LIENS & LEVIES

Potential enforcement actions, once an account has gone through the notice routine and has accelerated to ACS, include the issuance of levies and the filing of Federal Tax Liens. If the account meets certain established criteria, the computer automatically issues a levy when the account enters into the ACS system.

If the account does not meet the set criteria, our tax examiners review the information and may manually issue either a bank or wage levy.

 

Bank Levy

When issuing a bank levy, a Form 668-A(c), Notice of Levy, is sent directly to the financial institution. A Form 8519, Taxpayer's Copy of Notice of Levy, is sent directly to the taxpayer. The financial institution is required to freeze any account related to the taxpayer named on the levy. Accounts will be frozen to levy monies up to the full amount stated on the notice. Any funds greater than the amount shown will be made available to the account holder. Institutions may take 24 hours for this process. Any funds deposited by the account holder after a Notice of Levy is issued are not subject to that notice. A subsequent Notice of Levy must be issued to freeze any subsequent deposits. The financial institution will hold the funds up to the full amount of the levy for 21 days before transmitting to the IRS. This 21- day period allows taxpayers to contact us and negotiate alternative solutions to the outstanding balances.

 

Wage Levy

When issuing a wage levy, Form 668-W(c), Notice of Levy on Wages, Salary and Other Income , is sent to the employer. The employer is required to apply the criteria from Publication 1494 to determine how much to exempt from levy and how much to forward to the Service. The employee is asked to complete parts 3, 4 and 5 of the Form 668-W(c). This establishes the employee's filing status and exemptions. A wage levy stays in effect until IRS releases the employer from this responsibility by issuing Form 668-D.

 

Property Exempt From Levy

There are certain possessions and types of income that are exempt from levy. Section 6334 of the Internal Revenue Code gives a detailed explanation. The common types of property or income exempt from levy are:

 

  • Personal effects - such as apparel, books, furniture and tools
  • Unemployment benefits
  • Certain annuity and pension payments
  • Child support
  • Minimum exemption for wages, salary and other income
  • Workerís compensation
  • Certain disability payments

 

Release from Levy

Generally, the policy on funds attached by bank levy is to deny a request for the release of any funds until the outstanding balance has been satisfied. However, a couple of factors can be considered:

Personal tax issues - If a "substantiated hardship" exists, a partial release of funds may be negotiated. Full releases are rarely approved.

 

Business tax issues -

If an imposed levy would cause the taxpayer to miss a payroll or tax deposits, or some other similar hardship exists, negotiating a partial release may be possible. The taxpayer will be asked to provide documentation to support the hardship request.

Full releases for businesses are also very rare. Evaluating Hardship Requests Taxpayers should expect to provide supporting documentation showing how the levy is causing hardship. A taxpayer or representative can fax the information to the center. A manager will review the information and make a determination. Tax examiners do not have the authority to release any funds attached by bank levy. However, telephone assistors may release a wage levy if an alternative solution, most often an installment agreement, is accepted.

 

Liens

Accounts coming into the ACS system may be subject to the filing of a Federal Tax Lien. A statutory lien for taxes is created by law under IRC Section 6321. The lien is filed in order to protect the U.S. governmentís interest when there is a balance due on an account, and circumstances exist that may indicate such protection may be warranted. A lien may be placed upon all property and rights to property, belonging to the person owing the taxes. A lien will include taxes due, interest, penalties, and

any costs that may accrue. Once filed, all issues involving a lien are referred to

the Special Procedures Function in the appropriate district. A Federal Tax Lien is reflected on a

taxpayerís credit history for up to ten years. Once satisfied, the Service forwards a request to the County

Clerk in the county of filing asking the status of the lien be updated to "satisfied". All fees charged by the

state for both filing and releasing Federal Tax Liens are paid by the taxpayer.

 

IRS Restructuring and Reform Act of 1998

The IRS Restructuring and Reform Act of 1998 made several policy changes to levies and

liens. The following highlights are brief descriptions taken from the Commerce Clearing

House (CCH) 1998 Tax Legislation: Law, Explanation and Analysis.

 

Section 266 IRS Levies

Use of a "continuous levy", which attaches both to property held on the date of levy and to property or

payments acquired after the date of levy, is at the IRS's discretion and must be specifically approved by

the IRS before the levy takes effect. This provision applied to levies

issued after August 5, 1997. Section(s) 1201, 1206 ñ Approval of Liens and Levies

ñ Written approval of the IRS Chief Counsel or his delegate must be obtained as a prerequisite for

jeopardy and termination assessments or jeopardy levies. Also, "where appropriate," revenue officers

must obtain a supervisor's approval before issuing a notice of lien or levy against a taxpayer's property.

These provisions are effective after July 22, 1998. Section 1210 ñ Levy Exemption Amounts ñ The levy

exemption amount for a taxpayer's personal effects has been increased from $2,500 to $6,250, and the

business or profession has been increased from $1,250 to $3,125. These amounts will be adjusted for

inflation. This provision is effective after July 22, 1998.

 

Section 1214 Lien Exemption Amounts

The dollar amounts of certain "super priority interests" that are exempt from federal tax liens have been

increased. For casual sales for amounts under $1,000 with respect to household goods, personal effects,

or other tangible property, a lien is invalid against a purchaser who lacks knowledge of the lien.

Mechanics' liens of $5,000 or less that are related to repairs or improvements to a taxpayer's personal

residence have priority over a tax lien on the residence. The exemption amounts will be adjusted for

inflation. This provision is effective after July 22, 1998. Section 1218 ñ Release of Levy ñ Under the Act,

the IRS must, as soon as it is practicable, release a wage levy once an agreement is made with the taxpayer

that his outstanding tax liability is uncollectible (Code Sec. 6343(e), as added by the IRS Restructuring and

Reform Act of 1998. This provision is effective for levies imposed after December 31, 1999.

Section 1222 ñ Collection Barred During Refund Proceedings ñ The IRS cannot collect any unpaid

"divisible tax" (amounts paid periodically, such as employment taxes) by levy or court proceedings

while a refund suit for the paid portion of the tax is pending. The prohibition does not apply if the

taxpayer executes a written waiver or if collection of the tax is in jeopardy. This provision is effective for

tax periods beginning after December 31, 1998.

 

Section 1226 - Levies on Retirement Plans and IRAs

The 10% tax on premature withdrawals from employer-sponsored retirement plans or IRAs will not

apply to distributions after 1999 that result from an IRS levy against the plan or IRA.

 

Section 1230 Release of Erroneous Lien

A third- party owner of property against which a tax lien has

been filed may, as a matter of right, obtain a certificate of discharge with respect to such lien upon

the posting security satisfactory to the IRS. Such relief is not available to delinquent taxpayers. This

provision is effective after July 22, 1998.