IRS Law Blog

You are now retired, on a fixed income, relying on your social security benefits to pay the bills.

Back in the day, you made some financial mistakes and got behind on your taxes.

Maybe it was a business you owned that got into employee payroll tax problems.

Or you stopped filing your taxes and were then not able to pay what you owed.

Those missteps are behind you now, but the aftermath still lingers.

The IRS just sent you Notice CP91, Final Notice Before Levy on Social Security Benefits.  In 30 days, the IRS can notify the Social Security Administration that you have a tax debt, instruct them to deduct 15% of your benefit, and send the money to them.  An levy on your social security is permitted by Internal Revenue Code 6331.

You would like the 15% to stop, and want to call an IRS agent and request a release of the levy.

Not so fast.

To get the levy released, the IRS will want to know all about your finances – the value of your house, what you drive, how much is in your retirement accounts, where you bank, the amount of any other income you have, and what you spend every month.  You will need to open your books and accounts to IRS scrutiny.

The purpose of the financial disclosures are to show the IRS that you need all of your social security benefits to pay your bills.  In determining if a release is appropriate, the IRS will match your income and budget to their chart of allowable living expenses.  The IRS living expense chart puts caps on your budget, so a hardship to you may not be a hardship under IRS guidelines.  The IRS calls these guidelines Collection Financial Standards.

And if you have assets of value, your call to the IRS can put those in play for IRS seizure, making matters worse.

Before calling the IRS, it is essential to know how your finances match up to the IRS collection financial standard guidelines.

For example, let’s say that your social security income is $2,000/month.  A social security levy would equal $300/month to the IRS every month (15% of the $2,000).

But what you called the IRS, spoke with an agent, told all about your finances, and the IRS agent, after applying the Collection Financial Standards, demanded a payment of 600/month?

The levy release would cost you more than the levy itself.

Or what if you have $50,000 in equity in your house, or funds in a retirement account, or maybe even a rental property?

A $300 social security levy would turn into a $50,000 problem.

We don’t want that.

Even if the IRS agreed to a reduction to $200/month, is that enough to justify engaging with them and opening your books?

Accepting the social security levy could be your best financial decision.

You may be concerned about what will happen if you do not contact the IRS.  After all, wont they just become more aggressive, and start coming after your bank accounts, house, savings, etc.?

In most cases, no.

Here’s why:

• The IRS is not thinking.  The IRS sends out social security levies by using an automated computer function.  It is simply a computer match made with the social security administration, followed by a reduction of your benefits.

• There should not be any IRS agents following you, watching you, or investigating you.  A social security levy is you vs. the IRS computer.

• Calling for a levy release elevates your file to an IRS agent at their Automated Collection Service.  And then the questions start, and the level of scrutiny increases.

• The IRS is sensitive to how they treat retirees on a fixed income.   When they levy a retiree’s social security, the computer usually leaves it at that.

• With money coming in from your social security, the IRS computer usually stops searching for other sources of collection.  In my experience, the IRS can stand put on a social security levy for years without any other action.

For practical purposes, the IRS tends to treat an ongoing levy on social security benefits like an installment agreement.  Money is coming in, and no further action is warranted when a levy is on a retiree’s social security benefits.

In other words, once the IRS takes hold of your social security, experience shows that they stop looking for more.

And remember the IRS has 10 years to collect from you.  After the statute of limitations on collection expires, the levy will be released without any financial disclosures required.

It is important to get into the mind of the IRS when determining if your best move is contacting them for a release, or living with it under the circumstances.

Before picking up the phone to call the IRS, it is important to know how IRS collection financial standards can impact you. The IRS may want you to pay more monthly than they are already taking, or even request assets be liquidated.  No one wants to lose 15% of a fixed income to the IRS, but after careful consideration of your options, letting sleeping dogs lie may be a better financial approach than opening your books and accounts to the IRS.