When an individual or business provides services to another business, they must be classified as an employee or independent contractor.  The Colorado Department of Labor does conduct audits to determine whether a business is properly classifying their workers.  This article has been prepared by a Denver tax attorney to provide additional information regarding an audit by the CO DOL.

If you’re concerned about an Colorado Department of Labor audit of your business, get in touch with the McGuire Law Firm about what you can do to protect your business.

Who Does the Colorado Department of Labor Audit?

The Colorado Department of Labor can audit any business paying contractors to determine if the classification of the third-party as a contractor is correct.  

What is the Audit Process with the Colorado Department of Labor?

First, the business will receive a notice that they are being audited for the classification of their workers.  The audit notice will provide the examiner or auditor’s name and contact information as well as a request for documents.  After producing the requested documents, the examiner may have questions or they may provide their findings.  The findings will outline which third parties they believe should have been classified as an employee and the tax or penalty for failing to properly classify the parties.  You have the right to appeal the findings of the examiner and state your case to an appeals officer.

What Documents Are Requested by the CO DOL?

The examiner will generally request all of your business records relating to the payroll such as W-2s, W-3, 941s, payroll ledgers or summaries and related information.  Further, the examiner will request your income statement, copies of 1099s and any contractor files such as your independent contractor agreements with the contractors.

What is the CO DOL Focusing on in a Classification Audit?

The focus is primarily on whether or not the parties that received 1099s or payments for services were properly classified as independent contractors.  Thus, although the payroll information is important, the list of parties your business issued 1099s to or paid as a contractor are likely to be the primary focus.  The DOL examiner will use the 1099s and expense ledger to then have a list of all parties paid who could possibly be reclassified as an employee.

How Are Parties Chosen for Audit by the CO DOL?

Some audits can be random, while others may have been selected given the amounts paid to third parties as contractors in comparison to employees.  Further, we are told many audits begin when a third-party claims unemployment as an employee but are told they have been treated as a contractor and may not be eligible for unemployment benefits.  When the individual claims they are an employee, the DOL may determine they should investigate further as to the business paying this third party.

What Are the Penalties for Improperly Classifying Workers?

The penalties can be severe.  A first time willful violation can be a $5,000 penalty per offense with a $10,000 penalty of the classification is not corrected within 60 days of the DOL finding the offense.  Further, the DOL can penalize a business $25,000 for a second or later willful violation and up to $50,000 for repeat violations.

Why Does the CO DOL Care About My Worker Classification?

The DOL cares because a business does not pay unemployment insurance for independent contractors.  Thus, the unemployment insurance fund can be reduced or weakened when an employee does not properly classify their workers as employees.  Further, the individuals seeking unemployment are harmed when they do not qualify for unemployment.

What Other Tax Ramifications Exist?

If the DOL reclassifies third-parties as employees and you begin paying these employees wages, the wages would then be subject to social security and Medicare tax.  The total social security and Medicare tax is 15.3% with half (7.65%) being withheld from an employee’s paycheck (the employee portion) and the other half being paid by the employer (the employer matching portion).  The employer matching portion is why many businesses would prefer to classify workers as contractors because they do not have to pay the 7.65% matching amount.

What to do if You Have Received Notice of Audit

If you have received a notice of audit from the DOL, please consider speaking with a Denver tax attorney at The McGuire Law Firm.  A tax attorney can represent you and assist you through the audit as well as assist with properly drafting contractor agreements and classifying workers in the future.  Contact us for a free consultation.

Many people consider the IRS to be the largest and most powerful creditor in the world and they may be right.  That being said, many people are unaware as to how and when the IRS goes about collecting from a taxpayer when taxes are due.  This article has been prepared by a tax attorney at The McGuire Law Firm in Denver, CO to provide additional information regarding how and when the IRS can levy monies from taxpayers to collect on past due tax bills. If you are concerned about an IRS tax debt, contact the McGuire Law Firm for a free consultation. 

What is a Levy?

A levy is a legal taking of property or assets from a creditor to satisfy a debt.  In our specific situation here, we are discussing levies issued by the Internal Revenue Service such as a bank levy or wage garnishment (levy).

When Can the IRS Legally Levy?

When a tax debt is due, the IRS must provide the taxpayer proper notice before they can levy an asset as opposed to immediately seizing a bank account or other asset.  When a taxpayer files a return with tax owed, the taxpayer will initially receive a balance due notice from the IRS.  When the balance due is not paid or a formal agreement entered into, the IRS continues to issue notices and the notices get more serious.  Eventually, the IRS can and will issue a “Final Notice of Intent to Levy” (‘Final Notice’).  This Final Notice gives the taxpayer 30 days to either request what is called a Collection Due Process Hearing or establish an agreement with the IRS to resolve the tax debt.  If the taxpayer does not request a Collection Due Process Hearing, finalize an agreement or take other action that would act as a hold on enforcement, the taxpayer is then open to levies.  

What Are Common Levies Issued by the IRS?

The IRS is most likely to issue a bank levy or a wage levy (garnishment).

How Does The IRS Issue a Bank Levy?

The IRS may have information as to where a taxpayer holds bank accounts based upon financial statements provided by the taxpayer or the IRS is likely to know where a taxpayer banks or holds financial accounts because interest and dividends are reported to the IRS on 1099 forms.  When the IRS issues a levy to a bank, they send the bank a Form 668-A.  The Form 668-A is a Notice of Levy and provides the taxpayer’s information, the tax periods and amounts due and demands payment from the bank up and to the tax amount due on the form.  

How is a Bank Levy by the IRS Processed?

Different banks may process an IRS bank levy differently, but as a whole, the bank is supposed to hold the funds in the taxpayer’s account(s) with the bank as of the day the bank receives the levy notice up and to the amount stated in the levy notice for 21 days.  After the 21 day period the bank is to release the funds to the IRS.

Can the Bank Release Funds from the Levy?

Yes.  The bank can release the funds being held from the levy in whole or in part, but only after receiving a formal notice of release from the IRS.  Thus, a bank levy can be released in full or partially released.

How Does the IRS Levy Wages?

Just as the IRS is likely to know where you bank, the IRS is likely to know where you work from either prior W-2s or financial information provided by the taxpayer.  The IRS levies wages by issuing a Form 668-W, which is a Notice of Levy on Wages, Salary and Other Income.  A wage levy is a continuous levy whereby your employer is to withhold a certain amount of the wages with each pay check and pay the funds over to the IRS.  The amount of funds the IRS can collect is dictated by certain exemptions but the levy on wages can be a very large portion of each paycheck.

Can a Wage Levy be Released?

Yes.  A wage levy can be released in whole or in part by working with the IRS to establish a formal agreement or reducing the amount of the wage levy for each pay period.  To release the wage levy, a taxpayer generally must provide financial information to the IRS or establish an agreement.

What Other Assets Can the IRS Levy?

