The IRS Is Back and Just Hit the Gas on Lien and Levy Filings Published August 16, 2021
Government agencies and large businesses may be returning to somewhat “normal” operations, but many taxpayers — like small to midsize business (SMB) owners — are still financially reeling from the COVID-19 pandemic and have had issues paying their tax liabilities in full and on time.
In 2020, the IRS filed half as many tax liens as they did in 2019, mostly due to their moratorium on enforced collection beginning in April of 2020. As a result, there’s a false sense of security among some SMBs who now owe back taxes to the IRS. As the year has passed by, the sleeping giant of IRS collections has awakened – the IRS recently stated, “with the recent progress the country has made in controlling the COVID-19 pandemic, [we] plan to return to normal collection casework processes later this summer to support the integrity of the nation’s tax system.”
Awakening the Sleeping Giant: The IRS Is Back
In June of 2021, the IRS began sending balance due reminder notices to taxpayers who have not paid their federal tax liabilities in full. Small business owners who receive these notices have 30 days (45 days if out of the country) to contact the IRS to resolve their debts and make payment arrangements.
Here’s what lenders need to pay attention to – according to the latest IRS Operations During COVID-19 update, beginning August 15, 2021, the IRS will resume filing and issuing systemic liens and levies (seizure of bank accounts and accounts receivables) on those who have not resolved their tax debts. The IRS floodgates are now open and all out-of-compliance taxpayers are on notice.
The IRS has already fully resumed systemic liens and levies in coordination with other state and federal agencies, including the following collection measures that could cripple a borrower’s cash flow:
- Federal Payment Levy Program – The IRS collects a taxpayer’s overdue taxes through a continuous levy on certain federal payments disbursed by the Bureau of Fiscal Services. It is important to note that lenders working with businesses that have government contracts may be affected.
- The Automated Collection System (automated lien and levy filing system) – Balance due notices (including final notices) have been sent out, meaning systemic levies and notice of federal tax liens will be issued starting August 15, 2021.
- Notifications to the Department of State (DOS) – IRS and DOS can exercise their authority to revoke, deny renewals, and block new issuance of the passports for taxpayers with seriously delinquent tax debt.
- State Income Tax Levy Program – Allows the IRS to levy (seize) a taxpayer’s state tax refund.
What Lenders Must Pay Attention to Going Forward
Beginning August 15, 2021, those who have not taken action by paying their balance or contacting the IRS for an alternative agreement may find themselves in situations with empty bank accounts and seized account receivables. SMBs that have had cash flow challenges throughout the COVID 19 pandemic and failed to pay their payroll tax deposits are going to be facing these aggressive measures by the IRS until they get resolved. As time goes on, and the IRS continues seizing bank accounts and account receivable payments, borrowers will fall behind in their credit obligations.
For lenders, a regular, run-of-the-mill public search for a tax lien filing won’t be enough – the records for these kinds of debts are not set to show up immediately, if ever. Public record searches for federal tax liens will miss at least 20% of the SMBs that are falling behind with their tax payments. Tax Guard’s relationship with the IRS means access to exclusive tax information that gives lenders the opportunity to view the full financial picture – missing tax deposits, unfiled returns, tax debts, and liens – before approving a loan. This is a much-needed boost of confidence in the lending and underwriting processes, which will come in handy as the world works to get back on track.