Tori D. from San Diego wrote me with a case where she is being garnished at work and it's only leaving her a few hundred dollars a month to live off of.
OUCH! This is one of the worst things that can happen when you owe the IRS back taxes. Many of the taxpayers I have come across usually have a false sense of security when it comes to the IRS because they think “hey, I don't own anything so they have nothing to take. I'm safe. " That is an illusion.
You see, while the IRS certainly does have the power to take your car or house, they don't like to do it. It's too much work. The upfront paperwork is a nightmare for the agents, then they have to go through the seizure process, and then the auction process, and then no one pays full fair market value for anything at an IRS auction, so they end up with a lot less money. Many times it's just not worth it for the agent.
But you don't have to auction off cash. And cash usually comes from bank accounts and paychecks. That's where some people make a mistake. If you have a job, or even are a subcontractor, the IRS can (and usually will) take your money. And yes, they will do it even if it leaves you nothing to live off of.
So if this happens to you, how can you get the levy lifted?
SOLUTION: First, you need to make sure all of your tax returns (Forms 1040) are filed with the IRS. The IRS cannot by law lift a levy if there are any missing returns. It's ok if you owe for the missing years. You don't have to pay on them. . . just get them filed.
Next it depends on whether you owe more or less than $25,000. If less, set up a Streamlined Installment Agreement .
If you owe more than $25,000 then it will be much more complicated. You'll have to go through full financial disclosure and prove to the IRS (1) that the levy is creating an undue financial hardship, and (2) that you can either afford to pay nothing right now or that you can pay a reduced amount monthly.
If you can't pay anything right now and can prove it, ask for a “Currently Not Collectible" status. This means the IRS will release the levy and leave you alone, usually for six to twelve months. (Ask for this CNC status even if you owe the IRS less than $25,000 and can't afford to pay the Streamlined Installment Agreement").
Any of these options will release the levy, but make sure you ask for a copy of the Release of Levy document and fax it directly to your bank or payroll department as soon as you get it.
There is also a kind of “trick" for getting the levy released. But only do this if you plan on going through with it.
Quickly put together an Offer in Compromise (Form 656) and the accompanying financial disclosure forms (Forms 433-A and 433-B). Then, fill out Form 911 (Request for Taxpayer Advocate Service Assistance) and state on the form that the levy is causing you and undue hardship and that you would like to get this Offer in Compromise submitted ASAP to stop it.
You see, as soon as the Offer in Compromise is submitted the IRS will typically release the levy, but you need the Taxpayer Advocates office to help you expedite this. Do NOT do this unless you believe you have a legitimate chance of getting an Offer in Compromise accepted.
Jack Manhire is an 11-year veteran tax attorney who specializes in IRS tax problems. You can find out other ways of getting your IRS problem behind you by visiting his blog for free help at http://taxhelpirs.blogspot.com/