DON T HAVE A SEIZURE PROTECTING YOUR CLIENTS FROM THE IRS COLLECTION DIVISION

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1 Don t Have a Seizure Protecting Your Clients From the IRS Collection Division All audio is streamed through your computer speakers. There were several attendance verification questions presented during the LIVE webinar to qualify for CPE of the LIVE event only. For the archived/recorded version of this webinar, the link at the end of this presentation will be to final exam on the topics and learning objectives covered during this webinar plus there are also 3 online review questions to answer per hour. National Society of Accountants 1010 North Fairfax Street Alexandria, VA Phone: (800) members@nsacct.org DON T HAVE A SEIZURE PROTECTING YOUR CLIENTS FROM THE IRS COLLECTION DIVISION Robert E. McKenzie Arnstein & Lehr LLP Chicago, IL

2 MCKENZIE S PRIME DIRECTIVE GET THE FEE FIRST!! 2 Learning Objectives Upon completion of this webinar you will be able to: Recognize the methods the IRS is using to enforce collection activities and dew IRS collection priorities and procedures Identify advanced concepts in liens: subordination, subrogation, discharge and non-filing of liens. Represent taxpayers with employment tax liabilities and the trust fund recovery penalty issues for officers of delinquent companies. Protect your clients from increased IRS enforcement. 2

3 Collection Levies 2,631,038 3,478,181 3,606,818 3,748,884 2,961,162 Liens 768, ,618 1,096,376 1,042, ,768 Seizures Levying Taxpayer Property Pg. 1 IRS has the power to collect taxes by levying on taxpayers property as a result of the Federal Tax Lien. When a person owes taxes, the IRS gains a lien on all that person's assets after meeting certain statutory requirements. The lien attaches to all rights, title and interest of the taxpayer wherever it may be situated. [IRC 6321] Once the IRS has a lien on all of a taxpayer's assets, it may enforce that lien by administratively levying his or her assets. 4 3

4 Lien Rights Pg. 1 An example of lien rights would be the lien created when a person buys a car and finances the purchase through a bank. The purchase price for the car is $10,000. The purchaser pays a down payment of $2,000 and signs a note with a bank giving it a lien on the car. The bank then lends the buyer $8,000 to complete the purchase. If the buyer defaults on the note, the bank may repossess the car. In the case of the IRS it gains a lien on all of a taxpayer's assets and therefore it has the right to seize most of those assets to satisfy unpaid taxes. 5 Liens Pg. 1 Assessment Notice & demand Neglect or refusal to pay 6 4

5 Effect of Federal Tax Lien Pg. 2 Effect of the Federal Tax Lien statute is that when any person fails to pay any assessment of tax, plus interest, penalties, or costs, a lien in favor of the United States arises upon all property and rights to property, whether real or personal, tangible or intangible, belonging to the taxpayer. Even if the taxpayer makes partial payment, a lien will arise for the balance of the tax. 7 Statutory Period Pg years Extending events Bankruptcy Leave country for more than 6 months File CDP Sign a waiver for up to 5 years in conjunction with an I/A OIC TAO 8 5

6 Notices of Levy Pgs. 4-6 CDP must have been issued 30 days prior absent jeopardy 668-A 668-W Exemptions 668-C 9 Collection Due Process Pgs. 6 & IRC 6330 Letter 1058 Timely appeal in 30 days Form Set forth all defenses to levy Offer in compromise Amount of the liability Spousal defenses Currently not collectible Penalties Request for installment agreement 10 6

7 Equivalent CDP Up to 1 year to file pursuant to new Sec Regs. No Judicial review. 11 Review Questions for Self-Study CPE Now s the time to answer the review questions. Follow this link: Please leave quiz window open and wait to submit until prompted to complete questions 4 through 6. Once completed, press Submit and close quiz window. 7

8 Form 668 Pg Accounts Receivable Pg. 8 AR, notes & other assets owed to a taxpayer may be levied upon. Any receivable that is due in a single payment (rather than installments) may ordinarily be reached by one Notice of Levy. If the taxpayer has an unqualified right to receive installments on a debt, one Notice of Levy would reach all such installments. In cases where the right to receive installments does not exist or where there is doubt as to the taxpayer's right to future payments, the IRS will serve a 668-A as each installment becomes due. 13 8

9 Benefit Income Taxpayer Relief Act of 1997 allows the IRS to serve a continuous levy which attaches to 15% of the following payments: Social Security Any benefit payment for which eligibility is based on a payee's income or assets (or both), Minimum exempted amount of wages in salary, Worker's compensation payments, Annuity or pension payments under the Railroad Retirement Act and benefits under the Railroad Unemployment Insurance Act, and Unemployment benefits and certain means-tested public assistance payments. [IRC 6331(h)(2) 14 Levy on IRAs and 401K plans IRS has right to levy upon IRAs, Keoghs, and 401K plans, but now when it takes such action, it may not assert an, excise penalty on the involuntarily converted funds. TPs will still have to pay the income taxes due as a result of-the involuntary conversion. 15 9

