Will IRS Lighten up on Structuring?

By law, you must report to the IRS bank transactions of $10,000 or more.  It is one government tool for curbing white collar crimes.  Manipulating deposits so that they come just under the reporting requirement is called “structuring,” and it is illegal.  The IRS can seize bank accounts without notice to the account holder when structuring is suspected, and they have done so freely in the past, even if the money is obtained legally.

It is obvious to Commissioner Koskinen that this policy is way too harsh.  Today the commissioner apologized to taxpayers who have not been treated fairly “under the code.”  I don’t know how to take this apology.  It seems a little half-hearted to me.  It’s like saying, “we are sorry for seizing the accounts of law-abiding citizens, but we were only doing what we are permitted to do under the code.”  And it’s not necessarily a win for taxpayers until some changes are made to the code.  Semantics aside, it looks like a step in the right direction.

Can the IRS Seize your Property Without Notice?

If you fail to comply with the individual mandate under Obama’s new health care law — if you can’t afford to purchase insurance or you don’t get around to it — you may be responsible for paying a special “tax” that will be enforced by the Internal Revenue Service.  And as I mentioned previously, the only real enforcement tool available to the IRS will be to capture any refund(s) that may be due to you to offset your tax debt.

Of course, if it’s actual taxes that you owe, you probably won’t be so lucky.  The IRS can be quick to issue a levy and seize your property (wages, bank account, and other assets) and there are really only a couple prerequisites.  Number one, the IRS must send you a bill.  And number two, you fail to pay the bill.

However, it is important to know that the IRS notice showing the amount of tax owed doesn’t have to actually be received.  As long as the IRS sends it to the last known address of record, then they are in full compliance with the law.  Also, there are some scenarios in which the IRS is not even required to give notice (listed in IRS Pub 594):

  1. collection of the tax is in jeopardy (i.e., the CSED is almost up)
  2. state tax refund levy
  3. levy served to collect the tax debt from a federal contractor
  4. seizure of unpaid employment taxes

My experience is that most people who owe the IRS know they owe, or at least know there is some kind of problem.  But it is always disturbing when the IRS comes knocking without sending a nastygram to tip the taxpayer off.

IRS Thinks Levy Power Needs More Teeth

One of the methods the IRS uses to collect past-due taxes is the levy. It has the authority to work with third-party financial institutions to seize cash from your bank account (bank levy) or with employers to intercept your paycheck (wage garnishment or wage levy).

Not all levies work the same. The levy on wages is “continuous.” In other words, once the levy is issued, the employer is instructed to submit payments to the IRS each pay period until the tax liability is paid in full or until the IRS otherwise releases the levy.  But the bank levy doesn’t work this way.  A bank levy affects only the funds that are in a specified account when the levy is issued.  If the IRS wishes to levy the account at a later date, it must submit another bank levy.  A levy on self-employment income works much like a bank levy in the sense that it is not continuous.  The levy on self-employment income is submitted to the third-party payor, and that person or company has a one-time obligation to turn over everything that is owed to the delinquent taxpayer.

The non-continuous nature of some levies is seen as an impediment to collections.  However, the IRS is trying to get this changed legislatively.

The Small Business/Self-Employed Division recognized the barriers the ROs [Revenue Officers] face when taking levy action and has taken some corrective action.  The Small Business/Self-Employed Division is preparing a legislative change proposal to expand continuous levies on additional income sources.  I.R.C. § 6331(e)  and § 6331(h) permit the continuous levy of salary and wages and certain other payments from the time of issuance until the levy is released.  The IRS has identified four additional categories of non-wage income that could be levied in a manner similar to wages and salary: non-employee compensation, rental income, royalties, and fishing boat proceeds.  These income sources totaled approximately $1.4 trillion for Tax Year 2009.  The proposal would expand the continuous levy authority to these additional categories of income and may increase revenue and assist taxpayers in becoming compliant through the use of additional collection options.

~ TIGTA Report #2012-30-007

It is beyond me how this change would “assist taxpayers.”  Taxpayers don’t need any “additional collection options”!  If this becomes law, it would be a major victory for the IRS.


Bank Levy: A Serious IRS Collection Tool

The IRS has different collection tools at their disposal to ensure that a tax debt is paid. One such tool is a bank levy. The IRS has the ability to issue a bank levy on an account that bears the name of a person who owes the IRS a tax debt. When the IRS decides to take enforced collection action via a bank levy, a notice of levy is sent to the taxpayer’s bank and it attaches to all accounts in the name of the taxpayer whether a sole or joint account. The bank is then legally obligated to honor the levy. Once received, the levy freezes the funds on deposit in the account. The bank will not allow anyone access to the frozen funds for 21 days from the date of receipt of the levy unless released. This 21 day holding period allows time to resolve any issues about account funds ownership and collectability. After the 21 days have elapsed, the bank will send the money plus interest, if it applies, to the IRS if the levy has not been successfully released. Therefore, if you do not want the IRS to take the money in your bank account, you will need to seek a tax relief attorney before the 21st day since your bank received your bank levy.