How The IRS Begins The Seizure Process

In 1942, the U.S. government asked noted director Frank Capra to make a propaganda film that convinced a skeptical American public that waging war against both Japan and Germany was a good idea. Prelude to War: Why We Fight was one of several such movies that Capra made during World War II. The four-plus years he spent with the Army cost him dearly, as he had trouble finding work when he returned to Hollywood. Much like the government had to lay some groundwork before sending troops overseas, the IRS must lay some groundwork before it sends a levy notice.  Continue reading to find out how to stop an IRS levy before it begins.

Key Pre-Levy Considerations

A bank levy is the collection procedure of last resort. Unlike tax liens and some other procedures, levies are not automatic. The IRS only proceeds with them if:

• No Hardship: Before issuing a levy notice, the revenue officer must be satisfied that the taxpayer can meet child support obligations and live above the poverty line if the IRS executes a bank levy. So, it’s a good idea to have Form 8944 (economic hardship determination) at the ready.
• Past Noncompliance: This element is almost always present, because if any of the previous collection activities had worked, the IRS would not issue a levy notice.
• Current Noncompliance: Independently, if the taxpayer is current, the IRS may think twice before it levies a bank account. However, current compliance may not be enough to overcome the previous two factors, especially if the taxpayer owes lots of money and has a lot of disposable income, at least as far as the IRS is concerned.

The Internal Revenue Manual stresses that a levy notice is a “case by case decision” and agents must exercise “good judgment” in this area, which suggests that they have at least some flexibility.

The CDP Hearing

The IRS must inform taxpayers of their right to a Collection Due Process hearing in the levy notice. Taxpayers must request a CDP in writing within thirty days. If the appeal deadline is missed, the taxpayer can still request an Equivalency Hearing. But an EH does not halt collections activity, and that’s one of the main advantages to filing a CDP request.

Moreover, in a CDP, the IRS must place all its cards on the table. Many times, the Service has not given full credit for all payments made or uses the inaccurate information in substitute returns to prepare the levy notice. The CDP is a tax attorney’s opportunity to attack the basis for the bank levy as well as the government’s figures.

Levy Notice Provisions

The IRS lives and dies by forms. Usually, that mindset works against the taxpayer, but in bank levy situations, the opposite is sometimes true.

A procedural error is the best defense to a levy notice. The notice provisions in the Internal Revenue Manual are not uniform. In some cases, revenue agents can take shortcuts. If they take such shortcuts without adequate cause or documentary support, an attorney can challenge the levy. The same thing applies if the notice was incomplete, inaccurate, or delivered to the wrong location. Things get particularly confusing if the targeted bank account has joint owners or the taxpayer is not a natural person.

Have a tax audit question? Contact tax defense lawyer Venar Ayar.