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Can the IRS Take Your Social Security?

Our tax professionals have seen an increase in calls to our offices from retirees who have received an IRS levy on their Social Security benefits.  In nearly every case, the IRS levy (1) relates to conduct from self-employment when they were younger, and that conduct has long ago ended and (2) creates a substantial financial hardship for the retiree, who needs the levied money to pay for Medicare, Medicare Advantage, prescriptions, food, utilities, car payments, and rent.


The IRS is authorized to levy on Social Security benefits under section 6331(h) of the Internal Revenue Code.  These devastating tax levies are continuous and take 15% of Social Security benefit, a real hardship to those on a fixed budget.
 

The IRS makes the levy by matching its records against those of the government’s Financial Management Service (FMS). The FMS is the government computer program that sends out checks. Once a match is made, the IRS will send a Final Notice Before Levy on Social Security Benefits (CP 91).  If you do nothing within 30 days as to the IRS notice (i.e, collection appeal), the IRS electronically transmits the tax levy to FMS for a reduction in the benefit.

 

It is imperative that someone on Social Security (Veterans Pensions as well) immediately act to save the pensions. The reason for this is this: once the levy is ordered, the IRS computer must tell the FMS computer to release the levy. Depending on the date of your benefit payment, the levy could take 1 or 2 seizures before it can be released. 
 

The IRS had previously used an income filter to systemically exclude those with income below a specified threshold.  The Government Accountability Office (GAO) found the filter flawed, and in 2006 the IRS eliminated it.
 

The IRS Taxpayer Advocate reports what I have seen:  Their case intake from the Federal Payment Levy Program (FPLP), which includes Social Security benefits, increased from 525 cases to nearly 3,500 cases. As computer systems get upgraded, the IRS will dramatically increase their levy seizures.

It is extremely important that you consult with an experienced tax professional when resolving an IRS levy and Social Security. Here's why:

  • The IRS computer is not a thinking "being". 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 (SSA), 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 a "you against the IRS computer battle."

  • Calling for an IRS levy release elevates your file to an IRS agent at their Automated Collection Service (ACS).  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 tax levy on social security benefits like an installment agreement. Money is coming in and applied to tax debt, and no further action is warranted when a levy is on a retiree’s social security benefits.

If you have a home that has equity, this could present a problem in negotiating with the IRS. This is why it is never a good idea for a novice taxpayer to tackle the IRS on their own. An experienced Tax Attorney can "massage" the numbers and advocate for a successful outcome for a retired senior.

There are tax relief programs like an Offer in Compromise or being placed into Currently not Collectible status that can end the tax levy. 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 are liquidated.  No one wants to lose 15% of a fixed income to the IRS, so we strongly suggest you call our teams of tax pros today.

ALL OF THE ABOVE INFORMATION IS THE SAME FOR VETERAN'S PENSIONS

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