Can the IRS Levy a Limited Liability Corporation?
If your limited liability company, LLC, owes past due federal taxes, the IRS must follow certain procedures to collect the amount you owe. You have many options for satisfying your account before the IRS issues any type of levy or garnishment against the business, so if you have ignored IRS notices in the past regarding your LLC balances, it is a good idea to work on resolving the problem before you could receive a garnishment.
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Final Notice of Intent to Levy
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When your LLC owes federal taxes, the IRS will make multiple attempts to collect the amount your business owes. As a business taxpayer, your company has the right to receive written information concerning its debt. After an unpaid tax amount is assessed to your business account, the IRS will send letters regarding the balance due and tell you how to resolve the account. Options for resolution include full payment or requesting an agreement to pay the balance in monthly installments. If you do not respond to IRS collection attempts, the IRS will issue another letter called a "Final Notice of Intent to Levy." You have the right to appeal the levy attempt, but if you do not submit an appeal or establish another way to pay your balance within 30 days from the date on the letter, the IRS can issue a garnishment or levy against your LLC.
EIN Number
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Generally, if your business account is open to garnishment, the IRS can attach to any account or contract that is associated with the EIN number that has accumulated tax debt. The IRS is allowed to send garnishments to multiple entities in an effort to collect the tax revenue your company owes. Since the IRS does not have access to the balance in your bank account or updated amounts due your LLC under contract, you may receive notices of levy for any source that applies to you.
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Disregarded Limited Liability Companies
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If your LLC is disregarded, meaning that you have not made an election with the IRS to be treated as an entity separate from yourself, such as a corporation, then you may be personally responsible for paying the federal tax your LLC owes. As of 2009, if your account is subject to garnishment, the IRS should only attach to accounts and contracts associated with your EIN number. However, prior to January 2009 the IRS did not allow separation from business accounts and personal accounts of owners with disregarded LLCs. If you owe business taxes for a disregarded LLC for periods prior to 2009, the IRS may also attach a garnishment to accounts associated with your Social Security Number.
Types of Levies
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When your LLC is open to enforcement action, the IRS may seek collection through the garnishment of several avenues. Common sources of garnishment include bank levies and accounts receivable levies. Less common types of enforcement include property seizures. If the IRS issues a bank levy against your LLC accounts, the bank freezes whatever amount you have in your bank account and holds it for the IRS. The IRS can only receive the amount in your account at the time the levy is attached, which means you can use your account as usual the following day. Your bank cannot hold additional deposits you make after the levy is applied. Accounts receivable garnishments are a different type of levy. Levies on these sources are continuous, which means payments due your LLC from clients who receive notices of levy from the IRS regarding your account are legally required to be paid to the IRS until the contract is paid or your balance is paid, whichever comes first.
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