In short, the IRS has the power and authority to levy or seize almost any asset from a delinquent taxpayer although, a levy of a bank account or wages are the most common.

How Do I Prevent a Bank Levy or Wage Levy?

Once tax is owed, the best means by which to avoid a levy is to establish a formal agreement for the IRS.  A formal installment agreement or submitting an offer in compromise with the IRS will act as a hold on enforcement and the IRS should not levy under these circumstances.

You can speak with a Denver tax attorney by contacting The McGuire Law Firm.  A tax attorney at The McGuire Law Firm can assist you with your tax matters to prevent a levy or work to have a levy released. 

When a business owes payroll taxes to the Internal Revenue Service the liability or exposure goes beyond the business owing the payroll taxes.  When employment taxes are owed to the IRS, the IRS can personally assess individuals from within the business a portion of the employment taxes known as the Trust Fund Recovery Penalty (TFRP).  To assess individuals the TFRP, the IRS conducts a trust fund investigation.  This article has been prepared by a tax attorney to provide information relating to the trust fund investigation process. Contact the McGuire Law Firm to speak with an attorney about the trust fund investigation process.

What is the 941 Trust Fund?

Prior to discussing how the IRS goes about their trust fund investigation, it is important to understand what the trust fund is.  The trust fund amount is the amount of social security and Medicare tax and the federal withholding tax withheld from an employee’s paycheck.  This amount is deemed to be held in “trust” by the IRS to be paid over to the Department of Treasury so the individual receives credit for the withholding.   The IRS takes the trust fund amount very seriously, hence why they can personally assess and collect the trust fund separately from the corporation, LLC or entity that has accrued the underlying the 941 or payroll tax debt.

When is the Trust Fund Investigation Conducted by the IRS?

First and foremost, for the IRS to conduct the trust fund investigation there must be a 941 tax liability.  That being said, once a revenue officer is assigned to collect the employment tax debt from the business entity, one of the first steps the revenue officer takes is to begin the trust fund investigation.  Thus, the trust fund investigation will generally be initiated within a few weeks to a month of when the IRS revenue officer is assigned whether or not known to the business owners. 

What Does the Trust Fund Investigation Consist Of?

The investigation will consist of the revenue officer reviewing corporate or partnership documents such as tax returns, articles of incorporation or organization, bylaws or partnership agreements, bank statements, cancelled checks and any other information or document that may shed light as to who within the business has the necessary authority and control to be personally assessed.  The IRS revenue officer will also conduct what is called the 4180 Interview.

What is the 4180 Interview?

The 4180 Interview is an interview conducted by the IRS with individuals within the business of which the IRS feels may be willful and responsible parties.  The 4180 Interview asks questions relating to an individual’s role, position and duties within the company, their knowledge and actions taken relating to the payroll tax debt and who else, if anyone could conduct certain actions within the business.  The 4180 Interview provides significant information to the IRS about the individual taking the interview and others within the business who may also need to be interviewed.  Generally, any owner, officer or director within a business would be asked to conduct the 4180 Interview.  The failure to conduct the interview may lead to the IRS proposing the personal assessment of the trust fund to the individual if other information, such as the tax returns or the bank signature cards show the individual held a certain position of control of authority within the business.

What are Common Documents Requested or Obtained by the IRS During the Investigation?

The IRS will almost always request the bank statements, cancelled checks and bank signature cards for the business for the tax quarters whereby the 941 taxes were accrued.  Additionally, the IRS will generally request and review the employment tax returns and income tax returns for the business as well as internal business documents and agreement depending upon what the business may or may not have. 

What Happens After the IRS Has Conducted the Trust Fund Interview?

After the revenue officer has conducted their trust fund investigation, the revenue officer will propose the personal assessment of the trust fund to the individuals the revenue officer has determined is a willful and responsible party for withholding and paying over the withholding taxes.  The IRS can propose the trust fund assessment to one or more individuals within the business and the debt is a joint and several liability meaning that the IRS can collect the full amount of the trust fund from one individual even when multiple individuals have been assessed.  

Can the Assessment of The Trust Fund be Appealed?

Yes, you can appeal the proposed decision of the trust fund.  When the IRS proposes the assessment, you have 60 days from the date of the notice to appeal the assessment.  The appeal will be held with an IRS Appeals Officer and the appealing individual needs to show why they do not have the requisite power, authority and knowledge to be held responsible.  

What Happens Once an Individual is Assessed the Trust Fund?

Once assessed, the trust fund becomes a personal liability to the IRS.  The IRS can file a federal tax lien attaching to the individual’s assets and take collection action against the individual such as bank levies, wage garnishments and the potential seizure of other personal assets.

How Can I Get Assistance with an IRS 941 Trust Fund Investigation?

If a business you own, manage or have any control over owes payroll taxes (941 taxes) to the IRS it is likely you could be subject to the trust fund investigation.  It is recommended you speak with a tax attorney regarding your personal exposure to the trust fund.  A tax attorney can represent you before the IRS prior to and during the 4180 Interview as well as appealing the assessment or resolving the tax due if assessed.  You can contact The McGuire Law Firm for a free consultation with a tax attorney regarding the above matters.

This article will discuss a tool that the IRS has to collect taxes from a Delinquent Taxpayer. The IRS’ nominee tax lien is a tactic used by the IRS to protect its interest in a property owned by a person who owes taxes to the government. If you have questions about a nominee tax lien or are in a dispute with the IRS, get in touch with the McGuire Law Firm to speak with a Denver tax attorney who can help you.

What is an IRS Nominee Tax Lien?

A nominee tax lien filed by the Internal Revenue Service is a collection tool or tactic used by the Internal Revenue Service to protect the government’s right or interest in an asset or property whereby the title to the asset may be held by a third-party that does not owe taxes to the IRS, but the asset in reality is owned by or controlled by a taxpayer that does owe taxes (the “Delinquent Taxpayer”).  The IRS can apply the nominee tax lien to prevent a Delinquent Taxpayer from hindering IRS collection efforts and, in essence, applied the substance over form doctrine.  The form or legal fiction is the asset or property is owned or titled by a third-party but in substance or reality the asset or property is owned or controlled by the Delinquent Taxpayer who the IRS is attempting to collect the tax debt from.

What is the Purpose of a Nominee Tax Lien?

The primary purpose is that of a collection attempt by the IRS to satisfy a tax debt.  By filing a nominee lien the government is securing their interest in the asset or property to help secure payment of the underling tax debt. By filing the nominee lien the government may be able collect on the equity in the asset that may have been fraudulently conveyed or titled to another individual or business in an attempt to avoid paying the tax debt.

What Assets or Property Can a Nominee Lien Attach To?

Generally, a nominee lien will attach to a specific asset such a piece of real estate and is not a broad and blanket lien such as when a notice of federal tax lien is actually filed naming a Delinquent Taxpayer.  For example, if Joe was a delinquent taxpayer and had his brother Mike purchase a home that Joe lived in and paid the mortgage, property taxes insurance and other costs of operating and living in the home, the IRS could file a nominee lien naming Mike as nominee and the lien would attach to the real estate that Mike owns but rather Joe is living in and maintaining the property. Thus, the lien is very specific to the piece of real estate and would only attach to the real estate.

