Release of Liens and Levies
Stop or Appeal Involuntary IRS Collection Actions
Are you facing the prospect of a tax lien or federal tax levy?
The tax professionals at Rosefelt Tax Law can help you understand your rights and how to use the tools that are available to you to solve your lien, levy or other tax problem. We can also help mitigate the consequences of aggressive IRS enforced collection actions. In many cases, we are able to obtain voluntary IRS or state release of a lien or levy against your wages, bank account or other property. Our understanding of IRS collection action will help protect you from abuse of power by the IRS and assert the rights made available to all taxpayers by the Internal Revenue Code, the Taxpayer Bill of Rights and other federal or state laws.
Whether IRS collection action is just beginning, or if the IRS has already issued a lien or levy against you, your wages or other assets, we can help.
The IRS Aggressively Uses Its Powers
Recent IRS policy has made compliance the central theme of today’s IRS. The “kinder, gentler IRS” that grew out of the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 98) has given way to the firm, unflinching and aggressive IRS of today.
IRS examination and collection budgets have risen dramatically, and the IRS has made the collection of delinquent and unreported taxes a high priority. The agency has increased the number of Revenue Officers and other personnel dedicated to collecting delinquent taxes, and has developed new technology and software intended to identify delinquent taxpayers and non-filers.
IRS Tax Assessments
The IRS enforced collection process begins when the voluntary collection process fails. While the IRS collection process is explained in IRS Publication 594, “What You Should Know About the IRS Collection Process” there is no replacement for actual experience dealing with IRS collection matters and personnel.
Generally, a taxpayer is required to pay a tax along with filing a tax return. However, if a taxpayer fails to pay a tax obligation when due, the delinquent tax obligation is assessed by the IRS and a notice and demand for payment is then sent to the taxpayer. After an IRS demand for full payment is made, the taxpayer can either voluntarily comply by making payment, or seek alternative payment arrangements, including a partial or full pay installment agreement, an Offer in Compromise (OIC) or a classification of the account is “currently not collectible.” Tax liabilities may also be reduced or eliminated, under the right circumstances, using bankruptcy or other legally available processes.
Once the IRS has determined that a taxpayer is not voluntarily paying his or her tax obligation, and all appeal rights have expired, the IRS is required to commence involuntary collection action. The IRS has many involuntary collection tools at its disposal including filing of a Notice of Federal Tax Lien, serving a levy on your wages or bank account, assessing a trust fund recovery penalty and even attempting to seize your house, car or other property.
Federal Tax Liens
A federal tax lien is created by statute as soon as a tax is assessed and the taxpayer fails to pay the tax upon IRS demand. Internal Revenue Code (IRC) §6321 states “If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount, (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.”
Most taxpayers do not understand that a federal tax lien is placed against the property of the taxpayer immediately and automatically once a delinquent amount has been demanded and classified as unpaid (and the taxpayer has been notified). Often called a “secret lien” because its existence is known at that point only by the IRS and the taxpayer, the statutory lien constitutes a lien against all property of the taxpayer, real and personal, even before a Notice of a Federal Tax Lien has been published.
Generally, the federal tax lien created by the Internal Revenue Code has a 10-year life span and runs parallel to the 10-year statute of limitation for collection of a delinquent federal tax liability. However, the life of a federal tax lien and the statutory period for collecting a delinquent federal tax liability (often referred to as the Collection Statute Expiration Date or the “CSED”) can be extended past their 10-year initial terms by a number of different “tolling events.”
Tolling Events Can Extend the Life of a Lien
Tolling events are too numerous, and their effect on a tax lien and the Collection Statute Expiration Date too complicated, to discuss in detail in this overview. However, some of the more common tolling events include the filing of a request for an IRS Collection Due Process hearing, a bankruptcy filing, seeking a Taxpayer Assistance Order or entering into a voluntary waiver with the IRS. In any event, the IRS’ right to assert a federal tax lien and to seek involuntary collection of a delinquent federal tax remains in effect until the delinquent tax is satisfied or the statute of limitations for the tax and/or lien has expired.
