IRS Accounts Receivable Levy
What is an IRS Accounts Receivable Levy?
An IRS Accounts Receivable Levy is an order directing anyone who owes you money to pay it to the IRS. At the point you invoice a customer and have a legal right to payment from them the IRS can take this money directly from the customer with an Accounts Receivable levy.
There is no 21 day holding period, the levy attaches to 100% of what is owed and in most cases the levy continues until the tax debt is paid in full. This includes any individual working as an Independent Contractor and receiving a 1099-MISC.
This means as you continue working for that customer that was served with the levy, but they are legally obligated to keep sending your money to the IRS. That is if they still want you working for them now that the IRS is involved and they know you owe back taxes.
More than any other kind of levy, prevention is critical with an accounts receivable levy -- it is better to ensure that they never happen than to try to do damage control after the fact.
Our tax attorneys can typically get an accounts receivable levy release, but by then it's often too late: the relationship with your customer is ruined and word is going to spread quickly to your vendors, your competitors and then your prospective customers of your tax problem.
The IRS knows this and the accounts receivable levy used to be a weapon of last resort, just prior to actual seizure, and saved for businesses that had ignored the IRS for years or owed the IRS hundreds of thousands of dollars. With the recent increase in enforcement efforts and a strong focus on collecting payroll tax liabilities we’re seeing accounts receivable levies coming out sooner and for lower tax liabilities.
With that being said if you own a business or are an independent contractor that owes back taxes you need to address this problem head on. Get a Tax Attorney you can trust who can put some layers of protection in place, work with you to develop a clear plan of action, and keep an open line of communication with IRS Collections.