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An Employer's Guide for Responding to an IRS Levy (wage garnishment).
An employer, from time to time, will receive an IRS levy, with strict and immediate time constraints for complying.
With some proper procedures in place, employers should have no problem complying with a tax levy order. This insight provides employers a short guide for dealing with an IRS levy.
When the IRS Orders a Tax Levy (Wage Seizure)
An IRS levy may be issued after three prerequisites are satisfied: (1) the IRS issues an assessment for taxes due and sends a Notice of Demand for Payment; (2) the taxpayer fails to respond to the assessment or refuses to pay the assessment; and (3) the IRS issues a Final Notice of Intent to Levy and Notice of Right to a Hearing at least 30 days before the levy.
1 A taxpayer has the right to contest the Final Notice if, within 30 days of receipt, he asks the IRS to review the matter. The taxpayer further has a right to appeal the IRS determination, including bringing a suit in federal court.
2 To preserve the right to file a court action the taxpayer must file IRS Form 12153 with the IRS within 30 days of the levy notice.
The statutes, cases, IRS forms, and publications all make clear that a taxpayer has the right, and the responsibility, to challenge an IRS levy that he deems erroneous or illegal.
3 Recipients of a wage levy, such as an employer, enjoy no rights to challenge a wage levy because they have no interest in the property subject to it. Thus, the levy process up to the issuance of a wage levy is entirely between the IRS and the taxpayer and does not involve the employer. If an employer receives a wage levy it usually means that the employee has either exhausted his rights or failed to exercise them promptly.
AN EMPLOYER CAN AVOID AN EMPLOYEE QUITTING THEIR JOB.
The Tax lawyers at Flat Fee Tax Relief, for more than a decade, have been, routinely convincing the IRS to release tax levy within 24 hours. There is never a need for an employer to lose a good employee or to attempt to "trick" the IRS by paying the employee under the table. An IRS levy can be handled by an experienced tax pro. A tax levy can be stopped and released in one day.
An Employer Must Comply With An IRS Levy
Wages and salaries, including severance and back pay awards, are expressly subject to an order to levy. Settlement amounts are also subject to the levy order. As is generally the case with wages, the taxpayer's property interest subject to an IRS levy - his wages - is in the hands of the person's employer. Thus, employers are served with wage levies to allow the IRS to confiscate those wages earned by the employee before they are paid.
To encourage third-party compliance with a tax levy, Congress enacted IRS Code section 6332. That section provides, in pertinent part, that "any person in possession of (or obligated concerning) property or rights to property subject to levy upon which a levy has been made shall, upon demand of the Secretary, surrender such property or rights ... to the Secretary ...." If the person "fails or refuses to surrender any property or rights to property, subject to levy, upon demand by the Secretary," the person will become personally liable for the taxes, penalties, and interest on the levy, plus collection costs. In addition, a penalty equal to 50 percent of the tax due may also be exacted.
The courts have stated that "clearly, a refusal to honor the levy will be at the third person's own risk. Even in somewhat doubtful circumstances, the liabilities and penalties may be imposed." The Code, however, states that employers who comply with a wage levy order cannot be held liable to an employee for such compliance.
Releasing an IRS levy
The IRS must release a tax levy when the taxes, penalties, and interest are paid in full. Also, the IRS must release the levy in the following cases:
1. The Statutes of Limitations expired before the tax levy was served;
2. The taxpayer provides documentation that proves that releasing the levy will assist the IRS in collecting the debt;
3. The taxpayer enters into an Installment Agreement unless the repayment plan states that the tax levy is not to be released;
4. The IRS determines that the levy is creating economic hardship for the taxpayer, or;
5. The employee submits an Offer in Compromise which will settle the tax debt.
An Important Note: the employee must have the last six (6) tax returns filed. Unless the tax levy has been completely satisfied, an employer should continue to comply with it unless it receives notice from the IRS that the levy has been removed for one of the reasons stated above.
YOU DON'T WANT TO LOSE A GOOD EMPLOYEE, ESPECIALLY ONE THAT HAS BEEN WITH YOU FOR A WHILE. AN IRS LEVY CAN BE STOPPED AND RELEASED IN ONE DAY. IT MATTERS NOT WHAT CITY OR STATE YOU ARE LOCATED IN. THE IRS HANDLES ITS BUSINESS USING FAX MACHINES.