Calculation of the statute of limitations periods for a delinquent tax and related federal tax lien are critical in order to properly represent a delinquent taxpayer in an IRS collection case.
Notice Of Federal Tax Lien
A Notice of Federal Tax Lien (NFTL) is filed to make the public and other creditors aware of the existing tax lien and to establish the government’s priority against other creditors or potential purchasers of your property. As described above, a federal tax lien arises upon assessment, demand for payment and failure to pay the delinquent tax liability. Although immediately applicable against the taxpayer, a tax lien will not affect the rights of a subsequent judgment creditor, mortgage lender or secured lender or “bona fide” purchaser until a Notice of Federal Tax Lien is filed. By filing the NFTL, the IRS obtains priority against all subsequent claimants. In many cases, the filing of a NFTL will also have a significant, adverse effect on a taxpayer’s credit and credit score.
Requirements Before Filing A Federal Tax Lien
The IRS is required to make reasonable efforts to contact the taxpayer before issuing an NFTL. Reasonable efforts are considered to be the issuance of an assessment, demand for payment and mailing of the following notices during the collection process.
- Pub 594, What You Should Know About The IRS Collection Process
- Letter 501 (balance due reminder)
- Letter 504 (balance due urgent notice)
- Letter 1058 (final notice intent to file NFTL right to appeal)
- ACS Letters LT 39 Reminder Notice or LT-11 Final Notice
Federal tax liens are powerful weapons in an IRS Revenue Officers arsenal. IRS Revenue Officers are encouraged to file an NFTL in all cases in which the IRS Revenue Officer believes it will promote collection of the tax liability. The circumstances in which the IRS will refrain from filing an NFTL are rare. Internal Revenue Manual (IRM) Section 184.108.40.206.2 requires the Revenue Officer to check current compliance before making the decision not to file an NFTL and describes available lien alternatives such as collateral agreements and lien subordination. Additionally, the Revenue Officer is authorized to delay or withhold filing the lien only if the NFTL will jeopardize collection of the tax.
The IRM specifically instructs collection personnel to disregard a taxpayer’s argument that the filing of a Notice of Federal Tax Lien will damage the taxpayer’s credit rating unless the taxpayer can supply specific proof that their credit rating will be damaged by the filing and that the damage will adversely impact the taxpayer’s ability to pay the delinquent tax.
Potential Solutions For IRS Lien Problems
In every case involving a filed tax lien, your tax attorney should confirm the validity of the lien, the procedures used by the IRS to file the NFTL and the limitation period remaining for the lien. The impact of a federal tax lien is broad and the remedies complex. Many times, the NFTL is filed improperly or in the wrong place. On other occasions, the IRS will inadvertently fail to release a lien after the statute of limitations has expired. Even though the validity of a filed tax lien cannot be attacked, experienced counsel can often help obtain IRS subordination of the lien or discharge of the lien to help refinance or sell a taxpayer’s property. If a lien has not yet been filed, proper counsel should consider proposing other less intrusive collection alternatives, appealing the lien decision to an IRS group manager, and/or filing a Collection Due Process (CDP) Request and exhausting all avenues of appeal.
IRS authority to levy on (take) a taxpayer’s property is provided by Internal Revenue Code §6331(a) which states: “If any person liable to pay any tax neglects or refuses to pay the same within 10 days after the notice and demand, it shall be lawful for the Secretary to collect such tax…by levy upon all property and rights to property belonging to such person.”
A levy is the actual attempt by the IRS to seize the property of a taxpayer held by a third party. The most common types of IRS levies include wage levies, bank account levies, and levies on a taxpayer’s securities or accounts receivables. However, if the taxpayer does not have financial assets sufficient to satisfy a delinquent tax liability, the IRS can also attempt to seize physical property directly from the taxpayer. After the enactment of the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 98), the IRS dramatically decreased its seizure action against tangible property (for example, inventory, automobiles, boats, real estate and similar property). However, seizure activity is again increasing. Seizures will no longer be a thing of the past, but rather, means for the IRS to collect the taxes it believes it owes.
