IRS Levy: The Ultimate Guide to Understanding the Process
Introduction
The Internal Revenue Service (IRS) is the federal agency that is responsible for collecting taxes from U.S. citizens and businesses. When taxpayers fail to pay their taxes, the IRS has several legal avenues available to collect the outstanding dues, including filing a lien on the taxpayer’s property or issuing a levy.
An IRS levy is a legal seizure of a taxpayer’s property by the IRS to satisfy outstanding tax liabilities. The levy authorizes the IRS to seize and sell the taxpayer’s property, such as bank accounts, wages, investments, or other assets to collect the debt.
This article aims to provide a comprehensive guide on IRS levies, including:
1. What is an IRS levy?
2. How does the IRS levy work?
3. What types of property can the IRS levy?
4. How to stop an IRS levy?
5. How to release an IRS levy?
6. What are the alternatives to an IRS levy?
What is an IRS Levy?
An IRS levy is a legal seizure of a taxpayer’s property to satisfy an outstanding tax debt. The IRS collects revenue through a levy when taxpayers ignore their tax bill or have failed to comply with their payment agreements. The IRS levy is a serious action and can be devastating to a taxpayer’s financial health, leading to the seizure of assets, bank accounts, and other income sources.
It is important to note that an IRS levy and an IRS lien are not the same. A lien is a legal claim to a taxpayer’s property to secure the payment of the debt, while a levy is a legal seizure of a taxpayer’s property to pay the debt owed. A lien is more like a notice to the public that the IRS has a claim to the taxpayer’s property, while a levy is more like a repossession of property.
How Does the IRS Levy Work?
An IRS levy is not an arbitrary action; the agency must follow specific legal procedures before seizing a taxpayer’s property. Before issuing a levy, the IRS must give the taxpayer a Notice and Demand for Payment, which explains the amount of the tax owed, including any penalties and interest. The taxpayer then has 30 days to respond to the Notice and Demand for Payment. If the taxpayer fails to pay or make other arrangements to settle the unpaid debt, the IRS can issue a levy.
The IRS can issue a levy in a few different ways:
1. Levy on wages and other income sources: The IRS can issue a wage levy to an employer demanding a part of the taxpayer’s wages and other sources of income to pay the tax debt.
2. Levy on bank accounts: The IRS can issue a bank levy to collect the outstanding tax debt from the taxpayer’s bank accounts.
3. Levy on property: The IRS can issue a property levy to take possession of and sell the taxpayer’s property to pay the taxes owed.
4. Levy on accounts receivable: The IRS can issue a levy on accounts receivable to collect unpaid taxes from customers or clients.
What Types of Property Can the IRS Levy?
The IRS has the power to levy a wide range of assets and income sources of a taxpayer to collect unpaid taxes. The IRS can use a levy to seize assets ranging from bank accounts to vehicles and real estate. Some of the common types of property that the IRS can levy include:
1. Bank accounts and other financial assets: The IRS can levy a taxpayer’s bank accounts, savings accounts, IRA accounts, and other financial assets that a taxpayer may own.
2. Wages and other income sources: The IRS can also levy a taxpayer’s wages, commissions, bonuses, retirement income, and other sources of revenue.
3. Vehicles: The IRS can also levy motor vehicles, such as cars, trucks, and motorcycles, to collect unpaid tax debts.
4. Real estate: The IRS can levy a taxpayer’s real estate, including homes, rental properties, and land that the taxpayer owns.
5. Accounts receivable: The IRS can also levy a taxpayer’s accounts receivable from customers, clients, or businesses that owe money to the taxpayer.
How to Stop an IRS Levy?
Receiving a Notice of Levy from the IRS can be a stressful experience, but it is not the end of the road. If a taxpayer acts promptly and follows the right steps, it may be possible to stop the levy or halt it temporarily. Here are a few steps that the taxpayer should take to stop an IRS levy:
1. Pay the debt: The most straightforward way to stop an IRS levy is to pay the outstanding tax debt in full, including any penalties and interest.
2. Negotiate with the IRS: In some cases, the IRS may consider alternative payment options, such as an installment agreement, offer in compromise, or hardship plan, which can help the taxpayer settle the debt without facing further consequences.
3. File for bankruptcy: Filing for bankruptcy can prevent the IRS from enforcing collection actions, including the levy.
4. Claim an exemption: In some cases, the taxpayer may claim exemptions that protect certain assets from the levy.
5. Request a Collection Due Process (CDP) hearing: The taxpayer has the right to request a hearing with the IRS Office of Appeals to dispute the levy action or raise other issues with the tax debt.