Can the Nominee Request a Collection Due Process Hearing (CDP)?

No. Unlike the filing of a Notice of Federal Tax Lien, the nominee does not have the right to request a CDP.  The nominee would need to litigate in court that they are the true and rightful owner of the asset or property the nominee lien is attaching to.

What Elements or Facts Does the IRS Look for When Filing a Nominee Tax Lien?

There are generally a number of facts or elements that may allow the IRS to file the nominee lien, which would include the following:

• Often there is a close relationship between the owner of the property or asset and the Delinquent Taxpayer.
• The nominee or party who owns or holds title to the asset may have paid very little or no money for the asset.  Many times, the Delinquent Taxpayer will have paid for the asset but titled it to the nominee.  
• The Delinquent Taxpayer will generally own or control the asset in daily life and pay expenses associated with the asset such as with Joe in the example above.
• The Delinquent Taxpayer may have owned the asset and later transferred and conveyed the asset to the nominee for little or no consideration.

What Allows The IRS to File a Nominee Tax Lien?

The IRS has the authority to file a nominee lien under Section 6321 of the Internal Revenue Code.  Section 6321 states that a lien attaches to all property and rights to property actually owned by a taxpayer.  Thus, if the government feels the Delinquent Taxpayer “actually” owns the property, they are likely to feel they have the right to file the nominee tax lien.

If you are a taxpayer owing taxes to the IRS or you have an asset whereby the IRS has deemed you a nominee and filed a lien attaching to the asset, it may be wise to speak with a tax attorney.  You can contact The McGuire Law Firm to speak with a Denver tax attorney regarding any of your tax issues.

This article will discuss the reasons why the IRS may conduct an FBAR audit and will give an overview of the audit process. If you are a US taxpayer and you have any accounts in foreign countries, you need to be aware of the requirements for filing the FBAR. If you are being audited for your FBAR filings, The McGuire Law Firm can help. Contact us for help with an FBAR Audit or other tax issue.

Does the IRS audit people or entities for their Report of Foreign Bank and Financial Accounts (FBAR) Form 114 compliance?

Yes they do! The IRS will audit a person or entity for their FBAR compliance. In many respects that audit is like any other audit where the IRS is looking for substantiation.

How does the IRS determine who they will audit for FBAR compliance?

The answer to the question is relatively mysterious outside of the IRS, but it seems like the IRS has a reason to audit as opposed to an FBAR audit being perfectly random. In our experience, it seems as though something has raised a question in the eye of the IRS with respect to an FBAR. Here are a few reasons the IRS might conduct an FBAR audit:

• Perhaps the IRS is conducting a standard income tax audit and the question about foreign bank account reporting comes up. Assuming there is reason to dig deeper, the IRS may conduct an audit. Case law points to this being an outcome.
• In the case where a person has marked an FBAR question “No” on their form 1040 (Schedule B questions), 1065 (Schedule B questions), 1041 (Other Information) and then the person has actually filed an FBAR, the IRS may audit the FBAR.
• In the case where a person or entity files an FBAR in one year, but not the following year, the IRS may audit the FBAR.

Keep in mind this is a speculative list of reasons and there could be any number of other reasons the IRS may choose to pursue an audit, but it generally seems there is something that kicks off the audit. If there are any auditors out there reading this and want to provide some insight, we welcome the feedback!

What happens when the IRS audits a taxpayer for FBAR compliance?

IRS Initial contact:

In a recent example of an FBAR audit we assisted with, the taxpayer was contacted by the IRS through Department of the Treasury Internal Revenue Service Small Business/Self Employed – BSA group. The taxpayer was sent a 6639 letter (as outlined in IRM 4.26.17).

This initial letter advises the taxpayer that “You’ve been selected for a Report of Foreign Bank and Financial Accounts (FBAR) examination.”

The letter advises the taxpayer to call the IRS agent listed to discuss:

• FinCEN Form 114, Report of Foreign Bank and Financial Accounts, (FBAR) filings, 
• Types of documents you will be asked to provide,
• The examination process, and
• Any concerns or questions you may have.

Appointing a representative to assist with the FBAR audit:

Even at this early stage in the process you should consider hiring an attorney to be the point of contact with the IRS to help through the audit process.  When you hire an attorney, you should appoint them as representative by filing a Form 2848 authorizing the party to discuss the matter with the IRS. The 2848 should be completed by filling in Line 3, “Acts Authorized” as follows:

• For “Description of Matter” – enter “Matters relating to Report of Foreign Bank and Financial Accounts” or “FBAR examination”
• For “Tax Form Number” – enter “FinCEN Form 114”
• For “Year(s) or Periods(s)” – enter the calendar years you are authorizing.

The Information Document Request:

After the initial discussion with the IRS examiner, the IRS will likely issue an Information Document Request (IDR). A recent IDR our client received made the following document requests:

For the XXXX calendar year:

1. Copies of all offshore financial account statements reflecting all account activity for each of the years mentioned above. This includes all accounts in which you consider yourself an owner or co-owner and which you had Signature or Other Authority, and/or over which You Exercised Control during the years mentioned above.
2. Produce all financial statements prepared by you, for you, or on your behalf for any purpose.
3. Complete copies, for my records, of previously filed Report of Foreign Bank and Financial Accounts (FBAR) for foreign accounts maintained during calendar years XXXW & XXXY.
4. For all foreign accounts that you were required to report on a FinCEN Form 114 (FBAR) for the year(s) XXXX, please provide documentation showing that all income earned by the accounts was properly reported for income tax purposes.
5. For all foreign accounts that you were required to report on a FinCEN Form 114 (FBAR) for the year(s) XXXX, please provide documentation showing that you properly notified the Commissioner of the Internal Revenue Service on your annual tax return that you had a financial interest in said foreign account.
6. For all foreign accounts that you were required to report on a FinCEN Form 114 (FBAR) for the year(s) XXXX that were owned, controlled, or otherwise titled in the name of a foreign entity, please provide documentation showing that all international information returns (i.e. Forms 5471, 8865, 3520-A, etc.) were properly filed for such foreign financial entity.
7. For all foreign accounts that you were required to report on a FinCEN Form 114 (FBAR) for the year(s) XXXX, and for which you also had a FATCA Form 8938 reporting requirement, please provide all documentation showing that you properly complied with your FATCA reporting requirements.
8. For all foreign accounts that you were required to report on a FinCEN Form 114 (FBAR) for the year(s) XXXX, please provide documentation showing that the funds used to open the account(s) were properly reported as income to the Commissioner of the Internal Revenue Service. To the extent the funds were non-taxable, such as a gift, please provide all documents showing that the funds were properly reported to the Commissioner of the Internal Revenue Service (such as on Forms 3520), as applicable.

