Breach of contract due to IRS levy?

This is a discussion on Breach of contract due to IRS levy? within the Business and Financial Law Questions forums, part of the Legal Questions & Answers Forum category; I run a small sole proprietorship with no employees. Due to circumstances I won't get into here, I owe the IRS some money. One of my customers pays me monthly ...

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    Breach of contract due to IRS levy?

    I run a small sole proprietorship with no employees. Due to circumstances I won't get into here, I owe the IRS some money.

    One of my customers pays me monthly for a subscription. Our contract is clear that their payment is due before the 1st of the month they are paying for (i.e. they pre-pay for service). If I do not receive payment before the 1st, I terminate their service on the 1st. I normally would have received their payment for August a couple weeks ago. As I have not, I contacted them and was told they sent the monthly payment to the IRS due to a levy. The IRS probably got their information from a 1099.

    At this point their position is they have paid for August and expect service as normal. My position is they may as well have sent the money to the Red Cross. They can pay anyone they want any amount they want, but unless I receive the money from them tomorrow their service will terminate on the 1st.

    Does anyone know of any law or precedent backing me up here? Or proving me wrong? I am trying to get a copy of the levy (obviously they should have sent it to me already) but who knows how long that will take.


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    Pascal,
    My sympathies. I would be curious to see whatever letter the IRS sent your customer. This would give you a better idea what they were thinking when they sent the money to the IRS. They must have been afraid not to comply. It sounds like your contract is a month-to-month deal. It seems inapropriate for the IRS to try to issue a turn over order under these circumstances. I would probably not waste a lot of time trying to find a reasonable representative of the IRS who also has the authority to recant the letter they sent to your customer. If they are a good customer, you should get with them to find out what kind of alternative payment arrangement they would be comfortable with that does not include sending your payment to the IRS.
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    It sounds like this is the first time they've ever received a levy and had no idea how to handle it.

    I guess my big concern here is: if I cut them off on the 1st, and they sue me, how screwed am I?


 

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