Taxation & Estate Planning

3 ways that an IRS levy will surprise you

By howardlevy

If you owe the IRS back taxes, the IRS is required to give you a 30 day notice before they can start to levy and seize your property.  This warning of levy action is required by law (Section 6330 of the Internal Revenue Code).

The final IRS warning letter will have the words “Final Notice of Intent to Levy” at the top.  After the final notice is issued, you have the right to request an IRS appeals conference that will enable you to stop and dispute the intended collection actions.

But there are three situations when the IRS can go straight after your property without giving you warning or notice first.

So be careful, and here are the times the IRS can catch you by surprise:

1.     Jeopardy levy.  If the IRS has reason to believe that your actions are putting collection of the tax in jeopardy, they do not have to give you warning before levying.  IRS collections are in jeopardy if assets are being moved out of the United States, being concealed, dissipated or transfered to third parties.  The immediate harm that can be caused by these actions gives the IRS the ability to seize without first giving you notice.

2.    State tax refund levy.  If you owe the IRS but have a state income tax refund, the IRS can take it without first providing you notice.

3.    Disqualified employment tax levy.   This can happen to you if you are “pyramiding” employment tax liabilities.  Pyramiding occurs when a business repeatedly fails to pay to the IRS its employee tax withholdings, using the funds instead for cash flow purposes during times of distress.  The IRS takes this very seriously, and Congress agreed, carving out an exception to the ordinary requirement of notice before levy and seizure.

A disqualified employment tax levy would come into play if the IRS sent you a Final Notice of Intent to Levy to collect an older tax period for which you requested a collection appeals hearing.  If, during the two years since your appeal, you pyramided taxes and have new employment tax debts, the IRS could levy the new tax period without notice.

Putting these exceptions aside, bear in mind that once the IRS issues the final notice notice of intent to levy for a tax period, they do not have to do it again.  So it is important to know where you are in the IRS collection system.  You can be surprised by an IRS levy even if the three exceptions to notice do not apply if you are not careful in responding to your IRS notices.

Full post as published by IRS and the Law on April 25, 2010 (boomark / email).