Tax Law Insights

If an individual or business owes but has not paid federal taxes, the IRS will make efforts to collect these taxes. The IRS will first send a series of notices requesting payment, but if the taxpayer does not respond to the IRS and make arrangements to pay the taxes, the IRS will then begin "enforced collection measures." The most common measures used by the IRS to collect taxes are (1) the "levy" (or garnishment), where the IRS notifies an employer to take taxes out of an employee or a worker's paycheck and send this money to the IRS; and (2) the bank account levy or seizure where the IRS simply comes in, notifies the taxpayer's bank, and the bank is required to send all money in the bank account to the IRS. Other than an initial notice from the IRS, and which have been sent by the IRS many months or even years before the actual levy itself, the taxpayer receives no notice from the IRS before a wage or bank account levy.

The IRS levy of someone's paycheck, or literally sweeping out your bank account, can be devastating. Bank account levies happen to a business that owes taxes, too. An individual or a company that cannot pay bills, and, with a bank account levy, checks bounce because unknown to the taxpayer there are no longer any funds in his/her/its bank account to cover checks that have been written. Everything in life and business can fall apart.

Where this happens to someone or a business there can be a relief. Congress has imposed a requirement on the IRS that it must receive and hear a taxpayer's request for "Collection Due Process Relief" (called a "CDP"), and before the IRS continues to levy wages or bank accounts. Depending on the financial condition of the individual or business, if a CDP request is filed, the IRS can agree (or be forced to agree) to release a wage levy and also to return seized bank account funds to the taxpayer.

Individuals and businesses must pay attention to IRS notices. If the IRS does send a notice to the taxpayer that the IRS intends to start levying, the taxpayer must file a CDP request to the IRS within 30 days. If this request is filed on time, the IRS must stop its collection activity until the CDP is fully-resolved. If a taxpayer does not respond to a levy notice from the IRS, however, the IRS can still consider a CDP request but it does not have to stop levying while the CDP is in process.

CDP relief can be a very important defense by taxpayers where the IRS is seeking to collect taxes through wage and bank account levies. A taxpayer should contact an experienced tax professional to advise them on this often effective tool.