IRS provides guidance on new rules for employment tax levies
The IRS has issued interim guidance to its directors and collection area offices that explains when it is permissible to issue a levy to collect employment taxes without first giving the taxpayer a pre-levy collection due process (CDP) notice.
The IRS is authorized to take various collection actions in order to ensure the payment and collection of employment taxes, including issuing federal tax levies. Before a tax levy can be issued, however, the IRS must generally provide the taxpayer with notice and an opportunity for an administrative CDP hearing, and for judicial review.
The Small Business and Work Opportunity Tax Act of 2007 (the Act) modified the collection due process procedures for employment tax liabilities. The Act amended IRC §6330(f), effective for levies served after Sept. 21, 2007, to permit levies to collect employment taxes without first giving the taxpayer a pre-levy CDP notice, if the levy is a “disqualified employment tax levy” (DETL). IRC §6330(h) defines a DETL as a levy to collect the employment tax liability of a taxpayer (or predecessor) who requested a CDP hearing for unpaid employment taxes in the two-year period prior to the beginning of the taxable period for which the levy is served.
The guidance includes the following examples on the new rules:
Example 1. The taxpayer owes taxes on Form 941 for the 4th quarter 2005 (quarter ended Dec. 31, 2005). The taxpayer requested a timely CDP levy hearing. The taxpayer accrues additional employment tax liability on Form 941 for the second quarter 2006 (quarter ended June 30, 2006). The liability period for additional tax began on April 1, 2006. The additional liability for the second quarter 2006 qualifies for a DETL levy because the taxpayer requested a prior levy hearing for a quarter that ended (Dec. 31, 2005) within the two-year lookback period (April 1, 2004 through April 1, 2006).
Example 2. The taxpayer owes taxes on Form 941 for the 1st quarter 2006 (quarter ended March 31, 2006). The taxpayer requested a timely CDP levy hearing. The taxpayer was assessed additional employment tax liability on Form 941 for the quarter ended Dec. 31, 2005. The liability period for additional tax began on Oct. 1, 2005. The additional liability for the quarter ended Dec. 31, 2005 does not qualify for a DETL levy because the taxpayer requested a prior levy hearing for a quarter that ended (March 31, 2006) outside the two-year lookback period (Oct. 1, 2003 through Oct. 1, 2005).
If a DETL is served, the taxpayer must be given an opportunity for a CDP hearing within a reasonable period of time after the levy and may seek judicial review of the IRS ruling in tax court.
The new IRS guidance is effective March 3, 2008.
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