How the Automated Levy Program Works
In the fall of 2017, there was a lot of talk about tax reform, and GOP leaders assured everyone that their paychecks would be a little larger thanks to their tax cuts. That may or may not be true, but one truth we do know is that some people who count on federal money will get smaller checks in the new year. In September 2017, the IRS very quietly expanded the ALP to include military retirement funds. Read on to find out how the IRS worked to expand the automated levy program.
The IRS first introduced the federal payment levy program in 2001. Then-Commissioner Charles Rossotti was not happy with the current FPLP and refused to green-light it until the agency developed a low income filter. This filter saves the IRS from the additional paperwork involved in rescinding illegal levies and limiting the automated levy amount.
Although the IRS administers the program, the FPLP applies to any outstanding federal debts, such as delinquent income taxes, delinquent payroll taxes, student loans, and SBA (small business administration) loans. There are no limits on the amount owed. The same levy rules apply whether the person owes $100 or $100,000. Furthermore, unlike bank levies, there is no 30-day notice and 21-day hold. As soon as the IRS processes the automated levy amount, Social Security and other government checks get smaller.
How Much Can The IRS Levy?
The IRS may levy up to 15 percent of “any federal payment other than a payment for which eligibility is based on the income and/or assets of a payee.” That list includes Social Security Income and federal pension payments. The list also includes unemployment benefits, worker’s compensation payments, and exempt amounts under standard bank levies, but the IRS does not automatically levy these payments “at this time,” which is a rather uncomfortable add-on. Social Security Disability payments lead the list of excluded items.
Theoretically, the IRS cannot automatically levy any federal payments unless the taxpayer’s income is at least 2.5 times above the federal poverty line. However, if the taxpayer is not in full compliance (has at least one delinquent return), the Low Income Filter does not apply to the automated levy amount. Typically, the LIF does not apply to military pension payments either. Apparently, the government assumes that military retirees are mostly people in their 40s who also work full-time civilian jobs, but the statistics dispel these myths.
Challenging an Automated Levy Amount
Even if the LIF does not kick in, the taxpayer can still dispute the levy on the grounds that it creates a financial hardship.
As the name implies, the ALP is entirely automated. Instead of an agent looking at the numbers and pulling the strings, there is simply an IT person who pushes buttons and runs algorithms. In fact, there is not even a provision for a Collection Due Process hearing in automated levy matters.
So, to successfully challenge the automated levy amount, a tax attorney needs to have an intimate knowledge of how the IRS works and also be very aggressive. It is not easy to move the levy out of the FPLP realm. Once that happens, an attorney can usually either get a hearing to consider a hardship exemption or arrange for an alternate payment plan, such as an installment agreement or an offer in compromise.