What Legal Grounds Does the IRS Have to Levy?
The Internal Revenue Code contains section 6331, which authorizes the IRS to levy in order to collect delinquent taxes.
What is the Difference Between a Levy & a Seizure?
None. They involve both the IRS’s taking of a taxpayer’s property in order to satisfy an unpaid amount. Tax Levies are used to take bank accounts, wages, other income, or other receivables. Seizures are used to take cars, houses, and business property.
What are the Different Types of Tax Levies?
There are two different types of tax levies. First there is the 668 (W). The 668 (W) is used to levy an individual’s wages, salary or other income. Other income is that owed to the taxpayer as the result of personal services in a work relationship. The 668 (A) is used to levy other property that a third party is holding. Other property included bank accounts and business receivables for self-employed people.
How Can a Tax Levy be Served?
A levy can be served by the IRS either by in person, by mail, or even by fax. All forms of service are as equally effective.
What is a Bank Tax Levy Holding Period?
A bank levy holding period is a 21 day period of time whereby a bank holds levied funds prior to releasing those funds to the IRS. The reason for the 21 day holding period is to allow the taxpayer to make a hardship argument to the IRS that may result in a release of some or all of the money that the IRS levy has attached to. After 21 days, if there is no levy release, then the proceeds that were in the bank account at the time the levy was received by the bank will be forwarded to the IRS. All money deposited in the bank account after the levy had been received by the bank will be available to for taxpayer’s use.
Can My Employer Fire Me Because I Got Levied By the IRS?
No, however, in practice it happens all the time. If an employer fires an employee because of an IRS wage levy, that employer is subject to a $1000 fine and possibly one year in prison.
Is a Wage Levy Continuous and Will it Apply to All My Income?
Yes. Unlike all other tax levies, a wage levy applies to all future income, commission and dispositions to an employee. A wage levy will apply to all of your income except the exempt amounts. The exemption amounts are so small that no one could possibly live off of them. Therefore, it is vital to negotiate a release of a wage levy almost immediately. One of the most expeditious ways to release a wage levy is to negotiate an installment arrangement or to declare bankruptcy.
Will the IRS Levy Retirement Accounts and Retirement Income?
Potentially, the answer is “yes,” however, the IRS must determine that the taxpayer’s actions are flagrant in order to merit a levy on retirement accounts and retirement income. Examples of flagrant conduct include the following: (1) taxpayers whose failure to pay is based on frivolous arguments (i.e. that taxes are unconstitutional); (2) taxpayers who continue to make voluntary contributions to retirement accounts while asserting an inability to pay an amount that is owed; (3) taxpayers who contributed to retirement accounts during the time period the taxpayer knew unpaid taxes were accruing; (4) taxpayers convicted of tax evasion; (5) taxpayers assessed with a fraudulent penalty; (6) taxpayers assisting others in evading tax; (7) taxpayers with liability based on illegal income; (8) taxpayers who are in business and pyramiding unpaid trust fund taxes; (9) taxpayers who have been assessed more than one civil penalty for more than one business organization; (10) taxpayers who have placed assets outside the country beyond the IRS’s jurisdiction; and (11) taxpayers who have been assessed jeopardy or termination assessments.
Tax Levies Are a Serious Matter
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Feature Article on Tax Levies:
Managing through an IRS tax levy
So what is an IRS tax levy?
A tax levy is method the IRS uses to satisfy a debt of tax through the legal seizure of your property. A tax levy is different from a tax lien. A lien is different in that it is used as security rather than seizure. A tax levy is one of the government’s most effective weapons and can be one of the most financially devastating to you. A tax levy is a way in which the IRS will forcibly satisfy your tax levy through the seizure of your assets. A tax levy may cause you to lose money is many ways, as the IRS will search for any and all assets that lie within your checking or savings accounts, investments, IRAs, inheritances, social security benefits received, insurance policies, or any other asset you have with value that the IRS can liquidate. When it comes to a tax levy, the IRS does not mess around.
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:
- The IRS has assessed the tax owed and has sent you a document known as Notice and Demand for Payment;
- When made aware or notified, you declined to monetarily acknowledge the tax, either out of neglect or protest; and
- The IRS has sent you a final warning in Final Notice of Intent to Levy and Notice of Your Right to A Hearing (tax levy notice) at least 30 days before the tax levy. As indicated above, the IRS may choose a variety of ways in which to deliver the notice, whether it is by mail, in person, or left at your home or work. Please note: if the levy is issued against your state refund, you may not receive a Notice of Intent to Levy on Your State Tax Refund, Notice of Your Right to Hearing until after the tax levy.
In the case of a tax levy, you may ask that an IRS manager review your case. Another option is to ask for a Collection Due Process. This is a hearing with the Office of Appeals. This request is made by filing a Collection Due Process document with the IRS office indicated on the Notice of Intent to Levy you received. You only have 30 days from the date on your notice to file any request for appeals. Some of the issues permissible to discuss may include:
- Letting the IRS know you had already paid all that was assessed before a levy notice was issued;
- Indicating that you were already in the midst of bankruptcy proceedings when the IRS mailed the notice of levy (which is an issue because you subject to an automatic stay in the case of bankruptcy);
- Notifying the IRS that the statute of limitations (the time allotted by law to resolve the tax issue) had already expired when the levy was issued;
- Indicating that you had been victim to procedural error by the IRS when the tax levy was issued;
- Indicating that you were not afforded the opportunity to dispute the liability that was assessed upon you, which makes the administration of a levy improper;
- Noting an intent to resolve the collection options and seeking to have the tax levy removed;
- Making a claim of spousal defense and claiming that a levy should not be issued against property that is separate from his.
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 your property is the subject of a tax levy, you may contact the IRS employee in charge of your case, or the individual who initiated the tax levy against your property. You also may ask the manager of the IRS agent to take a look at your case and consider lifting the tax levy. If the matter is still unresolved, the manager can assist you in understanding the rights you have to appeal the tax levy to the Office of Appeals.
A tax levy – when issued against your wages, state or federal refunds, or salary – will end when:
- A release of the tax levy is enacted,
- You resolve your tax levy with payment and the tax levy is extinguished, or
- The legal time limitation on the tax levy expires for collecting the tax.
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.
How will a tax levy affect you?
A tax levy is just about the most brutal, all-reaching action against you, more brutal than almost any other form of IRS collection. After the 30 days, the IRS will begin the process to seize your assets. Any third parties involved with your assets will receive notification letting them know of the tax levy and that the IRS believes the third parties might be paying you money (which includes your bank or your employer).
The letter will say that the third party is obligated by law to pay the IRS instead of you. Third parties usually comply, as if they refuse to honor it, they may be held personally liable by the IRS. The IRS can hold them liable for that amount the government could have received from the tax levy if they had honored the notice.
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.
Social Security Garnishment – Tax Levy
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.