Tax Levy

The IRS has a number of penalties and ways to get money from people who haven't paid their taxes.

Don't ignore unpaid taxes to the IRS or to a state, because the taxing authorities won't just let you off with a warning.

The IRS uses tax levies as one of its more punitive actions.

What is a Tax Levy?

A tax levy is a lawful seizure of your assets by the Internal Revenue Service (IRS) or state taxing authorities. If you owe money to the IRS and don't do anything to pay it back, the IRS or the state could take your property.

The IRS and state tax authorities have the authority to seize money from your bank account, deduct a portion of your wages from your paycheck, and levy a variety of other assets. Most of the time, tax levies are only used after the IRS has sent you multiple notices asking you to pay your taxes and you haven't replied.

What Legal Justification Does the IRS Have to Issue a Levy?

Section 6331 of the Internal Revenue Code permits the IRS to levy in order to collect outstanding taxes.

IRS Procedures with Regard to a Levy?

The following must occur before the IRS can proceed with a levy:

1. The IRS is required to assess the tax and send you a bill. A Notice of Deficiency or other IRS notice may be sent to you.
2. You miss the deadline on the notice to pay your bill or talk to someone else about a different kind of solution.
3. Another notice, the Notice of Intent to Levy, will be sent by the IRS. A hearing can be requested within 30 days.

The IRS can proceed with the levy after the 30-day deadline has passed. An order from the IRS to apply a levy against your assets or wages must be followed by your bank or employer.

IRS Notice of Intent to Levy

The last notice you must receive before the IRS can confiscate your property is the Notice of Intent to Levy. The notice will also tell you about your collection due process (CDP) rights, such as your right to ask for a hearing.

Collection Due Process (CDP) Hearing

This notice informs you that the IRS is about to confiscate your property. The IRS can take money from your bank account, earnings, or other assets and use it to pay back taxes you owe. You have 30 days to submit a written request for a CDP hearing. Unless one of the following exceptions applies, the IRS will not seize your assets during these 30 days:

If you file a CDP hearing, you can try to avoid the levy by challenging the tax liability, providing a collection alternative, or demonstrating that the assessment would cause financial hardship. While the CDP hearing is continuing, the IRS will not proceed with the levy.

In specific circumstances, you may be able to request a comparable hearing after the 30-day period has passed; this is called an equivalent hearing. The IRS can collect on your account while the hearing process takes place.

Types of Intent to Levy Notices

You may receive any of the following notices when the IRS is threatening to levy your property:

1. CP 504. The IRS uses this notice when they will levy your state tax refund. You don’t have the right to request a CDP hearing for this type of levy.
2. CP 90/CP 297. This notice is used to inform you that the IRS may levy federal payments you receive. The levy could include Social Security benefits, federal salaries, or other federal payments.
3. 1058/LT 11 LetterThese notices will list your unpaid balance and inform you of an impending levy. You have 30 days to request a CDP hearing. A Notice of Federal Tax Lien may also be issued, even if you request a hearing.
4. CP 91/CP 298. This notice refers specifically to a levy of Social Security benefits, and the IRS usually sends this notice after a CP 90 or CP 297.

Each notice should state how much you owe and inform you that you have 30 days to request a CDP hearing.

The State Tax Levy What are the different types of levies?

Most state tax levies work in the same way as IRS levies do. Notices are sent and failure to respond will cause the state taxing authority to take action to collect. Wage garnishments and bank levies are the most common types of levies issued by states. Each state has its own set of laws for how and when a tax levy can be imposed, as well as rules for how and when a tax levy can be stopped or avoided.

Each state has its own levies, many of which are comparable to the IRS types listed below. However, the states do have the authority to suspend licenses. Either your personal and/or professional license.

What are the different types of levies?

Bank Levy

Any funds in your bank account that are accessible for withdrawal can be seized by the IRS. If you owe the IRS more money than your bank account is worth, they can take your entire account.

