Just the thought of a “levy” gives me the absolute feeling of impending doom. However, an IRS levy adds additional and painfully real fear of immediate economic loss to any law abiding American taxpayer. What is an IRS levy? According to the IRS website a levy is a legal seizure of your property to satisfy a tax debt. If you think this could never happen to you, think again. What about a payroll tax debt, or perhaps a nasty divorce or partnership dissolution suit targets you as owing tax to the IRS. Or perhaps a business you were involved with that has filed bankruptcy had you listed as an officer owing tax to the IRS. In all these cases I would hope your family tax attorney would have been busy filing petitions on the merits with the US Tax Court to defend you and your family and protect your hard earned assets. But you somehow let events overtake you and now find yourself with a final “levy notice” from the IRS also referred to as a Doomsday Levy. What can you do? You have one last line of defense in this battle. So stay with us here on TaxView with Chris Moss CPA to better understand how you can minimize the damage to your family and your financial assets if an IRS Doomsday Levy ever shows up on your doorstep.
Have your heard certified letters usually bring you bad news? The IRS issued “Final Notice of Intent to Levy” oftentimes referred to as the “Doomsday Levy” is usually sent certified by the Government, but also can be delivered by a special agent in person direct to your front doorstep. Regardless how you receive the Levy notice, if the amount of the Levy is relatively large enough to cause you severe economic hardship, I recommend you retain the best tax attorney you can afford. While the IRS website is an excellent source of information on how the IRS levies you and explains your rights to appeal within the IRS and then eventually to US Tax Court, you are simply no match for the brutally effective Collection Division of the US Treasury if you should, as thousands before, lose to the IRS in Court.
Once you have your team assembled best practice in my view is to appeal within 30 days of the date on the levy notice to the IRS appeals division and submit your “offer in compromise” If you read my article on offer in compromise you know that this offer is a very viable alternative to being levied and can in many cases be a “win-win” for both you and the Government. However, your offer must be reasonable enough to be accepted by the Government. In order to better understand how reasonable is reasonable let’s take a look at some very interesting US Tax Court cases.
In Lloyd v IRS 2008-15 taxpayer Lloyd a 70 year old practicing attorney was assessed income tax after an IRS audit for years 1990 through 2002. What makes this case so interesting is that Lloyd never disputed the tax owed, but he also never paid the tax owed. After receiving a notice to levy in 2006, Lloyd’s tax attorney requested a hearing with the IRS Appeals Office to discuss an offer in compromise. Lloyd offered a 7 year payment plan for a total of $139,707 to compromise $264,457 owed. The IRS determined that Lloyd’s “reasonable collection potential” RCP was almost $1.5 Million easily allowing Lloyd to pay much more than $139,707 if not the whole amount due. After months and months if not years of delays, phone calls, meetings and correspondence by both sides no agreement could be reached. The IRS gave Lloyd 30 days to appeal to US Tax Court which indeed he did in 2008 US Tax Court Lloyd v IRS . Judge Chiechi immediately notes early on in this 63 page Opinion that Lloyd could not challenge the tax owed, but only challenge whether or not Appeals abused its discretion by not accepting Lloyds RCP calculations. The Court concluded that Appeals “on the record before us” did not abuse its discretion. IRS wins Lloyd loses.
Next case is Crosswhite vs IRS just decided two weeks ago. Crosswhite owed 2003 Form 941 payroll taxes from a business he owned. He retained a tax attorney to put forth an offer in compromise to the IRS in 2004. Crosswhite’s tax attorney was still working this case with the IRS all the way to January of 2007. Eventually in June of 2009 the IRS sent the dreaded Doomsday Levy to Crosswhite. Legal counsel executed Form 12153 “request for due process hearing” before IRS appeals. The IRS determined Crosswhite had RCP of $82,948. Crosswhite only offered $7,200. The IRS countered with a revised RCP of $68,847. Crosswhite eventually offered $25,000. The Government issued a notice of determination sustaining the levy. Crosswhite appealed to US Tax Court in Crosswhite vs IRS 2014-179.
Judge Paris points out that the IRS analysis of RCP for Crosswhite only included net equity but not future income computations. Therefore the Court was unable to conclude whether or not it was an abuse of discretion for Appeals to proceed with the levy. The Court remanded the case back down to the Appeals office for further consideration and suggested that Crosswhite offer a revised new collection alternative. Hopefully now that Crosswhite has been given a second chance his tax attorney will work this out with Appeals.
What does all this mean for us? First, don’t ever ignore IRS notices and bills. Ignoring IRS notices and correspondence endangers your business and family making a Doomsday Levy attack very possible in your own backyard. Second, retain a tax attorney early in the battle to minimize injury and protect your assets. Just so you know, if you try to hide assets while all this is going on the IRS will invoke the power of Code Section 6331(d)(3) that “collection of the tax was in jeopardy” and proceed immediately against you to protect the Government’s best interest with such financial force your assets will not know what hit them. Finally, if you do get the dreaded Doomsday Levy, don’t rely on the US Tax Court to save you. As we saw in Lloyd and Crosswhite, Doomsday Levy US Tax Court proceedings rarely have happy endings. Your best chance to minimize the damage if an armed Doomsday Levy is racing your way, is to have your tax attorney proceed quickly and quietly to IRS Appeals, work out an offer in compromise, and neutralize and unarm that Doomsday Levy before it ever hits its target.
Thanks for joining us on TaxView with Chris Moss CPA.
Chris Moss CPA