If a taxpayer fails to pay their due taxes, the IRS holds the right to levy their property in order to collect the outstanding amount. After assessing the debtor’s tax liability, the IRS sends them a “Notice and Demand for Payment” (a tax bill), which is followed by a “Final Notice of Intent to Levy and Notice of Your Right to A Hearing” (also called “levy notice”). The second letter is sent at least 30 days before the date decided to levy the defaulter’s property. Taxpayers can not only avoid a tax levy, but may also get it released, provided they know the way forward. To help, in this post, we will look at the finer lines of IRS tax levies. Let’s begin.
What’s an IRS Levy?
A levy, unlike a lien, is the legal seizure of a tax holder’s property, to collect delinquent tax. The IRS takes over the property until the pending tax is paid in full. A levy, therefore, is not a claim, but the capturing of the tax holder’s property. The IRS may levy any type of valuable property, such as salary and retirement accounts, real estate assets, equity holdings, dividends, wages, rental income, commissions, and even vehicles. The IRS decides the properties to levy based on the findings on the defaulter’s tax assessment.
The possible aftermath of a levy may bring a number of issues for the defaulter. For instance, if the IRS sends a notice to seize the debtor’s bank account, it would result in diverting all or some of the money from their account to the taxation authority. If the IRS decides to exercise wage garnishment, the defaulter may have difficulty in meeting their fixed expenses, such as loan and credit card payments. Wage garnishments reflect on the defaulter’s credit report and hamper the credit score. In addition, the IRS may even levy the defaulter’s equity.
Avoiding a Levy
The only certain way to avoid an IRS levy is by paying taxes, in full. Even if you do not have the resources to meet all of your tax liabilities, pay whatever you can. If you need more time to settle the dues, you can request the IRS for some bandwidth. You can also request a payment plan or a reduction in the total outstanding amount. For detailed information on the possible way outs, you can refer to Publication 594, The Collection Process and Collection Procedures for Taxpayers Filing and/or Paying Late or consult an IRS tax attorney right away.
Getting a Levy Released
Whether it’s an IRS bank levy or wage garnishment, there are various ways to get a levy released. In all cases, however, you need to first contact the IRS. If, for instance, the defaulter is able to prove to the IRS that the levy will cause an immediate economic hardship, the taxation authority might agree to release it, upon reaching a settlement agreement. The IRS may also release a levy if it will help you settle your taxes, or if the value of the property is much more than the amount you owe. Other conditions for a release include:
- The outstanding taxes are paid, in full
- The collection period had ended before the levy was issued
- The defaulter enters into an Installment Agreement
Note: The release of a levy still requires the debtor to settle their pending taxes. You must make arrangements with the IRS to pay the pending dues; else, the taxation body may re-issue a levy against your property in the future.
A Word of Advice
Similar to a tax lien, a tax levy is a powerful tool the IRS may use to recover outstanding taxes. Paying taxes is a duty every tax holder must fulfill. Even if their financial condition does not allow them to pay their taxes in full, they must, at least, inform the IRS about it to validate a “good intention”. The IRS always sends a notice before they decide to levy a property and they cannot levy certain properties such as workers compensation and unemployment benefits. If you wish to learn more about IRS levy, attorney Nick Nemeth at the Law Offices of Nick Nemeth can help. Call us right away at (972) 426-2553 to schedule a free no-obligation consultation or fill out our contact form and we will be back to you shortly.
Further Read: Tax Lien vs. Tax Levy: Examining the Differences