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Understanding the Federal Payment Levy Program

Financial Management Service (FMS) of the Department of the Treasury instituted the Federal Payment Levy Program (FPLP) in 2000 to collect overdue taxes owed by individuals and business owners. This program allows the Internal Revenue Service (IRS) to apply a continuous levy on specific payments that are issued through the FMS. It is part of the Taxpayer Relief Act of 1997, Section 1024, IRS Code 6331. The IRS can levy the following assets under the provisions of this program:

  • Employment retirement annuities for federal workers
  • Some federal salaries
  • Travel advances or reimbursements for federal employees
  • Some social security benefits
  • Medicare provider and supplier payments
  • Benefits paid to you by the Railroad Retirement Board
  • Payments received by you as a contractor or vendor providing services for the federal government. This includes defenses contractors.

The IRS expects to expand the program in the future to include additional federal employee benefits and salaries. As a business owner, you may be able to appeal the levy if you are in bankruptcy proceedings, can prove undue financial hardship or you have already made payment arrangements with the IRS.

Notice of Intent to Levy

The IRS transfers files of delinquent accounts to the FMS to determine if the taxpayer is set to receive any federal payments. If the database produces a match, the IRS sends a Final Notice of Intent to Levy and Your Right to a Hearing. If you do not respond to the letter within 30 days, the IRS notifies the FMS to withhold specific federal payments until you make arrangements to pay your outstanding tax bill. In most cases, the levy is removed within 30 days after receiving your payment.

You Can Request Audit Reconsideration

The IRS may have assessed the levy based on incorrect information. If you believe this to be the case, you should contact the IRS after receiving the letter and ask for an audit reconsideration. The IRS must stop levy proceedings while your audit is under review. To increase the chances of your audit reconsideration being successful, you must provide written documentation of your business income and expenses available.

When You Can't Afford to Pay the Levy

You may agree that you owe the levy but not have the funds to pay it in full. In this case, contact the IRS immediately to explain your situation. You can propose an affordable payment plan, but the IRS has the final say on whether or not to approve it. Another alternative is to request that the IRS label your debt as currently uncollectible. This is a classification the IRS uses if it agrees that you can't afford to pay your business debt at this time. Just remember that it doesn't erase the debt and that penalties and interest are continuously added to your delinquent tax bill until you remit full payment.

Considerations Under the Small Business Jobs Act of 2010

If your company is a federal contractor, the FMS may issue a levy against your income and assets without sending you an Intent to Levy letter. However, you will receive a letter after the levy has already been placed. If you don't take action to resolve your outstanding business debt, your federal payments may be reduced by 15 percent. If the amount of tax owed is less than 15 percent of the payment, the IRS can withhold the entire payment. The IRS may refuse 100 percent of the payment to certain government contractors and vendors. In both situations, the IRS levy is continuous until you satisfy the unpaid debt or make payment arrangements.

Notification When Your Federal Payments Get Levied

The IRS must notify you in writing when it applies a levy to your outstanding business debt. Your letter should list the amount of federal funds the IRS withheld as well as information about the federal program that was levied. Every letter contains contact information for you to get in touch with the IRS to remedy the situation as soon as possible.