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Employer slammed for failing to honor IRS tax levy

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in Office Management,Payroll Management

When the IRS knocks on your company’s door with a wage levy against an employee, don’t pretend there’s no one home. A federal trial court has ruled that a company that ignored an IRS wage levy is on the hook for the levied amount—plus a 50% penalty. (U.S. v. Russ Brothers, Inc., No. 2:12-cv-01668, D.C. E. Calif., 2013)

Ignorance isn’t bliss. The IRS sued a family business for failing to honor a tax levy that arose after its owners, a married couple, were audited. The IRS served the husband with a copy of its complaint. Similarly served, the company failed to answer the complaint.

Later, the company was served with a motion for a default judgment, based on the unanswered complaint, which it also ignored. The IRS then asked a federal trial court to enter a default judgment against the company.

The court granted the IRS’ request for a default judgment. Court: The IRS will be prejudiced if a default judgment is denied, because it has no other way to recover the damages suffered due to the business’s failure to comply with the levy. Amount recovered: $295,296.83 (the amount subject to the levy), plus $147,647.91 (the 50% penalty)—for a total of $442,944.74.

PAYROLL PRACTICE TIP: Situations such as this one should never get this far out of hand. Idea: Get everyone out of the loop by directing tax matters to the company’s outside attorney. That will work if the company and the attorney file a power of attorney with the IRS. Reminder: Tax levies must be honored. If an exec has a beef with the IRS, he or she should take it up with the IRS, not you.

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