The term “levy” is virtually synonymous with the term “seizure.” Although most tax professionals use the term levy in connection with IRS taking of a taxpayer’s property held by a third party (for example, taking a bank account or wages to be paid by an employer) and use the term seizure to refer to the IRS taking tangible real or personal property directly from the taxpayer (for example, seizure of a taxpayer’s inventory, automobile, boat or real property), the statutory authority for and the result of a “levy” or “seizure” are the same: The IRS has taken property of a taxpayer in order to satisfy a delinquent tax liability.
As the IRS changes its focus from customer service to compliance and collection, all taxpayers and tax counsel must be vigilant to prevent unnecessary levies and seizures. The Internal Revenue Code does provide for the release of a levy or seizure under appropriate circumstances. For example, a levy can be released by an IRS Revenue Officer if the taxpayer proposes and enters into a suitable installment agreement, if the levy creates an undue economic hardship or if the taxpayer meets the qualification to be classified as “currently not collectible.” However, it is much easier to prevent the execution of a levy than to have it released after issuance. Taxpayers facing enforced IRS collection action must learn their rights and pay attention to all deadlines.
Important Collection Due Process (CDP) Rights
Before sending a levy notice to your bank, employer or other third party holding your property, the IRS must send the taxpayer another very important notice: a Final Notice of Intent to Levy and Notice of Right to a Collection Due Process Hearing (referred to as a “CDP Request”). The taxpayer’s right to make a CDP Request and receive a CDP Hearing prior to the execution of an IRS levy against taxpayer property (or to oppose the filing of a Notice of Federal Tax Lien) was created by the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA ’98) and is one of the most powerful tools available to a taxpayer to prevent IRS abuse of its power and to obtain the least intrusive payment method for a delinquent tax liability. A CDP Request must be made within 30 days of the date contained on the IRS Final Notice of Intent to Levy and Notice of Right to a CDP Hearing (or Notice of Federal Tax Lien). Failure to provide a timely and proper CDP Request can result in the loss of significant taxpayer rights and remedies.
Do Not Ignore Your CDP Rights
After issuing a Notice of Intent to Levy and Notice of Right to a CDP Hearing (or a similar Notice Intent to File Federal Tax Lien), and receiving a timely CDP Request, the IRS is required to schedule a CDP Hearing with an Appeals Officer. By allowing a taxpayer the right to administrative and judicial review of intrusive IRS collection actions, and requiring the IRS to explain and justify its actions, the CDP rights created by RRA ’98 have fundamentally changed the IRS collection landscape.
The Appeals Officer selected to hear the matter, and who is required to be independent from IRS collection personnel, is charged with the responsibility to:
- Verify that the IRS followed all administrative and procedural requirements
- Determine if the proposed IRS collection action “balances the need for efficient collection of taxes with the legitimate concern of the taxpayer that the collection action be no more intrusive than necessary”
- Consider all less-intrusive collection alternatives (for example, an Offer in Compromise of Installment Agreement) proposed by the taxpayer in his CDP Request
Following a CDP Hearing, the Appeals Officer must issue a written determination summarizing his or her conclusions concerning verification, balancing and the use of other proposed less intrusive collection alternatives. Moreover, in the event of an adverse determination by the Appeals Officer, the taxpayer may contest the determination by filing an appeal in the United States Tax Court or Federal District Court, depending on the kind of tax in question. During the entire pendency of the CDP process and subsequent appeals, the proposed IRS collection action is stopped.
The CDP rights created by RRA ’98 have provided delinquent taxpayers with:
- Statutorily significant administrative and judicial review of coercive IRS collection determinations
- An effective unilateral right to enjoin (stop) collection activity during the pendency of the CDP appeal processTaxpayers should not waive or forfeit these important rights without seeking legal advice from experienced counsel.
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