Since January, we here at Aurorah Dey Consulting have been getting a lot of emails and calls from entrepreneurs and investors who are in total panic for 1 of 2 reasons. The first is they’ve gotten notice that the IRS believes that they are owed some money from a previous tax return or the second, which is the most devastating, is that their business bank account has been levied. Yes, they have woken up only to find that ALL or a large portion of their money has suddenly disappeared from their business bank accounts.
Today, I’m going to tell you why this is happening and how to keep your business off of the internal revenue services radar!
Alright, let me start by telling you exactly what a levy is. A levy according to the internal revenue service is a legal seizure of your property to satisfy a tax debt. This includes your wages, taking money from your bank or any other financial account, seizing and selling your vehicle(s), real estate, your personal property and anything else that you may have an interest in.
Episode 18 of the Secured Entrepreneur Show for your listening pleasure:
Now, I’m going to deal specifically with your business bank account being levied here because we can get into this rather deeply so onto the first reason why you gave the internal revenue service permission to exercise their right to levy your business bank account.
The primary and worst mistake that entrepreneurs and investors make is being a single member LLC. The IRS can legally seize your single-member limited liability company property to satisfy taxes if you have not filed IRS Form 8832 to elect to be treated as a corporation or form 2553 to elect to be treated as an S corporation and have failed to respond to the IRS notice of overdue tax debt. The IRS actually takes property and uses its value to satisfy the amount of the debt.
Without having filed either one of these forms, the LLC becomes what the IRS considers to be a “disregarded entity" and cannot take advantage of the legal separation between the business and its owner/member or operator. As a disregarded entity, the business and its owner are considered the same, just like a sole proprietorship.
The second mistake that is consistently being made, and this one really points the finger at the single member LLC owner. There is only one signature on the signature card at the bank. You’re listed there as either a member or a manager. So there has been no election separating you from the business and one signature on the signature card for the bank account.
The final blow is the total disregard for the letter that the IRS sent to you. It’s called a Notice and Demand for Payment, which is the initial tax bill. Remember that The IRS will only levy after three requirements are met:
1 The IRS assessed the tax and sent you a Notice and Demand for Payment (a tax bill);
2 You neglected or refused to pay the tax; and
3 The IRS sent you a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy.
Please, keep your personal, as well as your business assets off of the Internal revenue services radar by first organizing your legal entity the right way! I keep telling you that the single member scenario is a no-no. Next, if you do get a notice from the IRS, DON’T PANIC! Your one and only job is to RESPOND, RESPOND, RESPOND!
And here’s the side note regarding the banks adherence to the notice of levy. The Internal Revenue Code provides for a 21-day waiting period before the bank must comply with the levy. The waiting period allows the taxpayer time to contact the IRS and arrange to pay the tax or notify the IRS of errors in the levy.
Now, isn’t it funny how that almost NEVER happens?? Seeing as this is the case, you must respond to any notice sent to you and resolve the matter before the internal revenue service takes action against you and your business.
As always, I encourage those of you who are still having trouble understanding the full scope of the benefits of an LLC and how it can be a cash machine all by itself to take the LLC Basics course available for you to enroll into over at aurorahdeyconsulting.com
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