When a taxpayer fails to meet his or her tax obligations, and provided that taxpayer does nothing to remedy the situation, such as request an offer in compromise or an installment agreement, the Internal Revenue Service will eventually initiate collection proceedings. Those collection proceedings include the filing of a Notice of Federal Tax Lien with the debtor, and eventually a levy on the tax debtor’s assets, seizure of those assets, or garnishment of the tax debtor’s wages. These collection proceedings can indeed be highly injurious, so much so that there are circumstances in which the IRS will deem the collection action to be causing an undue burden or hardship to the taxpayer.
In such cases, taxpayer’s may request that a levy be released on the basis that the levy is creating an economic hardship causing the individual to be unable to pay reasonable necessary living expenses. Internal Revenue Service, Internal Revenue Manual 18.104.22.168.1.4 (08-24-2010), Economic Hardship, available at https://www.irs.gov/irm/part5/irm_05-011-002.html. However, in order to obtain this release of the levy the tax debtor must act in good faith, which includes full disclosure of assets to the IRS, providing a realistic and accurate picture of the tax debtor’s own expenses or costs, and generally speaking, providing accurate financial information. Provided the tax debtor has done so, the IRS will then make a determination based upon allowable living expenses and agreed-upon standards, but also based upon the tax debtor’s individual situation.
For the most part, a tax debtor will have to provide the IRS with a collection information statement in order to have a levy released based upon economic hardship. That said, there are certain exceptions that may apply, both when the tax debtor has the ability to pay and when the tax debtor does not. Also, tax debtor’s should bear in mind that this hardship determination is only based upon the tax debtor’s right to have as much of the levy released as is necessary to end the hardship. If the IRS determines that a partial release of the levy is sufficient to end the hardship the tax debtor is facing, then the IRS will probably only grant a partial release of the levy. Particularly where seizures of large assets are at issue, a partial release may not provide a tax debtor with an effective remedy.
If you have questions about hardship determinations pursuant to the interruption or reversal of IRS collection activities, speak to an experienced tax attorney to learn more.
Please keep in mind the information and advice presented in this blog is not intended to be used as formal legal advice. Contact a tax professional for personalized tax advice pertaining to your specific situation. While we try and answer all parts of the question when we write our blogs, sometimes there may be some left unanswered. If you have any questions about your problems with the IRS, SBOE, FTB, or BOE, or tax law in general, call RJS Law at (619) 595-1655.