How to Remove an IRS Federal Tax Lien
The IRS had recently increased its lien filing threshold from $5,000 to $10,000. What this means is that the IRS will typically not file a lien if your tax liability is less than $10,000. Keep in mind that this is a general rule and circumstances do exist which may warrant lien issuance even if balance is less than $10k.
Nevertheless, if a taxpayer finds himself/herself in the unfortunate position of having an IRS Federal Tax Lien filed against their assets, certain steps can be taken to release or withdraw the lien.
First, a distinction must be made between a tax lien release and lien withdrawal. Essentially, a lien release lifts the lien automatically once the underlying liability is satisfied (i.e paid in full or collection statute expires). The record of the lien will then stay on the taxpayer’s credit history for seven years after such a release. Conversely, a lien withdrawal goes a step further and not only releases the lien but also deletes any reference to the tax lien in the taxpayer’s credit history. It’s as though the lien was never filed or ever existed.
It is worth noting that the delineation between release and withdraw has recently been crossed in one specific instance. On February 24th, 2011, the IRS announced that taxpayers who pay their liability “in full” will have an opportunity to have their IRS Federal tax lien withdrawn. This new policy appears not to apply to those who have settled their liability by way of an Offer In-Compromise. Also, taxpayers must specifically request the withdrawal as it will not be done automatically, unlike the release.
Nevertheless, for taxpayers who have not paid their liability in full, there is still hope. For a lien withdrawal with an outstanding balance, the taxpayer must complete Form 12277 (Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien). Within the form itself, the taxpayer must indicate that he/she falls into at least one of the following categories:
1. The filing of the lien was premature, done in error, or otherwise not in accordance with the IRS administrative procedure;
2. Taxpayer has entered into an installment agreement to satisfy the liability for which the lien was imposed;
3. Withdrawal will facilitate the collection of tax; or
4. The withdrawal of the lien would be in the “best interests” of the taxpayer and the government.
Regarding section 2, taxpayers cannot have a balance exceeding $25,000. If they do, they may make payments on the balance to bring it down to $25k. At that point, the taxpayer must enter into an installment agreement not exceeding 60 months or before the Collection Statue expires. In addition, such an installment agreement must be a Direct Debit Installment Agreement (the IRS withdraws the agreed upon monthly payment each month directly from taxpayer’s bank account) and the taxpayer must be on such an agreement for a minimum of 3 consecutive months. It must be noted that the IRS processing time to enter into a direct debit agreement may take up to 3 months. As a result, from the time that a taxpayer enters into an agreement to the date when he/she is eligible to actually apply for a lien withdrawal could take up to 6 months (3 months of waiting for processing + 3 months of direct debit payments = 6 months).
Lastly, although sections 3 and 4 above appear quite vague, a knowledgeable and seasoned tax attorney will be able to articulate a winning argument.
Can the IRS Garnish Your Social Security Benefits?
IRS Directly Garnishing Social Security
The IRS has the right to garnish your social security income (both retirement and disability) but limitations to this garnishment exist. First, you must receive at least $750/month in social security benefits. Second, assuming you are not receiving income from other sources (i.e. pension), the IRS will not garnish more that 15% under an automatic levy (garnishment) program. However, be aware that garnishments on social security could technically range from 15%-100% depending on your circumstances so it is best to speak with a tax attorney regarding your specific situation.
IRS Indirectly Garnishing Social Security
Suppose that your only income is derived from social security benefits, can the IRS indirectly garnish your benefits by levying your entire bank account instead? The answer is yes. According to Internal Revenue Manual 22.214.171.124, “[o]nce income is deposited in a bank, there is no exempt amount.” This means that in certain instances income is exempt from levy or garnishment for example, social security benefits not exceeding $750/month. However, no such exemption exists for money in a bank account – 100% of your bank account is fair game for the IRS to seize.
What If You Can’t Pay Your Bills Because of the Garnishment?
After a bank account is garnished, the bank holds the funds for 21 days before releasing it to the IRS. Should the garnishment cause economic hardship in that you’re not able to pay necessary living expenses such as rent, electricity, food, etc., the IRS will release the levy but the following steps must be taken:
1. Contact the IRS immediately after the levy takes hold and before the 21 day holding period expires; and
2. Provide a detailed financial statement to the IRS over the phone.
The IRS agent collecting your financial information will often times request “shut off” notices, “delinquency” paperwork, or eviction documents indicating that you are indeed experiencing an economic hardship – be prepared to provide them.
It is highly recommended that whenever your bank account has been seized and you are experiencing a hardship that you contact an experienced tax attorney to handle the matter. Without proper representation, you might unintentionally provide the IRS agent with unfavorable information which could negatively impact your chances of releasing your bank levy.
Michigan Tax Attorney Paul Tarnavsky has successfully released hundreds of bank garnishments and has helped thousands of clients resolve their IRS tax matters. Call him today at 248-398-0400 for a free consultation.