Ultimate Guide to Tax Levies

Everything you need to know about tax levies

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A tax levy is the seizure of taxpayer assets by the IRS. Tax levies are the IRS’s last resort to getting the attention of taxpayers. By the time you receive a tax levy notice, you’ve likely been ignoring the IRS for a long time already.

Did you receive a tax levy notice? Don’t worry. There are still steps you can take to avert the seizure of your property. This guide will explain what tax levies are, how the IRS uses them, and what you can do to prevent them.

What is a tax levy?

A tax levy allows the IRS to seize your property to pay for a tax debt. In practice, this ranges from garnishing your wages, withdrawing money from your saving accounts, or selling 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 dropped from 3.75 million to 1.46 million in 2015. By 2016, that number dropped to 869,196, and in 2017 only 590,249 notices were filed.

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; it filed 470,602 in 2016, and 446,378 in 2017.

The rate of actual seizures is lowest of all. In 2016, only 436 levies were actually performed; in 2017, that number was down to 323 (Source: IRS).

In short, the IRS really doesn’t want your property. The organization is working to lower the number of levies and liens they file, and to make it easier for taxpayers to avoid them.

If you contact the IRS, either directly or through a tax representative, and make arrangements to repay your debt, it 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


What’s the difference between a tax lien and 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 the 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.

tax levy is the actual seizure of the asset to pay off a tax debt. If you don’t pay your taxes or arrange to settle your debt, the IRS may seize and sell any of your real or personal property. This includes both property and your current and/or future income.

The tax levy process

If you can’t pay your taxes or settle your tax debt, the IRS will sell your property to make good on what you owe.

Property may refer to 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.

What to do when the IRS is 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 the following issues:

  • 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 lacked the 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 applies if you meet all four of the following criteria:

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

After your hearing, the Office of Appeals will issue a determination. You then have 30 days to contest that 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.

Do you need a tax relief professional?

Although it is possible to negotiate a tax levy release directly with the IRS, it is rarely a good idea. Without proper counsel, you might inadvertently share sensitive information that could trigger a tax audit, even if you didn’t do anything wrong. Tax law is complicated; it requires years of training and a background in law 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 your debt is small 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 lot ($10,000 or more) or there is the chance your financial statements could trigger an audit, it would be wisest to ask for help.

Lastly, it can help to have a tax relief company on your side. The best tax relief companies have tax lawyers and enrolled agents on staff, provide a money-back guarantee and charge competitive rates.

Ready to find a tax relief firm to ensure the best possible results in your negotiations with the IRS? SuperMoney can help — click here for side-by-side reviews and ratings of the top tax relief firms on the market.