The IRS can nevertheless collect the amounts if you have the right to withdraw funds from a shared bank account. It makes no difference whether the money was deposited into the account by you or someone else.

Does the bank send the money to the IRS right away or do they have a holding period?

Your bank will wait 21 days after receiving a levy notification from the IRS before cooperating with the levy. During this time, you won't be able to withdraw any money that has been subject to the levy. The only way to stop the seizure is to persuade the IRS to release it in full or in part.

Wage Levy

A wage levy, also known as wage garnishment, is a type of levy that occurs on a regular basis. The IRS can't take your whole paycheck, but they can use a levy to take a small amount from each of your paychecks until you've paid all of your back taxes.

The amount you will receive from the IRS is determined by your filing status and the number of dependents you have. The IRS will send your company publication 1494, which will detail how much will be exempt from the penalty. If your employer does not respond within three days, the exempt amount will be calculated based on a married filing separately with no dependents. They can take 100% of your pay from a single company if you have many sources of income.

For example, if you are married filing jointly with 3 kids and you are paid bi-weekly, you get to keep $1,503.84 per paycheck and the rest goes to the IRS.

Self-Employment or Independent Contractor Levy

The earnings owed to an independent contractor or self-employed taxpayer are levied using a 1099 levy. Unlike a recurring wage garnishment, a 1099 levy only lets the IRS collect money that is owed to the delinquent taxpayer right now.

The IRS will usually send 1099 mailings to multiple clients or the person paying you in order to collect overdue taxes.

Seizure of Property

When a taxpayer refuses to cooperate and other types of levies are ineffective, the IRS will employ this sort of levy. The IRS has the authority to seize your home, car, boat, and most other valuables.

The IRS, on the other hand, cannot seize property that is likely to generate no net proceeds. If you owe more on your mortgage than the fair market value of your home, the IRS cannot confiscate it because all of the proceeds would go to your mortgage lender.

Social Security Garnishment

The IRS can levy up to 15% of your Social Security benefit payments through the Federal Payment Levy Program (FPLP). This fee might be imposed regardless of the amount of Social Security income you get each month.

The Federal levy program will not be used to collect disability payments, lump-sum death benefits, or Supplemental Security Income. The Federal Levy Program will only levy old-age and survivor benefits.

Offset of Tax Refunds

If you owe back taxes and the IRS owes you a refund, they can seize it. The IRS will send you a notice in the mail if your refund is applied to your outstanding balance.

Unlike other levies, the IRS may continue to take your tax refund even if you're on an installment plan or if your Offer in Compromise is accepted during the year.

Assets that are Exempt from Tax Levies

The IRS has the right to levy most assets, but some laws prohibit them from levying certain types of assets. The assets below are exempt from tax levies:

• Books, mainly those that are educational,
• Business supplies: items that are necessary for the taxpayer to generate income.
• income that is used to support children under the age of 18. It must be income that was court ordered to support the children, such as child support.
• Personal items with a total value of less than $6,250 (this includes things such as furniture, fuel, personal care items, and miscellaneous personal items)
• a primary residence when the unpaid tax amount is considered small (the value of the home is larger than the amount of back tax owed).
• public assistance payments that come from a government agency. Public assistance payments include things like welfare and SNAP food benefits.
• Unemployment benefits
• Workman’s compensation income

How to Stop a Tax Levy

Get Tax Levy Help

Once you receive the notice of intent to levy, you should speak with a tax attorney or other tax professional. A tax attorney can help you figure out the best way to stop a tax levy that is coming up.

The IRS is required to release a levy if it determines that:

• You paid the amount you owed in full.
• The period for collection ended prior to the levy being issued.
• Releasing the levy will help you pay your taxes, or the following

Financial Hardship

You may be able to avoid the levy if it would cause serious financial hardship. When the IRS concludes that the charge is preventing you from meeting basic, reasonable living expenses, we call it an economic hardship. When you call the IRS, they will almost always want to know about your finances so they can decide if a levy is making your life hard. Be ready to give them this information when you call.

