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Has the IRS placed on levy on your bank account or your wages? You can get your your levy released and be placed in a IRS hardship without the filing of your returns to get the levy released.
Contrary to popular belief what the IRS tells you about having all your tax returns filed before they will put you into a IRS Hardship is just not true.
Every time we call the IRS with a client that has a true IRS hardship and meets the income test and expense tests for a IRS Hardship we are ALWAYS told all tax returns must be filed.
You do not have to file all your tax returns to get the levy released, at least immediately.
We should also say that with this ruling you will find below, it does not preclude you from the filing of your tax returns.
The requirement is still there and IRS will probably give you a new date to have your tax returns filed.
There has been a recent ruling by the Taxpayer Advocates Office now setting the record straight.
Do not be bullied by the IRS.
March 29, 2011
Control No: TAS-13.1.10-0311-008
Expires: March 29, 2012
MEMORANDUM FOR TAXPAYER ADVOCATE SERVICE EMPLOYEES
s/ Nina E. Olson
FROM: Nina E. Olson
National Taxpayer Advocate
SUBJECT: Interim Guidance on Handling Collection Cases where
Economic Hardship is Present but the Taxpayer has not
Filed all Required Returns
The purpose of this memorandum is to update the guidance issued on March 23,
2010, entitled Interim Guidance on Handling Collection Cases where Economic
Hardship is Present but the Taxpayer has not Filed all Required Returns
concerning how Taxpayer Advocate Service (TAS) employees should handle
collection cases involving taxpayers with economic hardships and unfiled returns.
The Tax Court opinion, Vinatieri v. Commissioner, 133 T .C. 392 (2009) illustrates some of the issues that can arise in this type of case. In that case, the Tax Court held that if, during a Collection Due Process (CDP) levy hearing, the taxpayer establishes that the proposed levy will create an economic hardship, the IRS cannot proceed with the proposed levy action, even if the taxpayer has not filed all returns that are due. During the CDP hearing, Ms. Vinatieri submitted financial information to support her claim that she could not pay an outstanding income tax liability.
The Appeals officer found that although she established
economic hardship (within the meaning of IRC § 6343(a)(1)(D)), he could not
place her account in a Currently Not Collectible (CNC) status because she had
not filed two income tax returns. Instead, the Appeals officer issued a notice of
determination sustaining the proposed levy action.
The Tax Court held that as a matter of law, the Appeals determination to proceed with a levy was wrong.
IRC § 6343 requires the release of a levy if the taxpayer is experiencing an economic hardship, even if the taxpayer has not filed all returns. The court also held that rather than proceeding with the levy, the Appeals officer should have considered alternatives to the proposed levy action.
Note: IRC § 6343(a)(1)(D) states that a levy shall be released if “the Secretary
has determined that such levy is creating an economic hardship due to the
financial condition of the taxpayer.” Treasury Regulation § 301.6343-1(b)(4),
2
defines economic hardship:
“The levy is creating an economic hardship due to the financial condition of an individual taxpayer. This condition applies if satisfaction of the levy in whole or in part will cause an individual taxpayer to be unable to pay his or her reasonable basic living expenses. The determination of a reasonable amount for basic living expenses will be made by the director and will vary according to the unique circumstances of the individual taxpayer. Unique circumstances, however, do not include the maintenance of an affluent or luxurious standard of living.”
TAS employees should advocate for the taxpayer experiencing economic hardship when the IRS has issued a notice of levy or a Final Notice of Intent to Levy, but the IRS will not place the account in CNC status or release a levy because of unfiled returns.
Most TAS cases will be in the Automated Collection System (ACS), but could also involve a Revenue Officer or Appeals (either in the form of a Collection Appeal Program (CAP) conference or CDP hearing).
A more detailed discussion of relevant IRC sections, regulations, and IRM references for assistance in case building and advocating for taxpayers are included in the attachment to this memorandum.
When advocating for a taxpayer in this type of situation, attach a copy of the Vinatieri opinion to the Operations Assistance Request (OAR) and use Special Case code LE when making these arguments to the IRS.
If the IRS disagrees and does not provide a compelling reason to support its disagreement, immediately elevate the case to a manager for consideration of a taxpayer assistance order (TAO).
Also, consider whether referral to a Revenue Officer Technical Advisor (ROTA) may also be appropriate. However, remember that often “time is of the essence” in these cases, and a TAO may be necessary so the taxpayer is not further harmed.
This IGM will be incorporated into IRM 13.1.10. If you have any questions, please contact James Book, Management and Program Analyst, TAS Technical Analysis and Guidance at 816-291-9944
IRS Hardship – IRS Levy – All tax returns do not have to be filed – Former IRS Agent – Owe Back Taxes
