Ultimate Guide to Tax Levies

Everything you need to know about tax levies

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A tax levy is the actual seizure of taxpayer assets by the IRS. Tax levies are the IRS’s last resort to getting the attention of taxpayers. If you have received a tax levy notice, you have probably been ignoring the IRS for a while now. No need to panic. There is a lot you can still do at this stage, but you do need to take action. This guide will explain what tax levies are, how the IRS uses them, and what you can do to get rid of them.

What is a tax levy?

A tax levy allows the IRS to seize your property to pay for a tax debt. That includes garnishing your wages, withdrawing money from your saving accounts, take possession and sell your businesses, vehicles, homes, and other personal property.

The good news is the IRS does not really want to levy your wages, sell your truck, or move in your vacation home. It only issues tax levies when all else fails. In fact, since 2011, the number of tax levy notices has dropped from 3.75 million to 1.46 million in 2015. The same applies to tax lien notices. In 2011, the IRS filed 1.04 million tax lien notices, but in 2015 it only filed 515,000. If you contact the IRS, either directly or through a tax representative, and make arrangements to repay your debt, the IRS will typically stop all tax garnishment actions. Not sure how to do that? Contact a tax relief firm and find out what tax relief programs you qualify for.

tax levy vs tax lien 2002 to 2015


It’s Not a Tax Lien – It’s a Tax Levy

Sometimes the two terms – tax lien and tax levy – get confused. While they are related, they are actually two different steps in the same process.

A tax lien is simply a legal claim against your property. This property may include real estate, personal property, and financial assets. When you have a tax lien against your property, you cannot sell it without first paying the IRS whatever monies you owe.

On the other hand, a tax levy is the actual seizure of the asset to pay off a tax debt. If you do not pay your taxes or arrange to settle your tax debt, the IRS may seize and sell any of your real or personal property, including your current and/or future income.

The Tax Levy Process

If you are unable to pay your taxes or make the appropriate arrangements to settle your tax debt, the IRS will help you by selling off your property to make good on what you owe.

Property includes real property that you currently own such as your home, car, or boat, as well as property held by someone else, such as wages, retirement funds, bank accounts, and accounts receivables.

Before the IRS will levy against you, these three things must occur:

  • They assess your taxes and send you a Notice and Demand for Payment
  • You neglect or refuse to pay
  • They send you a Final Notice of Intent to Levy and Notice of Your Right to a Hearing (also known as a Levy Notice) at least 30 days prior to the levy

A Levy Notice will be:

  • Delivered in person;
  • Left at your home;
  • Left at your place of business; or
  • Mailed to your last-known address by certified or registered mail, return receipt requested.

The IRS may levy your state tax refund as well. If they do, you will receive a Notice of Levy on Your State Tax Refund.

Sometimes the IRS Get it Wrong

You have the right to speak with an IRS manager to review your case or to request a Collection Due Process hearing. You must file a request within 30 days with the IRS office listed on your notice(s).

The purpose of this hearing is to discuss topics such as:

  • You paid all you owed before you received the levy notice
  • The IRS assessed the tax and sent the levy notice when you were in bankruptcy
  • The IRS made a procedural error in an assessment
  • The statute of limitations expired
  • You did not have an opportunity to dispute the assessed liability
  • You wish to discuss the collection options
  • You wish to make an innocent spousal defense

This last one, an innocent spousal defense, only occurs by meeting all four factors:

  • You filed a joint income tax return
  • There is a “substantial understatement” of tax due to “grossly erroneous items” of one spouse
  • You didn’t know and had no reason to know of the substantial understatement
  • It is inequitable to hold you liable

At the conclusion of your hearing, the Office of Appeals issues a determination. You then have 30 days to contest the determination.

Bank charges you pay due to an IRS mistake may be reimbursable. Use Form 8546 to file an appeal.

When the Levy Breaks

Once the IRS levies your wages, salary, federal payments, and state refunds, it’s not over until:

  • The levy is released
  • You pay your outstanding tax debt
  • The statute of limitations expires

Your bank must hold your funds, up to the amount you owe, for 21 days. This allows time to resolve any issues. After that, the bank must send the money plus interest to the IRS.

Should You Do It Yourself Or Hire a Tax Relief Company

Although it is possible to negotiate a tax levy release directly with the IRS, it is usually not a good idea. It is a way to easy to overshare sensitive information with the IRS and trigger a tax audit, even if you haven’t done anything wrong. Tax law is extremely complicated and it requires years of training and a background in law and accounting to stand a chance when negotiating with seasoned IRS agents.

That doesn’t mean you always need a tax lawyer and a CPA holding your hand. If you are dealing with a small tax debt or you’re 100% sure you have nothing to fear from an audit, it may be safe to give it a shot. However, if you owe a large tax debt ($10,000 or more) or there is the chance your financial statements could trigger an audit, run your tax relief application by a tax relief firm that employs tax attorneys.

If you or your business are overwhelmed with tax debt, consider hiring a tax relief firm, such as Optima Tax Relief.

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