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BEHIND THE 8-BALL: WHEN THE IRS KNOWS THE IDENTY OF YOUR CUSTOMERS AND STARTS ISSUING ACCOUNT RECEIVABLE LEVIES

How Does a Account Receivable Levy Work?

When the IRS demands your receivables, chances are things are pretty bad. If you own a business or are self-employed the IRS may levy your accounts receivable, notes receivable and other debts owed to you by issuing Form 668-A.  Accounts Receivables are very popular with Revenue Officers especially in employment and withholding tax situations. 

Once a Account Receivable Levy is received by anyone who owes you money your customers must send the money to the IRS as soon as the invoice is due, unlike a bank levy there is no 21 day waiting period.  *Most Revenue Officers treat an Account Receivable Levy as a continuous levy, so if you continue to perform work for one or more of your clients the money will continue to be sent to the IRS until the debt is paid in full.

CAN YOU DODGE THE IRS' PLAY ON THE 8-BALL?  WITH PATRIOT SIGNS POINT TO YES!

If the IRS has begun levying your receivables there is no time to waste.  There are several methods that will work to not only releasing the outstanding levies, but also how to avoid future account receivable levies.  Click on the below links for some of the more commonly used methods.

  • Company Restructuring
  • Installment Agreements
  • In Business Offer in Compromise
  • Currently Non-collectable

In some cases it may be helpful to utilize the Office of Appeals and/or the National Taxpayer Advocate Service.  For information on these programs please click on the links below.

  • Collection Appeal
  • Taxpayer Assistance Order


*Although Account Receivable levies are one time levies, through our experience, Revenue Officers often disregard this law and continue to levy. 

Example:

Invoice sent

Rachel owns a home nursing company.  She sends an invoice to Aetna 5/1/2009 for $2,500 with a due date of 6/1/2009.

Invoice received

Aetna receives the invoice on 05/3/2009 from Rachel.

IRS sends Notice of Levy

The IRS Revenue Officer assigned to Rachel's case sends a Notice of Levy to Aetna on 5/4/2009 in the amount of $30,000.

Aetna receives Notice of Levy

On 5/6/2009 Aetna receives the Notice of Levy from the IRS.

Rachel sends Aetna another invoice

On 5/10/2009 Rachel sends another invoice to Aetna due on 6/10/2009 for $3,600.

Aetna sends the IRS funds due to Rachel

On 6/1/2009, the due date of the original invoice, Aetna sends the IRS the $2,500 that was due to Rachel.

6/10/2009 Invoice Due

On 6/10/2009 Aetna is scheduled to pay Rachel $3,600 for the invoice issued on 5/10/2009.  A representative from Aetna contacts the IRS Revenue Officer to ask if they are supposed to send him the check or send it to Rachel.  Although the Revenue Officer knows the law requires him to send a subsequent Notice of Levy he disregards the law and tells the Aetna representative to send the funds directly to him. Any invoice that was sent after 5/6/2009 (the date the original Notice of Levy was received by Aetna) is due to the taxpayer unless another levy was issued after 5/6/2009.

 

When the IRS issues a 668-W or 668-A many employers and companies do not understand how to treat these notices.  Here are common questions and answers how to treat each notice:

Form 668-W

This is a continuous notice of levy on Wages, Salary and Other Income. 

Question-  I understand that Wages and Salary pertain only to employees, not independent contractors but can you define what "Other Income" is? 

The most common type of "other income" is bonuses and commissions.  Many people in the real estate industry for example are independent contractors and receive "commissions" after they close a sale.  Many owners think that this is the other income that the IRS is referring to because they use the word "commission".   However, this is not the case.

Commission refers only to employees, ie. people who receive a W-2 at the end of the year, not a 1099-MISC. 

Therefore if the company you contract with receives notice 668-W it is not continuous! Only funds that are due at the time the levy notice is received should be sent to the IRS (and really for this the IRS should send Notice 668-A).

A 668-A is a one time levy that should never be treated as continuous in any circumstance.  Only the funds that are due at the time the levy is received apply to the levy.  If the contractor makes money after the initial notice the IRS would need to send another Notice 668-A.

From the Internal Revenue Manual:

5.11.5.3  (09-14-2010)
Continuous Effect of Levy on Salary and Wages

  1. Unlike other levies, a levy on a taxpayer's wages and salary has a continuous effect. It attaches to future payments, until the levy is released. Wages and salary include fees, bonuses, commissions, and similar items. All other levies only attach to property and rights to property that exist when the levy is served.

Example:

If a bank account is levied, it only reaches money in the account when the levy is served. It does not reach money deposited later.

  1. When other income is levied, the levy reaches payment the taxpayer has a fixed and determinable right to. If the taxpayer's right to that payment is not dependent upon the performance of future services, then the levy will reach the future payments as well. Also see IRM 5.11.6.1, Retirement Income.

Example:

A Form 668-W is issued to levy an author's royalties. The author has a fixed and determinable right to royalties for books that have already been published. The levy reaches royalties for sales of those books in the future. The levy does not reach royalties for books that are written and published later. A new levy must be served to take those royalties

Once these notices are sent it is a good idea to hire professional representation to help you level the playing field with the IRS and to finally resolve your back tax issues entirely.  Contact me at 720.340.4065 or email me
and we can get started!

 



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