Taxation & Estate Planning

Self-employed? All IRS levies are not created equal

By howardlevy

IRS levies on those who are self-employed are serious, but it may not always be as bad as it seems. 

For those who are self-employed, a levy reaches only what you have a fixed and determinable right to. In other words, the IRS stands in your shoes.  Whatever you have a right to at the time of levy, so does the IRS.

If you are self-employed, and if your right to a payment is dependent on the performance of future services – meaning the “job” has not yet been completed – an IRS levy reaches nothing. Your right to the money is contingent upon completing performance. The IRS would need to serve the levy after the job is completed for it to be effective.  See Treasury Regulation 301.6331-1(a)(1) and Internal Revenue Manual 5.17.3.4.2. and Internal Revenue Manual 5.11.5.3

On the other hand, if performance has been completed, then there is a receivable owed to you – it is fixed and determinable, even though payment might be made later.

Here is a real example: I had a client who was self-employed playing piano at his church on Sundays. After services concluded, he was paid for his performance that same day. Before the performance – earlier that week – the church received an IRS levy.  The levy resulted in no funds to the IRS because no funds were due to my client at the time of the levy.  The IRS would have to serve the levy on the church on Sunday right after the performance to receive payment.  That was when my client’s right to the money was fixed and determinable.

One of the most feared powers of the IRS is their ability to take your property.  Wages, bank accounts, self-employment income and receivables are some of their favorites. But how much power the IRS has depends on the type of property they are seeking to take.  All IRS levies are not created equal.

Even if no money is due, if the IRS taking these steps, proper negotiation needs to be put in place to stop the aggression and achieve account resolution.

Full post as published by IRS and the Law on December 09, 2009 (boomark / email).