This is a real excerpt from an email that I received the other day. I get emails like this just about every day but I found this one to be especially poignant. I have also posted my response in the hopes that it will help someone else before this happens to them!
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I don't write a lot of blog articles about particular cases. Generally I stick to more generic explanations and fact patterns. Today I can't help myself. Here is a short background on this particular taxpayer's case.
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A huge percentage of all individual tax returns processed by the Internal Revenue Service's modernized account information computer system. Known as the Customer Account Data Engine, or CADE. This system is the centerpiece of modernization efforts at the IRS. CADE is handling significantly more tax returns each year. CADE, which is at the core of the effort to replace many of the agency's aging systems, dramatically speeds up internal IRS processing, permitting taxpayer accounts to update on a daily basis. This helps the IRS better administer the nation's tax system. The IRS is rolling out CADE in a series of "releases," each improving on and adding to the system capabilities. CADE was envisioned to replace the legacy Master File system, parts of which date back to the Kennedy Administration and will eventually house the account information of more than 200 million individual and business taxpayers.
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A tax levy is when the IRS literally seizes your money to pay an outstanding tax liability you owe them. They can seize your money in bank or brokerages accounts, in retirement plans, from your credit card processor (if you have a business), from your commissions (if you get paid 1099 income), from your inheritance and from your paycheck, social security income and/or pension. Any account you have an ownership interest in can be seized to pay your tax bill. Before the IRS levies anything they will send you a "Final Notice of Intent to Levy," giving you 30 days to deal with the problem. If you don't take action within those 30 days you'll be waking up at some time in the future to an empty bank account or a reduced paycheck. You might even be the proud winner of a visit from you local Revenue Officer at your home or business.
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Regular, hardworking taxpayers can be blindsided by an IRS Wage Levy. Many times despite required notices before such action, a taxpayer picks up their paycheck on payday, opens it expecting to see everything in order just as it has been every previous payday, and to their astonishment they find up to 80% of their expected pay seized by the IRS. You wouldn't be human if that experience didn't throw you into panic. It's not uncommon for a taxpayer to respond by calling the IRS and asking how the problem can be resolved – this can be a big mistake for the ill-informed. The purpose of a wage levy was originally to get the taxpayer's attention on the problem of their tax debt and seek an alternative solution. However, today the IRS looks at a wage levy as guaranteed payment on a debt you owe them. They view it as their money after all. What could possibly make a taxpayer think the IRS will "let go" of a wage levy without a fight?
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