Tax Levy Featured Article - Segal, Cohen & Landis, P.C. (original) (raw)

When and why is a tax levy filed against you?

If you do not pay your taxes (or make arrangements to settle your tax debt), the IRS may use a tax levy to seize and sell any type of real or personal property that you own or in which you may have an interest. For instance, the IRS might use a tax levy to seize and sell property that you hold (such as your car, boat, or house), or it could use a tax levy against property that is yours but is held by someone else (such as your wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, and/or commissions).

The tax levy, when received, should not be an action that is not expected, as the IRS will have tried many ways in which to notify you of their intent. Phone calls, letters, liens and a 30 day Notice of Intent to levy are all precursors to the IRS’ seizure of your assets. This final notification can be delivered directly to you, sent by mail, or left for you at home or work. You must not ignore this notification, even though you may have disregarded the other notices, as it is your final chance to save the assets the IRS is threatening to seize. Setting up a payment plan, offering an offer in compromise, or paying off you liability are all actions that could stop this belligerent action of the IRS.

A tax levy is usually issued only after several requirements are met in the IRS’ eyes:

When the hearing is concluded, a determination will be made by the Office of Appeals. At this time, the levy may be released. If you disagree with the determination, you have 30 days to contest the decision with a suit. You may refer to the IRS’s Publication 1660, Collection Appeal Rights, for more information. In the event of a levy on your property, you may ask that your case be reviewed by the IRS agent initiating the levy of your property. You can consider speaking to an IRS manager to review your case, as he may consider lifting the tax levy as well. If you contact an IRS manager, he may also enable you to receive information regarding appeal of the levy to the Office of Appeals.

If a tax levy is issued against your bank accounts, the bank is required to honor the tax levy and hold any funds required by the IRS up to the amount you owe. This can occur for 21 days. This 21-day holding period allows time the taxpayer to find ways in which to resolve either issues about account ownership or the tax levy itself. After 21 days, the bank must comply with the tax levy and send the money plus interest, if it applies, to the IRS. To discuss your case, call the IRS employee whose name is shown on the Notice of Tax Levy.

What types of tax levy are there?

The IRS will determine the form of tax levy to use, depending upon your financial and tax situation. Wage and bank garnishments are the most common type of levy, but the IRS may also issue a tax levy for physical assets if it feels that is the only manner in which to recoup the unpaid taxes it is owed.

Wage Garnishment Tax Levy

A common method of a tax levy is the wage garnishment, a levy in which the IRS directs an individual’s employer to remove an amount required out of the taxpayer’s paycheck each pay period. This money will then go toward paying the back taxes assessed by the IRS. Employers who do not follow the wage garnishment are few and far between, as they could be held liable by the IRS for the amount that could have been collected from the levy.

Bank Account Tax Levy

Bank Account levies, a form of tax levy can be equally as harsh. In the case of this particular levy, the IRS accesses and monitors the bank account of the taxpayer, in order to seize the money required to satisfy the unpaid taxes. A tax levy’s ending point is only met when the IRS has seized the entire amount to cover the total debt owed to the government, potentially making the issuance of a tax levy very difficult for the tax payer.

Property Seizure Tax Levy

The least common form of tax levy is a property seizure tax levy, as it is typically a last resort for the IRS. After they have exhausted other means of extracting the money owed form the uncooperative taxpayer, the IRS will begin to seize personal assets like houses, cars, and other physical properties. They can seize almost anything; the list of items that are off limits from a tax levy is very short.

This is also a less common method of recouping the unpaid taxes by the IRS, at least in comparison to other tax levy methods. When it comes to manually removing from your social security benefits, there is no limit for the IRS. In the case of the Automated Federal Payment Levy Program (FPLP), only 15% of a taxpayer’s social security benefits can be taken.

So what should you do if the IRS issues a tax levy?

Essential in resolving your issue with a tax levy is finding the correct action to take to stop the IRS’ aggressive removal of your money. The IRS claims that it would prefer to resolve any unpaid tax problems or other tax issues with other methods before it is forced to issue any of the various forms of a tax levy. Nevertheless, they will begin to collect if the issues are not being resolved, or attempting to be resolved, when final notices are issued. Each taxpayer’s problem is unique, so there is not a prescribed way to solve a tax levy issue. Therefore, contacting a tax professional to assist you in sorting out your options may mean the difference between addressing a tax levy with success and losing money quickly and aggressively to the IRS.

Releasing a Tax Levy

Unfortunately, once the IRS has already seized property, the likelihood of getting it back is very slim. Once a tax levy is released, though, the seizure of property will cease. When faced with trying to release a tax levy, there many ways to go about it. However, there are two categories in which they fall: coming to a resolution agreement with the IRS or proving financial hardship.

Appeal the Tax Levy

You have the legal right to appeal if you feel the tax levy has been improperly enacted against you by the IRS. You can appeal a levy for several reasons, but you must, however, understand how the appeal process works in order to utilize your rights in a case you believe was mishandled. Contacting a tax professional who has experience with appealing a tax levy can be very helpful.

Accept the tax levy and do nothing

Most taxpayers cannot simply leave the tax levy be. In the face of a tax levy, taking no action is not an option many have, but there are some who can ride out the IRS storm. If you have the means to continue surviving while the IRS forcibly removes the assets it requires to satisfy the tax levy and the liabilities assessed, this could be your option. Some individuals are able to sustain themselves while the IRS garnishes a portion of their wages until the tax liability is satisfied. However, for most people, living with a tax levy is an impossibility, as the reason most have a tax levy is because they could not pay the IRS in the first place. Even if you cannot pay back the money in full, the IRS will require that something is paid.

Avoid a tax levy by Protecting Assets

In the event that a tax levy is issued, it is possible to prevent some of your assets from being seized by the IRS. It is in times like these that it could be extremely beneficial to contract an asset protection professional to assist you when a tax levy is anticipated, as they can advise you on the appropriate steps you must tax. Speaking to a competent tax professional about what options you have in the face of a promised seizure by the IRS could help you protect at least some of your property from the IRS.

Before engaging in any action to stop a levy, consult with a tax attorney or other professional. He or she is experienced with the issue, and through experience, can advise which option is the best for resolving the tax levy in your particular case.