In Richard H. Levin and Linda D. Levin v. Comm’r, T.C. Memo 2018-172, Filed October 15, 2018, the Tax Court ruled that IRS Appeals had acted appropriately in denying taxpayers’ proposal for an installment agreement and sustaining IRS Collections proposed levy action. Taxpayers created a liability for tax year 2010 of $468,696, prior to assessment of penalties and interest. Taxpayers’ representative proposed a payment agreement to the IRS wherein taxpayers would pay their liability within four months. During that time, taxpayers made a $50,000 payment. The IRS issued a final notice of intent to levy, at which point the taxpayers requested a Collection Due Process hearing with IRS Appeals. There is a lengthy narrative in this case regarding the details of financial information. During this time, the Appeals office indicated that the taxpayers must remain compliant with their current tax liabilities in order to qualify for a payment agreement. Taxpayers also requested a face to face meeting with IRS Appeals. IRS ultimately agreed to the face to face meeting – which caused a lengthy delay of over a year. Rather than take advantage of the time to liquidate assets and pay down the tax debt, taxpayers liquidated one of their four homes and paid off other creditors in an amount in excess of the IRS debt – approximately $575,000. These creditors included State taxing authorities and credit cards. They additionally capitalized taxpayer husband’s new law firm in the amount of $281,000. Persistently during negotiations with the IRS, the taxpayers’ representative argued that the filing of a tax lien would have a detrimental effect on taxpayer husband’s ability to earn income in his law firm. The Court ruled that the taxpayers “have repeatedly chosen not to prioritize payment of their 2010 outstanding Federal income tax liability. Indeed their failure to use net proceeds of $843,293 from the sale of their Los Angeles, California home to pay their 2010 liability was particularly brazen.” The Tax Court confirmed the reasonableness of the Appeals’ Settlement Officer to file a notice of Federal Tax Lien and to reject the taxpayers’ proposed installment agreement.
Caraker Law Firm Blog
IRS Planning increased collection activity against federal employees'
Thrift Savings Plans (TSP)
The National Taxpayer Advocate has reported in its Fiscal Year 2016 Objectives report to Congress that a proposal by the IRS to expand collection efforts against retirement plans of federal employees "infringes on taxpayers' rights to a fair and just tax system." Federal employees have the ability to participate in the Thrift Savings Plan (TSP), which is similar to a private sector 401(k) plan in that employee savings are tax deferred and qualify for some level of employer, (in this case the federal government), matching.
Taxpayers, including federal government employees, who owe taxes are subject to IRS levy on their property and rights to property. This power extends to retirement accounts, including the TSP. However, given the importance of retirement savings to an individual's welfare during old age, the IRS has historically regarded a levy on retirement funds as a special case that requires additional scrutiny and a manager's approval.
Essentially, before a field Revenue Officer can levy a retirement benefit, the agent would determine what property is available to levy - both retirement and non-retirement, determine if the taxpayer has acted in a flagrant manner, and finally determine if the retirement funds are required for necessary living expenses. There are distinct problems with these factors, but that has been partially mitigated by other requirements prior to issuance of the levy. The field Revenue Officer must either secure the signature of the Area Director of Field collections, or secure a manager's approval.
In order to obtain a collection manager's approval in this instance, the field Revenue Officer is required to draft a detailed memo that sets out a summary of all information provided to the agent by the taxpayer, whether the taxpayer has exhibited any flagrant behavior, and more importantly, other collection alternatives that have been considered and rejected. In other words, the retirement account falls into a secondary level of collection after the field Revenue Officer reviews other property or income to levy.
Recent activity at the IRS has created a pilot program to levy TSP accounts. Most importantly, and of greatest concern, this program will be administered by ACS employees. ACS is the Automated Collection System unit. When a taxpayer's account is in ACS, it is not assigned to a single employee for collection, rather, there are various employees in functions and units that work on similar matters. These employees do not receive the same level of financial analysis training as a field Revenue Officer.