As you can see, the request is fairly expansive and covers more than just the FBAR. Gathering the documentation requested can take a lot of time depending on the number of accounts and the taxpayer facts. Certainly, not every question is always applicable.

Taxpayer Interview:

After submission of the documentation, the examiner may request an interview with the taxpayer, either in person, or a remote (online) meeting may also be allowable.

The interview is another thorough set of questions for the taxpayer covering a number of topics. While the questions of the interview are likely specific to each taxpayer, you can expect questions covering the following topics:

• Detailed questions about the taxpayer (and spouse as applicable) inquiring:
  • Where the taxpayer lives or visits,
  • Which passports the taxpayer has,
  • How much time do you spend abroad and for what reason,
  • Details on your educational background,
  • Details on your profession or job,
  • Information about other assets you may own such as real estate and safe-deposit boxes,
  • How financial affairs are managed by you and/or your spouse (if applicable),
  • If you are using any non-US credit cards, and/or
  • Who are the other members of your immediate family?

• Detailed information about your foreign accounts including 
  • Details about why the account was opened, 
  • When the account was opened, 
  • How the account was opened, 
  • Who has access to the account, 
  • and, the purposes of the account.

• Questions about the FBAR filed
  • Has the FBAR been amended?
  • How was the FBAR prepared?
  • Did you research FBAR filing requirements, if so what kind of research?
  • What steps were taken to file the FBAR?

• Information about your tax return preparer (if you used one)
  • How do you communicate with your tax preparer?
  • Do you consider them just a preparer or also an advisor?
  • Do you pay for anything besides tax preparation, such as tax advice?
  • How long have you used this tax preparer?
  • What did you believe the tax preparer’s qualifications were?
  • Did you research the tax preparer prior to hiring your tax preparer?
  • Do you receive a tax organizer or questionnaire from the preparer?
  • Did you fill out the organizer/questionnaire?
  • Did they explain 8938 filing requirements?
  • Did they ask about foreign bank accounts?
  • Did you disclose to them that you had foreign financial accounts?

Like other audits, the IRS can be very thorough and is looking for lots of detail.

After the interview, the IRS may issue additional document requests and may expand the audit to additional tax years, as has been our experience.

Post Interview and additional IDR steps:

At this point, the IRS should be done collecting information from the taxpayer, unless, of course, they have reason to make additional requests. 

The IRS should have enough information at this point to make a determination about the audit and can issue their audit report detailing their findings and any consequential action.

Overview:

While distilled to a few pages here, the audit can take several months to complete, depending on the issues found and reported. The documentation requests can be onerous as well, as it can be challenging to access data from prior years with non-US institutions. The audit can even feel invasive. 

A good tax attorney should be able to help you through the audit process and manage the relevant disclosures through the audit process and advise on potential outcomes. The consequences and implications of the answers given in the audit can lead to significant penalties if the taxpayer is found to have willfully failed to file their FBAR or not filed accurate FBARs. The audit is designed to help the IRS assess the taxpayer filing shortcomings and dictate any penalty action.

If you have been selected for an FBAR audit, contact one of our tax attorneys at The McGuire Law Firm to discuss how we can help.

Although, the current status of the Kurotaki v. The United States of America case stands with the US District Court for the District of Hawaii determination on the government’s motion for summary judgment, the Kurotaki case is an interesting analysis of willfulness and other standards relating to the failure to file an FBAR.  This article recaps the facts of the case and the courts recent determination of whether to grant summary judgment to the government.  

Do you know if you need to file an FBAR? Are you a US Citizen or permanent resident living abroad and confused about your tax liabilities in the US? As this case shows, not filing can result in steep fines, even if they might eventually be forgiven. Get in touch if you need help meeting your filing obligation. 

Facts of the Case

Osamu Kurotaki was born in Japan in 1965 and in 1997 obtained a US Permanent Residence Card of which he held for tax years 2011, 2012 and 2013, which are the years at issue.  Kurotaki resided primarily in Japan and spoke absolutely no English.  Kurotaki had used Tomohiko Kokuso, a certified public accountant who spoke both English and Japanese to prepare his US Individual Income Tax Returns for the applicable tax years and had used Kokuso since 2007.  

The Internal Revenue Service was alerted that Kurotaki had unreported income on his individual income tax returns by the Japanese taxing authorities for tax periods 2008 through 2012.  Upon the IRS’ examination of Kurotaki’s failure to report all income, the IRS determined that Kurotaki had failed to file his FBARs and properly report foreign accounts and/or assets.  The United States assessed Kurotaki $10 Million in civil penalties alleging the failure to file the FBARs was willful for tax years 2011, 2012 and 2013.  Kurotaki paid a portion of the penalty to the IRS for each applicable tax year and then filed his complaint against the United States requesting a refund.  The United States, as defendant filed an answer to Kurotaki’s complaint and counterclaimed to reduce the assessed FBAR penalties to a judgment in favor of the United States.  Additionally, the United States filed a Motion for Summary Judgment in July of 2023 and Kurotaki filed an opposition to the motion in September of 2023.  

Quick Background on Summary Judgment

What is summary judgement? Summary judgment is requested and properly granted when a party believes there is no genuine issue of a material fact and thus the party requesting the motion (the “moving party”) should be entitled to a judgment as a matter of law.  The key terms here are “genuine” and “material.”  Courts have held that an issue is genuine only if or when a sufficient evidentiary basis exists whereby a reasonable fact finder could find for the nonmoving party (Kurotaki in this case).  Further, a dispute is material only if it could impact or affect the outcome of the suit under governing law.  The United States as the moving party would initially bear the burden of proof to show an absence of a “genuine issue of material fact.”  It is important to note that courts view the facts and draws reasonable inferences in the light most favorable to the nonmoving party when considering a motion for summary judgment.  

FBAR Penalties

What are the penalties for failing to file the FBAR?  The Bank Secrecy Act was enacted to fight what was perceived as “serious and widespread use of foreign financial institutions, located in jurisdictions with strict laws of secrecy as to bank activity, for the purpose of violating or evading domestic criminal, tax and regulatory enactments.”  Cal. Bankers Ass’n v. Shultz, 416 U.S. 21, 27, 94 S. Ct. 1494, 39 L. Ed 2d 812 (1974).  It was believed that the use of foreign bank accounts and foreign financial investments had caused the loss of millions of dollars to the United States government in tax revenues.  Thus, the treasury regulations promulgated under the Bank Secrecy Act allow for a civil penalty of $10,000 for each violation for the failure to file an FBAR.  Further, if the failure to file the FBAR is “willful” the penalty is increased to $100,000 or 50% of the value of the account at the time of the violation.  Thus, the penalties for failing to file the FBAR are substantial!  That being said, although the BSA requires the filing of the FBAR, the term “willful” is never defined within the BSA or the treasury regulations.  Therefore, one must look to court determinations and language in terms of determining a definition for willfulness.  In Safeco Ins. Co. of Am. V. Burr, 551 U.S. 45, the Supreme Court provided that, “where willfulness is a statutory condition of civil penalty…. It… cover(s) not only knowing violations of a standard, but reckless ones as well.”  Many other courts have also held that willfulness as it relates to filing or failing to file an FBAR includes both a knowledge and reckless component.  Thus, one could be so reckless in failing to file or disregarding an obvious risk so as to be willful in terms of the penalty. 

