installment Payment Agreements, Offers-in-Compromise, Currently Not Collectible and Innocent or Injured Spouse applications.

Over the next few weeks I will explain how IRS levies work. A levy occurs when a taxpayer has been unresponsive to the IRS’ attempt to collect tax debts owed.  Before discussing levies it is important to understand how the IRS collection process works.

The IRS collection process works as follows:

  • You file a tax return and if there is a balance due the tax is “assessed”
  • You receive a billing notice asking you to pay the balance within ten (10) days
  • If payment is not received, a “silent” lien arises which means you aren’t notified
  • You receive an escalating series of more threatening collection letters resulting in a
  • Threat to levy (take) your assets
  • If you owe > $10,000 the IRS will issue a “Notice of Federal Tax Lien” (NTFL) which attaches to your assets and destroys your credit rating
  • If you continue to ignore the IRS, levies will commence

Hopefully, you are never in this predicament. If you are, contact a tax professional who does tax resolution work immediately.

There are three (3) types of levies that taxpayers need to be aware of. They are:

  1. Regular – cleaning out your bank account or attaching payments from clients
  2. Continuing – taking a chunk out of your paycheck every payday
  3. Retirement Accounts – IRA/401k/Social Security – If you can access it, so can the IRS

Over the next few weeks I will go into each of these options in detail and explain how to avoid or deal with a federal tax levy.

If you have years of unfiled tax returns or owe the back taxes, please call me. I can help.

How To Get a Notice Of Federal TAX Lien (NFTL) Withdrawn

How To Get a Notice Of Federal TAX Lien (NFTL) Withdrawn

Last week’s blog discussed how you could discharge an asset out from under the “blanket” of an IRS tax lien in order to sell a house. You can link to it here.

This week’s blog will go into detail another one of the options available to taxpayers to navigate around an IRS tax lien. This option is known as withdrawal.

My firm, By The Book Taxes, located in Norwalk, CT specializes in income tax preparation for individuals, families and self-employed people. By the Book Taxes also helps clients resolve their tax debts by preparing and filing Installment Payment Agreements, Offers-in-Compromise, Currently Not Collectible and Innocent or Injured Spouse applications.

If you incur a tax debt of $10,000 or more, the IRS will file a “Notice of Federal Tax Lien” or NFTL which notifies all of your other existing and potential creditors that you owe the IRS. This will make you a less credit worthy borrower and could harm your credit score if it is reported to the credit rating agencies.

It is possible to request that the NFTL be withdrawn to improve your credit profile if certain conditions are met. These conditions are:

  • Your balance due must be less than $25,000
  • You must be on a direct (electronic) debit payment plan
  • There must be less than sixty (60) months left on your payment plan
  • You must have already made three (3) consecutive direct debit payments

If you satisfy all these requirements, you may submit IRS Form 12277 to request that the NFTL be withdrawn. This doesn’t remove the lien, just the credit score killing “Notice”.

If you are a taxpayer with an existing payment agreement and can make a payment to get your balance due under $25,000, then this option could work for you.

If you have years of unfiled tax returns or owe the back taxes, please call me. I can help.

How To Discharge An Asset From An IRS Tax Lien

How To Discharge An Asset From An IRS Tax Lien

Last week’s blog discussed how you could subordinate an IRS tax lien to another creditor in order to refinance a mortgage. You can link to it here.

This week’s blog will go into detail another one of the options available to taxpayers to get around an IRS tax lien. This option is known as discharge.

My firm, By The Book Taxes, located in Norwalk, CT specializes in income tax preparation for individuals, families and self-employed people. By the Book Taxes also helps clients resolve their tax debts by preparing and filing Installment Payment Agreements, Offers-in-Compromise, Currently Not Collectible and Innocent or Injured Spouse applications.

The best analogy I’ve heard regarding this topic comes from Eric Green, a tax attorney and a named partner in his firm, Green & Sklarz, in New Haven, CT. He says an IRS tax lien is like a blanket that covers all the taxpayer’s assets.

It is possible to have an asset discharged out from under the blanket or lien. The lien still exist but the asset can be sold to hopefully repay some or all of the tax debt.

A good example of a discharge is when a taxpayer wishes to sell a home that is subject to an IRS tax lien.

The taxpayer who is selling the home may receive enough equity in the sale to pay the debt in full or little or no equity at all.

The taxpayer must submit IRS Form 14135 (Application for Certificate of Discharge of Property from Federal Tax Lien) along with all documentation associated with the sale such as:

  • Broker listing
  • Appraisal
  • Sale contract
  • Estimated closing statement

After submitting all sale backup documents, the IRS will agree to discharge the home out from under the lien as long as the IRS gets all the equity available to the taxpayer up to the amount owed. The taxpayer cannot walk away with cash and a lien discharge unless the debt is paid in full.

If you have years of unfiled tax returns or owe the back taxes, please call me. I can help.

How To Subordinate An IRS Tax Lien

How To Subordinate An IRS Tax Lien

Last week’s blog was an overview on IRS tax liens. You can link to it here.

This week’s blog will go into detail about one of the options available to taxpayers to get around a tax lien. This option is known as subordination.

My firm, By The Book Taxes, located in Norwalk, CT specializes in income tax preparation for individuals, families and self-employed people. By the Book Taxes also helps clients resolve their tax debts by preparing and filing Installment Payment Agreements, Offers-in-Compromise, Currently Not Collectible and Innocent or Injured Spouse applications.

Subordination occurs when the IRS allows another secured lender or creditor to “move ahead” of it in priority if doing so will increase the IRS’ ability to collect taxes owed.

A good example of subordination is when a taxpayer wishes to refinance an existing mortgage to a lower interest rate which will increase the amount of money that the taxpayer has available each month to pay the IRS.

After submitting all loan application backup, the IRS will allow the mortgage lender to “move ahead” in order to complete the refinance and thereby facilitate the taxpayer’s higher monthly tax payments.

If you have years of unfiled tax returns or owe the back taxes, please call me. I can help.