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Payment and enforcement of taxes
The payment of federal income tax is voluntary, but there are penalties for not paying or not paying what you actually owe. The Internal Revenue Service has powerful tools available to enforce the collection of owed taxes. Two primary tools are liens and levies, the latter also known as garnishments. A lien represents a legal claim against your property for taxes owed but the government does not take physical possession of the property. In the case of real estate, such a lien would prevent you from selling the property without first satisfying the lien.
On the other hand, a levy is the actual taking of money or property to satisfy the taxes owed. In the case of a wage garnishment, your employer withholds a portion of your paycheck that is paid directly to the IRS. If the employer refuses the garnishment, the IRS can hold it personally liable for any money that should have been received by the IRS, but was not collected. This garnishment continues until alternative arrangements are made to gradually pay off the debt or the entire debt is paid. Additionally, wages may be garnished for default on repayment of student loans.
Garnishment process and effects
While a lien provides notice of the intent to seize your property, the Notice of Intent to Levy provides the legal authority for the IRS to complete the seizure. Once this notice has been issued, the IRS does not require further court action to take necessary action. Generally the property owner is granted thirty days to pay the outstanding debt before enforcement of the levy will occur. At that point, the property can be confiscated and sold to satisfy all or a portion of the outstanding debt.
Some of your wages and other income are exempt from levy. The weekly exemption is the total of your standard deduction and the amount deductible for exemptions on the income tax return for the year the levy is served, divided by 52. In addition, the total amount paid for court-ordered child support is exempt if the order was effective before the date of the levy.
A levy on wages and salary has a continuous effect in that it attaches future paychecks, until the levy is released. Other levies only attach property and rights to property that exist at the time the levy is first served. For example, if a bank account is levied, it only applies to money currently in the account. Any subsequent deposits to that account are not subject to the levy. In the case of book royalties, the levy reaches current and future royalties on books already published, but not those published at a later date.
When two spouses have a joint tax liability, generally the levy will be attached to the wages of the spouse with the larger income. However, both incomes may be levied in cases of flagrant refusal to pay.
Legal rights and lawsuits
The IRS is very experienced at using intimidation to bluff taxpayers into adverse collection action. If this happens to you, it’s important that you know your rights and understand the full powers of the IRS. There are certain procedures which the IRS must follow before it can garnish your wages and seize your property. If you use a tax accountant or tax attorney, they will know the rules that must be followed such as established notice periods for levies and taxpayer appeal rights. The laws governing this area are too numerous and complex to be included in this article. It is incumbent on you to enforce your rights when necessary, and you should consider professional advice if you believe your rights have been violated in any way.
Settlements with the government
As a general rule, the best advice is to approach the IRS before legal action is taken against you. Contrary to what some people may believe, the IRS wants your money more than they want to see you in prison for tax evasion. In addition to working out a payment agreement to solve your tax problem, your goal should be to minimize your out-of-pocket expense for accountants and tax attorneys. By engaging all parties early in the process, an acceptable solution is more likely and feasible. This will avoid extensive document discovery and costly court battles, something you can least afford when you are facing a tax bill that you have failed to pay.
An Offer-in-Compromise is a program offered by the IRS that allows taxpayers to negotiate a binding settlement. It is not an amnesty program, but is a mutual settlement for a reasonable amount of the taxes owed, which may be less than the actual total. The IRS understands that there are cases where it will be impossible to recover the entire amount owed. You can do this on your own or with the assistance of a tax professional who has the benefit of knowing what the IRS might accept as a way to close your case. Getting closure through a settlement will also reduce or eliminate penalties and interest that are tacked on for each day that payment is due.
The following can be garnished or levied:
* Wages
* Salary
* Bonuses
* Dividends and interest
* Commissions
* Severance pay
* Bank and credit union accounts
* Licenses
* Royalties
* Brokerage accounts
* Rental income
* Accounts receivable
* Social Security benefits
* Pension or other retirement income
* Existing or future state and federal tax refunds (as an offset)
* Real property (home, rental property)
* Personal property (car, boat, etc.)
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