The Application of Willfulness in the Kurotaki Case

Kurotaki did not speak English and relied on his CPA to take care of his tax related matters and act as his interpreter.  Kurotaki was provided a tax questionnaire that provided an explanation of the FBAR filing requirement in both Japanese and English, but Kurotaki only read the Japanese version, which when translated into English stated, “U.S. resident taxpayers are required to report their world-wide income from both U.S. and foreign sources.  In addition, taxpayers who have an interest in, are signatories of, or have other authorities over financial accounts in a foreign country, such as bank accounts….. are required to file Form TD F 90-22.1 (FBAR)….”

Kurotaki claimed he did not think the FBAR requirement applied to him because he was not a U.S. resident as he did not reside in the United States and did not know the FBAR filing requirements applied to U.S. green card holders.  Furthermore, Kurotaki believed the FBAR requirement did not apply to him because he had a Japanese passport, he lived or resided in Japan, he worked in Japan etc.  

The Court found that Kurotaki’s understanding of the word “resident” was reasonable and therefore whether applying an objective or subjective standard, there was a genuine issue or material fact as to whether Kurotaki was acting willfully when he failed to file his FBARs.  The Court, in Kurotaki, thus denied the government’s request for summary judgment.

The end-all outcome of the Kurotaki is yet to be determined as of the date of this article but the facts and circumstances led to an interesting analysis of  willfulness in the context of failing to file an FBAR.  

If you have questions or issues related to foreign bank accounts, foreign assets or foreign businesses, you can speak with an international tax attorney at the McGuire Law Firm. Get in touch with us.

IRS Notice LT 11: Intent to Levy

If you owe taxes to the Internal Revenue Service you have likely received many notices.  While some notices issued by the IRS may be more benign in nature, certain notices issued by the IRS  require immediate attention.  One such notice that should require immediate attention is the notice LT 11.  This article has been prepared by a tax attorney to provide additional information relating to Notice LT 11 from the IRS and the options a taxpayer has if or when an LT 11 is issued by the IRS.

If you’ve received Notice LT 11 and you have questions, get in touch with us to discuss your situation.

What is Notice LT 11?

An LT 11 is a final notice of intent to levy that is issued by the Internal Revenue Service.  The LT 11 is issued after the Internal Revenue Service has issued multiple notices to the taxpayer on a tax balance due and the taxpayer has not satisfied the tax debt or has not established a formal agreement with the IRS.

What Does the Notice LT 11 Mean?

The LT 11 is issued by the IRS as part of the due process afforded to the taxpayer when a tax balance is due.  The LT 11 tells the taxpayer that the tax balance needs to be paid, a formal agreement entered into or a hearing requested by the taxpayer to prevent enforcement action such as bank levies, wage garnishments or the seizure of assets by the IRS to collect the past tax due.  The LT 11 explains that if action is not taken, the taxpayer will be legally open to enforcement action by the IRS on the past due tax balances.

Who Issues the LT 11 or How is the LT 11 Issued by the IRS?

The Notice LT 11 can be issued by automated collection even if a revenue officer is not assigned to your case.  The Notice LT 11 can also be issued by an acting revenue officer if a revenue officer has been assigned and is generally one of the first notices issued to the taxpayer if a revenue officer has in fact been assigned to collect on the tax debt.  A revenue officer may also issue a Notice 1058, which is a very similar notice to the LT 11 and gives both the taxpayer and IRS similar rights.

Can an LT 11 Be Issued to Both an Individual or Business?

An LT 11 can be issued to either an individual or business depending upon who or what owes the tax liability to the Internal Revenue Service.  

What Should I Do If I Have Received an LT 11 From The IRS?

First, you may want to consider speaking with a tax attorney about your tax liabilities and current tax issues.  If you owe a relatively small amount and would have no problem paying the tax debt, it could be best to just pay the tax bill and move on, but again, you may want to speak with a tax attorney or tax professional to better understand the situation.  If you are unable to pay the tax debt in full, you could establish an installment agreement with the IRS and this agreement would act as a hold on enforcement and thus negate the threat of enforcement the LT 11 is issued for.  If you are unable to get under an installment agreement for whatever reason or wish to have more time to consider resolution alternatives, the LT 11 does give the taxpayer the right to request a hearing.  The hearing is known as a Collection Due Process Hearing and if filed within 30 days of the date the LT 11 was issued, the hearing request acts as a hold on enforcement for the tax periods stated on the LT 11 under most circumstances.

What Happens if I Request a Collection Due Process Hearing in Response to an LT 11?

If you request a Collection Due Process Hearing, there should be an automatic hold on enforcement for the tax periods stated on the LT 11 that you are requesting the hearing on.  The hearing request will be sent to the IRS Appeals Office and you will be contacted by an IRS Appeals Officer.  It generally takes 3- 4 months to be contacted by an appeals officer from the date you submit the hearing request.  The appeals officer will establish a hearing or conference date whereby you will be able to submit information such as financial information to propose a resolution to the tax liabilities as opposed to the IRS needing to enforce collection of the tax debt through the seizure of assets.  If you submit an installment agreement request, the appeals officer can make a determination on the installment agreement proposal.  If you decide to submit an offer in compromise, the appeals officer can hold the file in appeals while the IRS Offer in Compromise Unit makes a determination on the offer.  After the hearing has been conducted with the appeals officer, the appeals office will issue a determination as to the outcome of the hearing, which will likely state the alternative collection action that has been agreed upon or that an agreement was unable to be reached at that IRS levies and enforcement action is sustained.

What If I Do Not Respond to the LT 11?

If you do not respond to the LT 11 within the 30 days from the date issued, you are open to enforcement action such as bank levies, wage garnishment and the seizure of assets.  The IRS would not need to provide you any further notice to seize a bank account, take wages or seize other assets.  Thus, it is extremely important to properly respond to the LT 11 and work to have a plan in place to resolve the tax debt or have an agreement established.

If you have received a Notice LT 11 from the IRS, please feel free to contact The McGuire Law Firm to speak with a tax attorney.  The tax attorneys at The McGuire Law Firm have responded to many LT 11s issued by the IRS and assisted many taxpayers in resolving their tax liabilities without unnecessary enforcement action by the IRS. 

One of the best options to resolve a tax debt with the IRS is what is called IRS Offer in Compromise.  As tax attorneys, we have years of experience submitting  offers in compromise to the IRS and this article will provide insight as to common or frequent questions we receive.

