The IRS and New York State have been progressively expanding their arsenal of tools to collect back taxes from delinquent taxpayers. At the recent BOOM B2B Expo and Executive Speaker Conference, we spoke to business owners about some of the most powerful enforcement techniques used by the federal and state government.
IRS collection methods:
- Passport revocation. Your passport can now be revoked if you owe the IRS $50,000 or more. That $50,000 number includes penalties and interest, not just taxes.
- Federal tax lien. If a tax isn’t paid after a formal request, the Internal Revenue Code grants the IRS an automatic lien, sometimes referred to as a “silent lien” against all of a taxpayer’s property and rights to property.
- Wage garnishment. This enforcement tactic is quite harsh, since the IRS takes almost everything with only a limited portion of wages exempt.
- IRS levy. Once the IRS issues a Final Notice of Intent to Levy, the taxpayer has 30 days to file a request for a Collection Due Process hearing, before the IRS can take the final step of enforcement.
- Bank levy. You must act quickly to stop a bank levy. Before the IRS acts, it must send the institution Form 668-A Bank Levy, which apprises the bank of its obligation to hold the funds for 21 days before sending them to the IRS.
- Levy on other property. Certain items may be subject to levies with limitations. For example, social security payments are limited to 15%. Books and tools of a trade are exempt to the extent of $3,125. A taxpayer’s primary residence is not exempt from seizure, but certain procedures must be followed.
New York collection methods
- Driver’s license suspension. The State can suspend a NYS Driver’s License if the driver owes $10,000 or more in tax, penalty, and interest and there is no collection resolution in place (such as an Installment Payment Agreement, Income Execution, or Offer-in-Compromise). The State has collected over $438 million in back taxes to date from this program.
- Tax warrant. A New York State Tax Warrant is a legal judgment and notice for priority. There is now a single 20-year Statute of Limitations on collections, which begins on the first day that a tax warrant could have been filed.
- Income execution. New York can levy 10% of the taxpayer’s wages.
- Levy. The state can collect on a taxpayer’s outstanding liabilities with various types of levies including bank levies that last for a 90-day period; levies on third parties, such as customers or tenants; refunds and offsets; and seizure and sale at tax auction.
Anyone who has a tax problem should act quickly. Voluntary Disclosure Programs may be an option for those who have not paid taxes or filed their return, but have not yet been contacted by the government. For those who have received a notice about their delinquency, an Installment Agreement or Offer in Compromise may help in resolving the tax matter. Both the IRS and New York State have their own requirements and procedures.
Thanks to the organizers of the BOOM conference and co-speaker, Matt Rappaport, Esq., LLM.