Most people who have tax debt start to pay attention to the letters the IRS sends as they become more threatening. But what if you ignore those IRS “nasty-grams?” Very bad things happen.
The IRS is the largest and most effective collection agency on the planet. Their reach extends beyond U.S. borders due to agreements with foreign governments. They have extensive legal authority to take money away from people. During 2020, the IRS wielded this power 396,269 times. In a normal year, its twice that level!
IRS enforcement actions, called levies, are the most common the IRS takes to collect money. Most people are more afraid of a seizure, where the IRS takes physical property, but these are rare. The IRS will occasionally take business inventory, car collections, art, and the like, and even more rarely they take homes. But again, these actions are rare and not something most people need to worry about.
Levies, on the other hand, are very common, and occur quite rapidly and don’t require a court order. While several different types of levies exist, let’s discuss the two most common: Bank account levies and wage levies.
Have you ever had the IRS direct deposit a refund into your bank account? Did you provide the IRS with your bank account information last year so they could deposit stimulus funds to you? Have you ever received enough interest on a savings account that your bank sent you a 1099-INT? If you’ve ever done these or any number of other actions, then the IRS knows where you bank. If you now owe the IRS money, they know where to send a bank account levy.
The IRS will send notice to your bank’s legal department, instructing them to withdraw all the money that’s in your account. The bank is then required to hold that money for 21 days, at which time it is then sent to the IRS. Why 21 days? Theoretically, that gives you enough time to contest the taking of your money. During this time, you must rush to get your financial records organized, file an appeal against the levy, and try to obtain a levy release. This is something that we frequently assist clients with, and the 21 days often seem to vanish much faster! Now, imagine you wake up tomorrow morning and all the money in your bank account is just gone. That’s what a bank account levy from the IRS feels like.
If you are subject to an IRS bank levy, there is one small saving grace: only the money in the account on that day is subject to the levy not future deposits. The IRS would need to issue another levy to snag future deposits.
Alternatively, an IRS employee and their manager can issue a wage garnishment against you. This gets sent to your employer, and your employer is obligated to forward most of your paycheck to the IRS. If your employer fails to do this, then the IRS can take actions against them, even eventually levying their business bank accounts.
Unlike a bank account levy, wage levies are a continuous levy. It will impact all your future paychecks until the wage levy is released. For most people, the IRS will end up taking approximately 70% of their paycheck in the wage garnishment process based upon a complex formula the IRS uses. This is obviously a very serious situation. Most people that find themselves here were well aware that it was coming as the IRS is required to send a series of notices beforehand. But what if you’ve recently moved, and the IRS has a bad address? The IRS is only required to send these notices to your last known address. It’s totally possible that you just never got them and then a levy happens.
Fixing either a wage garnishment or bank account levy from the IRS requires rapid action, but there most certainly ARE things that can be done. If you or somebody you know is facing such actions from the IRS, we need to speak ASAP: afacpascheduler.as.me/schedule.php
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Alexander F. Ming JP.BFC.CPA., Director - Finance
Seraphim Wealth Family Office, Inc.
Seraphim Wealth Advisors, Inc.
Seraphim Wealth Education Institute, Inc. a 501 (c) 3 entity