What is the IRS Offer in Compromise Formula or What is the IRS Offer in Compromise Equation?

When reviewing an offer in compromise, the IRS applies a very black and white formula or equation to determine what they consider is a taxpayer’s ability to pay and thus what they will accept as an offer to settle the tax debt (if an offer would be accepted).  

The offer in compromise formula is relatively simple, it is:  

Equity in assets plus disposable income x 12 (or 24).  

The key issues with the formula are 

• equity in assets, and 
• disposable income.  

Equity in Assets as it Applies to the Offer in Compromise Formula

So what is equity in assets as it relates to an offer in compromise formula?  In short, the equity portion would be all equity in all assets, whether a bank account, retirement account, home, investment real estate, stocks, cars etc.  You can ask yourself, if I sold or liquidated all of my assets, what would my equity be?  

• Debt against Equities – The calculation of your equity for purposes of the offer does take into account any secured debt encumbering an asset.  For example, if your home had a fair market value of $600,000, but your total mortgage or loan amount encumbering the real estate was $500,000, on face value you would only have $100,000 for purposes of the offer in compromise with IRS.  

• Reduction in Fair Market Value – It is also important to note that for certain assets, the IRS allows a reduction in the fair market value of the asset when calculating the equity portion.  Using the example above, the IRS allows a 20% reduction in the fair market value of real estate when calculating the equity.  Thus, the fair market value would be $480,000 ($6000,000 x .80) and given the total debt encumbering the property ($500,000) is greater than the fair market value, no equity from the home in the above example would factor into the offer amount.  

• Other Reductions – In addition to allowing a reduction in the fair market value of certain assets, there are also exemption amounts for certain assets such as bank accounts and vehicles that you get a dollar for dollar exception on when calculating the equity for that specific asset.  For example, you can exempt the first $1,000 from a bank account or you get a $3,450 exemption for equity in a vehicle for up to 2 vehicles. 

Offer In Compromise Formula for Disposable Income

In terms of income and monthly disposable income, the IRS looks at your total monthly income less all monthly “allowable expenses” to calculate your disposable income.  It is important to note that only “allowable expenses” are allowed because for expense items such as your house payment, rent, utilities, food, clothing, car payments and car operating costs, the IRS sets a standard or “allowable amount” that you can claim as an expense based upon where you live and the number of dependents in your household when calculating your disposable income.  For example, the IRS may only allow you a monthly expense amount of $2,440 for housing and utilities when your actual out of pocket expenses may be $3,100 per month.  Therefore, there can be a variance in what you feel your monthly disposable income is and what the IRS determines your monthly disposable income to be.

Running the Numbers: Example of an Acceptable Offers In Compromise

Let’s run some numbers for an example.  Let’s assume Brad has a home with a fair market value of $450,000, a mortgage of $350,000, a retirement account worth $20,000 and bank account with $1,500.  Brad’s monthly gross income is $7,000 and Brad’s allowable expenses are: $730 for food and clothing, $2,000 for housing and utilities, $620 for a car payment, $260 for car operating expenses, $500 for health insurance and $1,500 for current year taxes.

Brad’s Equity in assets would look like the following:

• Home: Fair Market Value $360,000 ($450,000 x.8) – $350,000 = $10,000
• Retirement Account: $20,000 x .8 = $16,000
• Bank Account: $1,500 – $1,000 exemption = $500
• Total Equity in Assets: $26,500

Brad’s monthly disposable income would look like the following:

$7,000 – $730 – $2,000 – $620 – $260 – $500 – $1,500= $1,390

Based on equity in assets of $26,500 and monthly disposable income of $1,390, Brad’s offer would be $43,180, which is $26,500 + ($1,390 x 12).

There are many factors and issues that come into IRS offer in compromise formula and the above is a simple example to illustrate the general equation.  Further, many other factors come into play when the IRS is making a determination as to whether or not to accept an offer in compromise.

How Do I Settle My Taxes With The IRS? The Offer in Compromise Process

Now that we have explained the IRS offer in compromise formula, another common question is, how do I settle my taxes with the IRS?  To settle your taxes with the IRS, you need to submit the proper offer in compromise forms, statements and payment to the IRS.  The financial statements required will be dictated by the type of taxes owed and whether or not you own any businesses.  If you owe individual income tax debts, you will submit Form 433A OIC, which is an individual financial statement.  If you own any businesses, you will also need to submit Form 433B for each business that you own (unless the business is a single member LLC).  In addition to the proper financial statements, you need to provide the correct attachments for the financial statements depending upon the assets and items reported on the financial statements.  The offer in compromise form that is submitted with the financial statements is Form 656.  Form 656 states the taxpayer’s information, the tax years and type being offered for settlement, the offer amount and payment terms for the offer.  The applicable financial statements and Form 656 are submitted with payment to the proper IRS Offer in Compromise Unit (generally in Memphis, TN or Holtsville, NY).

Determination of the Offer

Once the financial statements, attachments, Form 656 and initial payment are submitted to the IRS, an IRS offer examiner will be assigned for review and determination of the offer.  It generally takes 5-6 months for the offer examiner to make contact with you.  The offer examiner may ask for additional information and may have questions.  Eventually the offer examiner will make a determination.  The determination could be to accept the offer as initially proposed, accept an offer but at an increased amount or reject the offer altogether because the IRS feels you can satisfy the tax debt and therefore they would not settle on the tax debt.  If the offer examiner rejects the offer but proposes an increased amount, you can amend Form 656 to the increased amount and the offer may be processed with a recommendation for acceptance by the offer examiner.  If the offer examiner has rejected your offer, you have 30 days to appeal the rejection.  The appeal of the offer rejection will go to an IRS Appeals Officer and you will likely be contacted by the appeals officer within 2-4 months from filing the appeal.  The appeals officer calls an appeals hearing or conference date whereby you can present additional information as to why you disagree with the offer examiner’s rejection and support your position.  After the case has been heard by the appeals officer, the appeals officer can either sustain the IRS offer examiner’s rejection or agree to accept or modify the offer you originally submitted.  

How Do I Negotiate With the IRS?

In addition to the above, many taxpayers will ask, how do I negotiate with the IRS?  While there can be some negotiation with the IRS regarding an offer you really need to have the right set of facts to negotiate.  For example, an individual who has $500,000 equity in assets and $2,000 per month of disposable income is highly unlikely to be able to negotiate an offer on a $100,000 tax debt.  If you have the equity in assets and/or income to satisfy the tax debt, the best negotiator in the world may struggle to negotiate with the IRS regarding an offer in compromise.  Thus, the platform and ability to negotiate with the IRS is or may be truly limited by the facts and circumstances of each case.

While an offer in compromise is a viable option to resolve a tax debt with the IRS, you may want to consider hiring a tax attorney to prepare the proper statements and forms, as well as represent you through the process with the IRS. Experience negotiating with the IRS and profound knowledge of the offer in compromise process will both expedite the resolution and provide the best possible outcome to you. Get in touch with us if you’d like to discuss settling your tax debt with the IRS.

