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Can the IRS continue to seize your income even if you are appealing a tax determination? Can you stop an IRS tax levy if you believe there was an error, or do you simply have to pay now and sue later? The U.S. Tax Court provided a helpful summary of when it will suspend a IRS tax levy during an appeal.
A tax levy allows the IRS to seize your money or property to satisfy an unpaid tax obligation. Think of it like foreclosure on your bank account. But where your mortgage company or credit card lender needs to get a judgment from a court first, the IRS can generally impose the tax levy first, and leave it to you to ask questions later.
A tax levy may be applied to tax refunds, bank accounts, financial assets, or even income. Once the IRS has issued a levy, your employer, bank, or financial manager will send your money directly to the IRS, instead of to you. That can cause significant trouble for taxpayers operating on tight budgets or who have other creditors trying to collect payments.
When you receive a Notice of Intent to Levy from the IRS, it can make stopping tax collection a high priority. If you believe the notice is incorrect, especially if it is based on improper tax assessments, it is important to speak to a tax attorney or accountant right away. By requesting a Collections Due Process hearing (CDP hearing), you can put the IRS’s tax levy on hold until the tax court has an opportunity to review your case. A taxpayer request for a CDP hearing automatically suspends the tax levy for as long as the hearing and any appeals are pending. While that process is pending, you can use that time to pay off your tax debt or negotiate installment payments or a tax settlement with the IRS.
That is what happened in Squire v Commissioner, No. 13308-19, decided earlier this year. Percy Squire appears to have had a long-standing fight with the IRS over his income taxes. Over the last eight years, he has had to file four petitions for Collections Due Process hearings. He lost two of them. When the IRS determined he had an unpaid tax liability for 2016, it issued a Notice of Determination Concerning Collection Actions, which the U.S. Tax Court said amounted to a notice of intent to levy. When the IRS filed a Motion to Permit Levy, the U.S. Tax Court had to consider whether to lift the automatic suspension.
The automatic suspension that happens when a taxpayer requests a CDP hearing does not apply if:
The Tax Court said that “good cause” requirement means the IRS must show that the taxpayer raised frivolous or groundless arguments that needlessly delay collections. In other words, the request for a CDP hearing must have been a delay tactic, rather than a serious dispute over the taxes owed.
But the IRS didn’t do that here. It relied on Mr. Squire’s history of challenging IRS determinations and the fact that he had not made his 2018 estimated tax payments (remember the challenge was for 2016). The Tax Court said that was not enough. When Mr. Squire participated in conferences with the IRS settlement officer he did not make frivolous arguments. Nor was he stalling for time. Because the IRS couldn’t show that there was good cause to suspend the tax levy, the Tax Court left it in place until the CDP hearing could be concluded.
Taxpayers with unusual income circumstances must remain diligent in their dealings with the IRS. When the government tries to assess taxes you do not owe, you need to make a timely request for a Collections Due Process hearing. Doing so can save you from a tax levy now, and keep you from overpaying taxes in the future.
Attorney Joseph R. Viola is a tax attorney in Philadelphia, Pennsylvania with over 30 years experience. If you have questions regarding IRS tax levies and collections practices, contact Joe Viola to schedule a consultation.