You can also request that the IRS classify your account as "currently not collectible." This status will prevent any future levies, but you’ll still owe the tax due, and penalties and interest will keep accruing.

A levy release does not exempt you from paying the remaining sum. The IRS will work with you to set up a currently not collectible payment plan or take other actions to assist you in repaying your debt. Please have the fax number of the employer, bank, or other financial institution that is taking care of the levy on hand to make sure that things move quickly.

IRS Payment Schedule

Once you've entered into an installment agreement with the IRS, your assets won't be seized. These payment plans allow you to make monthly payments that meet your budget to pay off your back tax debt over time.

Depending on how much you owe, your financial status, and other variables, several payment plans may be offered. You could be eligible for one or more of the following payment plans:

1. Simplified installment agreements with repayment terms of 72 months for back taxes of $50,000 or less.

2. Installment agreements that include partial tax relief at the end of the repayment term

You can request a payment plan as a collection alternative during the CDP hearing process.

Offer in Compromise.

Offers in Compromise (OICs) allow you to settle your tax debt for a lower amount than you owe. If you don't have enough equity in your assets or disposable income to pay your past taxes, the IRS will only consider an OIC. In addition, the offer must be at least equal to your reasonable collection potential.

OICs may consist of a single payment or a series of installments. While the IRS considers your OIC, they are unlikely to try to seize your assets. If your offer is approved, the IRS will forgive your outstanding back taxes if you pay the provided amount and follow the rest of the agreement's terms.

contest the tax liability.

To avoid a charge, you can claim that you don't owe the tax. If you had an earlier opportunity to make these points and failed to do so, you may not be allowed to make them at a CDP hearing.

Innocent Spouse Relief

You can apply for innocent spouse relief to avoid being responsible for some or all of the tax due on a jointly filed tax return. Any of the three categories of innocent spouse relief may apply to you.

In some cases, you may need to file a request for "innocent spouse relief" within two years of the first time the IRS tried to get the tax from you.

What is the difference between a tax levy and a tax lien?

A tax lien does not imply that your assets will be seized. It informs your other creditors that the IRS has an interest in your property. If you don't get a tax lien dismissed or withdrawn, it can be difficult to sell or refinance your home.

A tax levy is a property seizure. You can check your bank account and discover that the funds have vanished, or you might get a paycheck and discover that the IRS has seized half of your wages.

Questions and Answers When it Comes to a Tax Levy

Can My Employer Fire Me Because I Got Levied By the IRS?

No, however, in practice, it happens all the time. If an employer fires an employee because of an IRS wage levy, that employer is subject to a $1,000 fine and possibly one year in prison.

Are levies continuous or one time only?

At the time of the IRS order, the majority of levies were one-time events. Wage garnishments, for example, are a recurring sort of levy. Garnishments can last as long as the IRS doesn't get the full amount of taxes, penalties, and interest that are owed.

Will the IRS Levy Retirement Accounts and Retirement Income?

The answer is "yes," but the IRS must conclude that the taxpayer's acts are egregious in order to justify a levy on retirement savings and income. Examples of flagrant conduct include the following: (7) Taxpayers who don't pay because of silly reasons, like saying taxes are unconstitutional. (2) Taxpayers who keep putting money into their retirement accounts even though they say they can't pay what they owe. (3) Taxpayers who put money into their retirement accounts when they knew they owed money to the government. (4) Taxpayers who have been found guilty of tax evasion. (5) Taxpayers who have been given a fraudulent penalty. (6) Taxpayers who have been found

Assistance with Tax Levies

If you have a levy or are worried about a pending levy, it is very important to speak with a knowledgeable tax attorney. Many alternatives exist for stopping an IRS tax levy.

When you're looking at your tax levy possibilities, you need answers you can trust. Let us assess your situation and provide you with the information you require, giving you the peace of mind and security that comes with knowing your alternatives. Give us a call for a 100% free consultation to learn your rights.