Comprehensive Review of Your Rights to a Collection Due Process Hearing Before the IRS

Under certain circumstances and upon the Internal Revenue Service issuing certain collection notices, you have the right to request a Collection Due Process Hearing. Requesting and holding a Collection Due Process Hearing before the IRS Appeals Office can be a very beneficial tool in resolving an outstanding tax liability. The article below provides detailed information relating to a Collection Due Process Hearing.

What is a Collection Due Process Hearing?

A Collection Due Process Hearing is a right afforded to a taxpayer when the IRS has proposed a levy or enforcement action to collect on a tax debt. The hearing allows the taxpayer to work with an impartial appeals officer towards a collection alternative to resolve the debt as opposed to the proposed levy action by the IRS.

When Can a Taxpayer Request a Collection Due Process Hearing?

The most common time a taxpayer has the right to request a Collection Due Process Hearing is upon the IRS issuing a Final Notice of Intent to Levy. A Final Notice of Intent to Levy is also known as Letter 11 (L 11) or Letter 1058 (L 1058). A taxpayer has 30 days from the date on the Final Notice of Intent to Levy to request the hearing.

How Does a Taxpayer Request a Collection Due Process Hearing?

The taxpayer makes the request by filing Form 12153 with the service center or revenue officer who issued the Final Notice of Intent to Levy. Form 12153 is completed with the taxpayer’s general information, the tax periods of which the Final Notice of Intent to Levy was issued upon or included on the notice, the reason the hearing is being requested, and the proposed collection alternative. The hearing request can be faxed and/or mailed to the appropriate party within the IRS.

What Are the Benefits or Potential Benefits of Requesting a Collection Due Process Hearing?

While there are many benefits to requesting a Collection Due Process Hearing, perhaps the biggest or most advantageous benefit is the stay or hold on enforcement action that is afforded the taxpayer when a timely hearing request is filed. When a taxpayer timely requests a collection due process hearing, there is an automatic hold on IRS collection actions such as bank levies, wage garnishments, and other asset seizures. Please note that the automatic stay on enforcement action may not apply when the taxpayer owes 941 employment taxes and the taxpayer is not in compliance with the current quarter. This stays on enforcement, which allows the taxpayer time free of levies and seizures to prepare for the hearing and make a proposal to resolve the outstanding tax liability based upon their current financial circumstances.

Once a Collection Due Process Hearing is Requested, What Can I Expect?

Generally, the taxpayer will receive a notice from the IRS Appeals Office within 30-60 days from requesting the hearing that their hearing request has been received, and an appeals officer will contact the taxpayer once assigned to the case. Thereafter, the taxpayer will receive a notice from the appeals officer assigned calling an initial hearing or conference date. The initial hearing or conference date can be adjusted by the taxpayer, but the taxpayer must contact the appeals officer to reschedule the hearing date. The notice from the appeals officer will generally request additional information the taxpayer wishes to present and produce during the hearing relating to the resolution proposal the taxpayer is proposing. This information could be financial statements and information relating to an installment agreement, an offer in compromise, or perhaps a request that the liabilities be placed in a currently non-collectible status.

What is the Procedure or Process of Working With the IRS Appeals Office?

First, the appeals officer will verify that the IRS has taken all required and legal steps towards a collection of the debt and that the taxpayer has received their proper due process. Further, the appeals officer verifies that they have had no prior involvement with the applicable case or taxpayer and are a true impartial party to the matter. Upon establishing the hearing or conference date, the taxpayer will need to compile the necessary information, documents, and statements to submit to the appeals officer along with their proposal to resolve the tax liability. If the taxpayer was an individual and owed individual income tax, they would draft an individual collection information statement, also known as Form 433A, and compile all of the necessary attachments such as W-2s, income statements for self-employment income, bank statements, current statements for stocks, bonds, 401(k)s, mortgage statements, etc., to verify the income, expenses, and assets stated on the financial statement. If the taxpayer was a business or the applicable individual owned a business, the taxpayer would also need to compile Form 433B, which is a collection information statement for businesses. The taxpayer would use the financial statements and documents to propose an installment agreement or request their liabilities be placed in a non-collectible status. A taxpayer can also request a settlement, known as an offer in compromise, through the hearing process. If a taxpayer requests an offer in compromise through the hearing process, the offer will be submitted by the appeals officer (usually) to the IRS Offer in Compromise Unit, and the appeals officer will maintain the file while the IRS Offer in Compromise Unit makes an initial determination on the offer. If the determination on the offer needs to be appealed to the appeals office and the taxpayer appeals the initial offer determination, the appeals officer will then have control or jurisdiction of the appeal. Inevitably, through the appeals hearing process, the appeals officer will make a determination relating to a resolution of the liabilities.

What Are the Potential Outcomes of Holding a Collection Due Process Hearing?

The outcome or determination issued by the appeals officer through the hearing process may be dictated by the resolution proposed by the taxpayer. If the taxpayer has proposed an installment agreement and the appeals officer and taxpayer agree on the terms and conditions of an installment agreement, the appeals officer will issue a determination that an installment agreement has been reached, and thus, the levy action proposed by the IRS is not sustained. In short, if the taxpayer and appeals officer come to a collection alternative, then the appeals officer will issue their determination stating the agreement that has been reached and that collection action is not sustained. However, if an agreement or resolution cannot be agreed upon with the appeals officer, the determination made by the appeals office will state that the proposed levy action by the IRS is sustained, and thus, the taxpayer is open to enforcement such as levies once the file or case is returned to IRS Collections or the IRS revenue officer.

What if I am Unable to Establish a Formal Agreement Through the Collection Due Process Hearing?

If you cannot come to an agreement with the appeals officer, it does not mean an agreement is not possible. You are still able to enter into an installment agreement or submit an offer in compromise through the IRS Offer Unit, but you would do so outside of the context of the appeals hearing or appeals office. The key would be to work on formalizing or proposing an agreement as quickly as possible after the appeals hearing concludes because, technically, once the matter is back before the IRS Collections Department or the revenue officer, you are subject to enforcement because there is no longer a stay or hold on enforcement.

Comprehensive Review of an IRS Final Notice of Intent to Levy

Receiving any notice from the Internal Revenue Service is enough to make most people’s heart
skip a beat. However, one notice in particular that is issued by the Internal Revenue Service, the
Final Notice of Intent to Levy may strike the most fear and concern in taxpayers and rightfully
so. This article provides detailed information relating to a Final Notice of Intent to Levy and
your rights as a taxpayer.

What is a Final Notice of Intent to Levy?