In addition to the reduced training received by ACS employees, the pilot program calls for ACS employees to document any information that a retirement is impending and that the taxpayer will be relying on funds from the TSP for necessary living expenses. This lacks any analysis regarding other property the taxpayer may have that would be available to collect from, or if the taxpayer acted in a flagrant manner, all requirements of a field Revenue Officer.
Finally, the pilot program requires managerial approval prior to levy on retirement accounts - but that is a requirement of many collection actions by ACS employees - hardly elevating these situation to a special case status. What is not referenced is the required memo to the manager detailing information provided by the taxpayer and collection alternatives considered and rejected before proposing levy to the retirement account - all requirements of the field Revenue Officer.
In summary, the IRS is targeting one type of retirement account, the TSP, for increased collection activity, over all others. ACS does not have the ability to levy any other retirement accounts at this time. The National Taxpayer Advocate believes that this pilot program undermines both taxpayer rights and retirement security policy. As such, the National Taxpayer Advocate is going to continue to push the IRS to abandon the Thrift Savings Plan levy pilot program If the IRS adopts the program, the National Taxpayer Advocate is prepared to accept all TSP levy cases coming from ACS. Taxpayers should take advantage of this opportunity to protect their retirement income. Additionally, where possible, taxpayers should seek assistance from the Appeals division in order to entertain collection alternatives through Appeals' Collection Due Process hearing procedures. Feel free to contact Caraker Law Firm, P.C. with any questions you may have.
Unfortunately, this question is more confusing than you would think. The reality is that once a taxpayer owes the federal government, a series of notices will be sent to the taxpayer by the IRS demanding payment and referencing the federal government’s ability to levy, or seize the taxpayer’s assets. While the taxpayer is always encouraged to pay his or her indebtedness to the U.S. government, the risk of enforcement action through levy of assets may only happen if certain statutory requirements are met - even though many IRS notices mention that the government may seize or levy assets.
The Internal Revenue Code authorizes the IRS to levy or seize assets in order to satisfy delinquent taxes. While there is no need for the government to file a lawsuit in order to proceed with such a seizure, it must abide by proper statutory guidelines. The IRS must send a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days prior to actual seizure of assets. The IRS may levy your State tax refund prior to issuing a final notice, but must provide you with a right to a hearing, after. The final notice may be left at your home or business, provided to you in person, or sent to your last known address by certified or registered mail, return receipt requested.
Given the importance of your hearing rights explained below, if the IRS has created a debt for you a few years ago, or you failed to file returns for a period of time after a return with a balance due was filed, then you need to make sure the IRS has your proper address. This can be done by filing Form 8822 - Change of Address. The IRS is most likely to send a Final Notice of Intent to Levy and Notice of Your Right to a Hearing to the address on your last filed tax return. If you have moved since this return was filed and your mail forwarding notice has expired, you will miss your right to a hearing. Remember, the IRS may have current income source information for you - such as W-2 or 1099 information. So, making sure the government has your proper address makes sure you are properly advised of your rights and provides you with an opportunity to address your debt before the IRS enforces collection action through a wage or bank levy, for example.
A Final Notice of Intent to Levy is only issued one time per tax period. Once issued, a 30 day clock starts. Every taxpayer has the opportunity during this window of time to request a Collection Due Process hearing. That hearing is held by the Appeals Division of the IRS, an independent division from the Collections Division. When a taxpayer requests a hearing after receiving a final notice, Appeals will make sure that all proper statutory requirements were followed by the Collections Division. Further, and maybe most important, the Appeals Division can entertain collection alternatives at this hearing. This means that you can work with Appeals to set up an installment agreement, a partial payment installment agreement, place your account in currently not collectible status, or work with the taxpayer to process an Offer in Compromise. This is a very important taxpayer right and no taxpayer should miss this opportunity to bring their matters into compliance and eliminate the uncertainty that having a delinquent tax matter creates. Please contact our office if you have any questions about these matters.