As we’ve discussed several times before, tax liens from the IRS can cause significant concerns and problems. Tax liens affect not only you, but also affect third-party creditors that have assets belonging to you, such as banks or employers.
A tax lien allows the federal government or state to freeze assets you have in order to be compensated for the back taxes you owe. Your assets are frozen when a notice is sent to your creditor, such as your bank or employer. When the creditor receives notice, the creditor is supposed to freeze your assets. This process poses serious consequences for you because it can prevent you from withdrawing funds from your bank account and employers may be required to withhold a certain amount of money from your paycheck.
It is imperative that individuals take the necessary steps to properly address any tax liens. What is more, creditors involved must act carefully to ensure that they fully comply and respond to any notice of levy. Failure to timely respond, and failure to respond at all, to a levy notice can result in significant penalties.
Employer Held Liable for Ignoring Levy Notice
In U.S. v. Russ Brothers, Inc., the United States District Court for the Eastern District of California ruled last year that an employer was liable for $442,994.74 because it failed to respond to an IRS levy notice.
In this case, the IRS sent notice to Russ Brothers, Inc. to surrender any property belonging to the company’s owners, who failed to pay taxes from 2004 through 2008. The IRS demanded that the company withhold future wages until the $266,658.13 lien was released. The company failed to respond, and the IRS moved to have a default judgment entered against the company.
The court granted a default judgment against the company in the amount of $442,944.74, which included $295,296.83 for the unpaid tax liability and $147,647.91 as a penalty equal to 50% of the unpaid tax liability.
The court reasoned that the IRS would be prejudiced if default judgment was denied because the IRS would have no other recourse for recovery of the damages suffered due to the company’s failure to comply with the levy. The court even remarked that the company had ample notice of the IRS’ intent to pursue the default judgment and the company’s default resulted from its own inexcusable neglect.
While courts favor resolving disputes on the merits as opposed to default judgments, the company’s actions (or lack thereof) weighed in favor of permitting a default judgment.
Contact Janathan L. Allen’s Tax Attorneys
If you have any questions regarding tax liens or levies, contact our experienced tax attorneys. We can help guide through this process and advise you on the best way to approach serious lien and levy issues. Our firm is based in San Diego, California, but we have several offices and attorneys located throughout Southern California.