10 Notice of Levy on Bank Accounts Pg. 9 Bank or financial institution is served with a Notice of Levy, it is required to hold the monies in escrow for at least 21 days after service. [IRC 6332(c)] Allow TP time to correct erroneous levies. Also allows time to negotiate with the Service regarding the tax liability and release of the levy. Monies held in escrow are not available to the taxpayer or the Service during 21-day period. Bank may not clear outstanding checks from the escrowed funds. 16 Joint Account Holders IRS may levy on property in which the taxpayer's interest is unclear. For example, the Service may issue a f Levy to a financial institution at which the taxpayer has an account in joint ownership with another party. IRS takes the position that if the taxpayer or innocent third party can show the origin of funds in the account was other than the taxpayer, they will release those funds from the effects of the levy. The burden of proving the levy was improper is on the account holder. The Supreme Court has upheld the IRS position regarding joint accounts. The innocent joint owner must initiate a wrongful levy suit if the Service and/or financial institution refuse to release his respective funds

11 Levy on Wages Pgs & IRS effectuates a levy of wages by serving a Form 668-W, Notice of Levy on Wages and Other Income, upon the employer. Permits a continuous attachment of the nonexempt portion of the wage or salary payments due TP Exemption 1/52 of the sum of the standard deduction plus the aggregate amount of personal exemptions allowed for the taxpayer that year. Example, if TP were single with a $4,000 personal exemption and a $5,000 standard deduction, he could take home $ per week. Balance of TP s net pay is remitted to the Internal Revenue Service. Statutory allowance for dependents is increased to extent of court ordered child support payments. IRS will not recognize non-court ordered support arrangements. 18 Duration of Levy The service of a Form 668-W, Levy on Wages, Salary, and Other Income, is prospective. The levy remains in full force and effect until the obligation recited on the levy is paid off. [IRC 6331(e)] Interest and failure to pay penalty continue to accrue on the liability while under levy. Levies made with the Form 668-A are not prospective. They are "one-shot deals." 19 11

12 Release of Levy Pgs Levy should be released whenever any of the following conditions apply: A levy was issued prior to the expiration of the taxpayer's 30 day notice period in a non-jeopardy situation. Liability is no longer owed (or a pending adjustment will fully satisfy liability). FPLP levy is creating an economic hardship (Form 911 or hardship CNC). The CP 90/297 (or equivalent) was sent, but not to the most recent taxpayer confirmed address available to us when we requested the letter. 20 Release of Levy Release facilitates the collection of the liability. The IRS, not the taxpayer, makes the determination that a release facilitates collection. Statutory collection period has expired. The taxpayer makes an installment agreement. The taxpayer indicates that bankruptcy has been filed. Wrongful levy or erroneous levy conditions apply. The taxpayer makes an Offer in Compromise. Entity is a limited liability company (LLC) that we are told has one owner and is a disregarded entity, i.e., it is not taxed as a corporation. Accept the taxpayer's word about the LLC. [IRM ] 21 12

13 Bargaining for a Release of Levy Tell IRS of hardships Offer I/A Full release Partial release Collateral 22 Bargaining for a Release of Levy Appeal to group manager Appeal to territory manager Appeal to area manager 23 13

14 Form 911 If the IRS refuses to release the Notice of Levy and you believe it creates a significant hardship for your client, you may apply to the Taxpayer Advocate for a Taxpayer Assistance Order. [IRC 7811] The process is begun by submitting a Form 911 to the Taxpayer. Advocate. That office has authority to order release a levy. 1. The existence of an immediate threat of adverse action; 2. A delay of more than 30 days in resolving the taxpayers account problems; 3. The payment by the taxpayer of significant cost (including fees for professional services) if relief is not granted; or 4. Irreparable injury or a long standing adverse impact, if relief is not granted. 24 Levy Pgs & B Notice of Seizure Writ of Entry 25 14

15 Taxpayer s Physical Property IRC 6331 authorizes the Internal Revenue Service to take physical property belonging to the taxpayer. Except when seizing a personal residence, the IRS is not required to seek judicial approval prior to seizing property. All seizures require a minimum approval level of Territory Manager. 26 Entry Into Private Areas TP must consent or; IRS must secure a writ of entry or; There must be exigent circumstances 27 15

16 Levy Exemptions Personal effects rises to $8,790 in 2013 and books Tools of trade goes to $4,400 in The increases have the practical effect of preventing seizure of books and tools in trade and personal effects from many lower income taxpayers. [IRC 6334(a)] 28 Redemption of Property The taxpayer has no right to redeem personal property subsequent to sale. Subsequent to the sale of real property, the taxpayer has redemption rights. IRC provides that the taxpayer has the right to redeem his or her real property from the successful bidder by paying the bid price plus interest at the rate of 20% per annum within 180 days of sale. [IRC 6337] 29 16

17 Extensions of Time to Pay Up to 120 days Form 433-D is not to be used. The IRS will not file a lien. No Notices of Intent to Levy, Notice of Hearing (LT 11 or Letter 1058DO) or levies during granted extension periods, unless collection is in jeopardy or at risk. 30 Installment Agreements Less than $50,000 Granted upon request Up to 7 years to pay Income taxes Must stay current on future obligations Form 9465-FS 31 17

18 Review Questions for Self-Study CPE Now s the time to answer the review questions. Follow this link: Please finish the remaining review questions and press Submit. Once submitted, please close the review questions window and continue to next slide. Thank you for participating in this webinar. Below is the link to the online survey and CPE quiz : Use your password for this webinar that is in your confirmation. You must complete this survey and the quiz or final exam (for the recorded version) to qualify to receive CPE credit. National Society of Accountants 1010 North Fairfax Street Alexandria, VA Phone: (800) members@nsacct.org 18