When a tax liability or tax debt is owed, whether individual income tax or business-related
taxes, the IRS issues a series of notices. The first notices issued by the IRS act more to provide
notice of the liability and request for payment. If the liability is not paid in full or an agreement
reached with the IRS, the IRS will continue to issue notices and the notices increase in severity
eventually leading to the Final Notice of Intent to Levy. The Final Notice of Intent to Levy is the
IRS’ means to provide the taxpayer notice due process and that the government intends to levy
the taxpayer’s property such as bank accounts, wages, sources of income, and even real estate or
other assets if the tax liability is not paid or certain agreements with IRS are not formalized or
proposed. The Final Notice of Intent to Levy issued by the IRS allows the taxpayer 30 days to
make the proper arrangements or proposal to prevent levy or enforcement action. If certain
agreements or proposals are not reached within these 30 days from the issuance of the Final
Notice of Intent to Levy, the taxpayer is then open to levy and enforcement action from the IRS
to collect on the tax debt.

When and How is a Final Notice of Intent to Levy Issued by the IRS?

After the IRS has issued multiple notices regarding the tax liability and the tax liability is not
paid or a proper agreement formalized or proposed with the IRS, the IRS will eventually issue a
Final Notice of Intent to Levy. The timing of issuing the Final Notice of Intent to Levy can
differ depending upon whether the tax liability is with IRS Automated Collections or if the tax
liability has been assigned to an IRS Revenue Officer. If the tax liability is with automated
collections, it may take longer for the Final Notice of Intent to Levy to be issued, and the notice may be
issued from an IRS collection service center. If the tax liability has been assigned to an IRS
Revenue Officer, generally one of the first actions taken by the revenue officer is to issue the
Final Notice of Intent to Levy. While the issuance of the Final Notice of Intent to Levy does not
necessarily mean the revenue officer will immediately levy if they are legally able to, but rather
the IRS wants to have the ability to levy and enforce collection of the tax if necessary and thus
one of the primary reasons the revenue officer will usually issue the notice relatively quickly
once they have been assigned to collect on the tax. In short, the enforcement action available to
the IRS can be used if the revenue officer deems it necessary instead of waiting to find out if the
final notice has not been issued.

What is a Levy Under the Context of a Final Notice of Intent to Levy?

Under this context, a levy is a taking property by the IRS to collect on the underlying tax debt.
This means the IRS takes or seizes your property to satisfy all or a portion of the tax bill. A
common levy for the IRS would be a bank levy or a levy of your wages or income. Under the
context of a bank levy, the IRS will issue a notice of levy to the bank or banks they know or feel
the taxpayer may have a bank account. Upon receipt of the levy notice, the bank is to “freeze” or
hold all of the funds in the bank account or accounts held by that bank up to the amount of the
levy. The bank is to hold these funds for 21 days and then release all of the funds over to the IRS
after the 21 day period unless the bank levy is released or other instructions are provided to the
bank by the IRS. Bank levies can cause problems beyond the taking of the money if the taxpayer
has written checks or other auto payments scheduled as the bank is likely to not honor these
payments and the checks will bounce or payments not go through. The bank levy is generally a
one-time levy, meaning the bank will not continuously hold funds and turn them over to the IRS,
but rather only hold and pay over the funds in the account the day the bank received
and processed the levy. In comparison, a wage levy is generally a continuous levy.
Under the context of a wage levy, the IRS issues a levy notice to your employer and the
employer then withholds a portion (a relatively large portion) of your wages and pays the funds
over the IRS. This wage levy is usually continuous meaning that with each payroll period, your
employer will withhold the levied funds until the levy is either released or the terms of the wage
levy are adjusted by notice from the IRS.

What can be done to Prevent an IRS Levy Once I Have a Received a Final Notice?

Once a taxpayer has received a Final Notice of Intent to Levy from the IRS they are definitely
under the gun to take action to prevent enforcement. Paying the liability in full or establishing a
formal payment installment agreement with the IRS will prevent enforcement such as bank or wage
levies. Formally proposing an offer in compromise that is deemed processable will prevent
levies as well. In addition to the above, the Final Notice of Intent to Levy provides the taxpayer
with what can be a very useful tool of due process, which is the right to request a Collection Due
Process Hearing. The Request for a Collection Due Process Hearing acts as a hold on any
enforcement action on the tax periods included within the Final Notice of Intent to Levy if the
request is filed within 30 days from the date of the Final Notice of Intent to Levy. Upon
requesting a Collection Due Process Hearing, your file or the tax liabilities are sent to the IRS
Appeals Office and a hearing or conference will be scheduled to discuss collection alternatives as
opposed to levies to collect or resolve the tax liability. There is an automatic stay or hold on
enforcement until you have been able to conduct a hearing and communicate with an appeals
officer regarding a resolution to the tax liabilities. If an agreement is reached with the appeals
officer through the hearing, this will act as a hold on enforcement. If an offer in compromise is
submitted through the appeals officer, this will also act as a hold on enforcement until a
determination is reached regarding the offer. If you are unable to reach or propose any collection
alternative with the appeals office that acts a hold on enforcement, the IRS Appeals Office will
issue a determination sustaining the levy action proposed by the IRS and your case will either go
back to general collections or the revenue officer and you will be subject to or “open” to levy and
enforcement, which is not preferred and what you are trying to avoid. It is important to note that
even if you do not request a Collection Due Process Hearing within 30 days from the date of the

final notice, you still have the right to request a hearing called an equivalent hearing with the
appeals office. The biggest difference between the equivalent hearing and collection due process
hearing is that the equivalent hearing does not necessarily act as or guarantee you a hold on
enforcement action, which may be problematic if you request the equivalent hearing and the IRS
moves forward with levy and enforcement action.

Can a Bank Levy or Wage Levy be Released?

The good news is, yes. If the IRS has issued a bank levy or wage levy, you may be able to have
the levy released or partially released. If the IRS has levied your bank account, under certain
circumstances (generally those showing an economic hardship has been created) the IRS can
agree to a full or partial release of the levy. If the IRS agrees to any type of release of the bank
levy, the IRS will issue a notice to the bank either providing for a full levy release or releasing a
portion of the funds the bank is holding pursuant to the bank levy. If the IRS is levying your
wages, the IRS can agree to release the wage levy in full, or the wage levy can be
adjusted/lowered to an amount that you are able to show does not create an economic hardship.

Does the Release or Adjustment of a Levy Mean the IRS Will Not Levy Again?

Not necessarily. If the IRS releases a levy but you fail to fully resolve the tax matter with a
payment agreement or settlement, you could be open to another levy in the future. Generally, if
the IRS is forced to levy again, they may be less likely to release the levy given the prior release
and fact the underlying issues leading to the need to levy have not been resolved.

Receiving a Final Notice of Intent to Levy from the IRS means that you have a tax liability that
needs immediate attention. If you are unable to resolve the tax liability immediately after
receiving the final notice, it is highly recommended you speak with a tax attorney to discuss the
facts and circumstances of your case, your options to resolve the tax matter and the necessary
procedural steps to resolve the matter without enforcement action from the IRS.

Contact The McGuire Law Firm to discuss your tax issues with a tax attorney.