A real nightmare, not just the one you have about waking up in a lake under the frozen ice, is paying for gas with your debit card and having system reject the payment…only to learn that the money you had in the account for rent, groceries, and gas was frozen by the IRS the day before.

To make the nightmare worse – your employer sends you a letter telling you that it’s going to start shipping most of your next paychecks to the IRS.

Believe it or not, when the IRS is operating on all cylinders, this scenario is common, and it’s common for one reason…people with serious IRS debt often don’t prepare ahead and prevent it. They wait until they’re forced to deal with it.

The good news? Almost every IRS levy can be prevented if action is taken early.

In my 20+ years representing taxpayers, I’ve found that the clients who never see a levy are the ones who consistently do five proactive things.

The 5 Proactive Steps – That Stop IRS Levies Before They Start

1. File Every Required Tax Return — Even If You Can’t Pay

The IRS cannot levy if you are missing returns, but the moment the last required return is filed, the Collection Statute clocks start running and the levy machine turns on. The IRS will also create a return for you based on reported income to get the ball rolling as well.

What to do now:

  • Pull your IRS transcripts (Account Transcript and Wage & Income Transcript) at IRS.gov
  • Learn more about which returns the IRS is looking for and the IRS’ general 6 year return rule.
  • Decide which returns need to be filed to be considered “compliant” so that the IRS can work with you when the time comes. (this may require a discussion with an experienced tax attorney)
  • File the returns

Waiting until the IRS issues levies on older debt or debt related to return(s) it has created puts you in a very difficult position.

2. Adjust Your Withholding or Estimated Payments

You need to figure out what you should be withholding now and monthly in my opinion (if not from your wages), so that you can start paying toward the future. You do this because the IRS won’t work with you if it sees you’re creating new debt AND it stops you from tacking on new tax debt to the amount already owe.

What happens if when the levy hits the IRS wants to see the two most recent quarters paid in order to work with you. Far easier to have figured that out and paid it already.

Bonus: Pay a little extra each quarter — overpayment credits are protected from levy

3. Gather Your Complete Financial Picture (and Know Your Best Resolution Option Before the IRS Contacts You)

The IRS will eventually ask for Form 433-A or 433-F or at least it will want to hear more about your financial situation over the phone.

The taxpayers who win are the ones who already know whether they qualify for an Offer in Compromise, Partial Payment Installment Agreement, full-pay IA + penalty possible penalty abatement, Currently Not Collectible status, or sometimes bankruptcy.

Do this:

  • Collect several months of bank statements, pay stubs, recent mortgage /car loan/rent/credit card/health insurance etc. statements, credit report, and proof and out of pocket medical cost proof.
  • Create a good list of your monthly expenses for living and if self employed for the business.
  • Create a good list of your assets with good estimated values.
  • Pay an experienced IRS debt pro to review all of this info and discuss options with you.

Hopefully, an IRS Offer in Compromise will make sense right out of the “gate”. For most people it doesn’t, at least not at first. So you’ll want to review and have a good understanding of the other options….as well.

The most common options:

  • Offer in Compromise (settlement for less based on “rules”)
  • Partial Payment Installment Agreement (pay reduced amount until Collection Statute expires or zero per month – called “non-collectible status”) – really… it’s a settlement for less)
  • Bankruptcy – usually considered a last resort but sometimes powerful and sometimes used when nothing else makes sense
  • Full Pay Installment Agreement with a side of possible penalty abatement

4. Prepare Collection Information Statements in Advance

When the IRS finally does head down the enforced collection path…you are now “compliant” – required returns and no new debt, you have reviewed your situation, know your finances and your options.

You can use what you’ve done to prepare necessary documents and financial statements… the submission of which ,will prevent a levy or garnishment…or should.

Financial statements are usually 433a or 433f. There are other documents to be prepared depending on what you are going to do.

5. Be First

If you’ve done all the above and know your plan, you don’t have to wait until the IRS sends you something likes it’s an invitation. You can submit your proposal, your documents if they are ready. You can file a bankruptcy if it makes sense.

Sometimes it does make sense to wait, but waiting is something you do with guidance from an experienced pro.

OVERALL – THE BEST THING TO REMEMBER IS NOT TO IGNORE THE PROBLEM

Do these five things and you will join the percentage of taxpayers who never experience the panic of an IRS bank levy or wage garnishment.

The IRS only levies people who ignore the problem until it’s too late.

Be proactive once, sleep peacefully – avoid the nightmare(s).