How to Release an IRS Levy?
The IRS levy, once issued, remains in effect until the taxpayer pays the tax debt in full or other legal action is taken to release the levy. The taxpayer may request the IRS to release the levy if the levy creates an economic hardship for the taxpayer or if there are other reasons justifying the release. The taxpayer must provide adequate documentation supporting their request for a levy release.
The IRS may also release a levy if:
1. The taxpayer arranges an alternative payment option, such as an installment agreement, offer in compromise, or hardship plan to settle the tax debt.
2. The statute of limitations for collecting the tax has expired.
3. The property has no equity, meaning that the property’s value is less than the outstanding tax debt.
4. The IRS determines that the levy is causing an economic hardship, and releasing the levy is in the taxpayer’s best interest.
What are the Alternatives to an IRS Levy?
An IRS levy is a severe enforcement action taken against taxpayers who fail to comply with their tax obligations. However, there are alternative options available for taxpayers who are unable to pay their tax debts. Some of the most common alternatives to an IRS levy include:
1. Installment agreement: An installment agreement allows taxpayers to make monthly payments toward their tax debt over an extended period.
2. Offer in compromise: An offer in compromise allows taxpayers to settle their tax debt for less than the full amount owed.
3. Hardship plan: A hardship plan is a special type of installment agreement where taxpayers may pay a reduced amount or suspend payments if they can demonstrate financial hardship.
4. Innocent spouse relief: Innocent spouse relief provides relief to taxpayers who filed a joint return with their spouse or ex-spouse, and may not be aware of the errors or fraudulent activities related to the tax liability.
Conclusion
An IRS levy is a powerful collection tool that the IRS can use to collect unpaid tax debts. Taxpayers who neglect their tax obligations face serious consequences, including asset seizure, bank account levy, and wage garnishment. However, taxpayers can take various actions to resolve their tax debt before receiving a levy notice. If taxpayers receive an IRS levy notice, they should act promptly to protect their interests and explore their options. It is essential to consult with a tax professional or attorney who can guide the taxpayer through the process and help them find the best solution that meets their financial needs and tax obligations.
What is an IRS Levy?
An IRS levy is a legal seizure by the Internal Revenue Service of a taxpayer’s property to fulfill a tax debt. An IRS levy is different from a lien. A lien, unlike an IRS levy is a claim that is used as a security measure for the debt, while an IRS levy actually takes over the property in order to satisfy a tax debt.
If a tax payer does not pay his or her taxes, or if he or she does not make the proper arrangements in order to settle the debt, the IRS may decide to seize and resell any of personal or real property that the taxpayer owns or has an interest in.
Examples of this include:
• The IRS may seize and then sell the taxpayer’s property that the taxpayer previously held, such as a house, car or boat.
• The IRS can also levy taxpayer property that is lawfully the taxpayer’s but is held by another party. This can include salary, wages, dividends, bank accounts, retirement accounts, licenses, accounts receivable, rental income, commissions, or the cash loan amount of a life insurance policy.
The IRS usually only levies after three specific requirements are met:
• The IRS has assessed the tax and has sent the taxpayer a Notice & Demand for Payment
• The taxpayer has refused or failed to pay the tax
• The IRS sent Final Notice of Intent to Levy as well as a levy notice titled the Notice of Your Right to A Hearing at the minimum of 30 days before the IRS levy. The IRS can then give the taxpayer this notice either in person, send it to the taxpayer’s last known address by registered mail or certified mail along with return receipt requested, or leave it at the taxpayer’s home or place of business.
A taxpayer can ask an IRS manager to look over the taxpayer’s case, or can also request through the Office of Appeals a Collection Due Process hearing by filing out a request for a hearing with the specific IRS office that listed on received notice. A taxpayer must also file his or her request within 30 days of the date listed on the notice. Some potential issues that can be discussed at the hearing include:
• The taxpayer has paid all the owed prior to the IRS sending the levy notice.
• The IRS has assessed the tax and has sent the levy notice when the taxpayer was in bankruptcy, and thus subject to the automatic stay period during bankruptcy.
• The IRS made a procedural error in the assessment for the IRS levy.
• The statute of limitations or the time to possibly collect the tax expired before the IRS sent the IRS levy notice.
• The taxpayer was not given the chance to dispute the liability assessment.
• The taxpayer wants to discuss the collection options available.
• The taxpayer wants to request a spousal defense in response to the IRS levy.
