A levy is one of the harshest collection mechanisms used by the IRS and it’s a legal seizure of a taxpayer’s assets to satisfy back taxes owed. The IRS has the ability to seize your property (income, assets, funds) when they levy you. There are different types of levies that taxpayers can face depending upon the situation they are in. The IRS typically uses the method they think will be the easiest for them to receive the money that is owed. You will get notices from the IRS before you get levied and you will receive a Final Notice before the IRS levies your money. Here are the most common types of levies taxpayers can face.
An IRS wage levy or wage garnishment is when the IRS takes money directly from your paycheck. The IRS has the authority to contact your employer and demand that they withhold a percentage of your paycheck to pay back your tax debt. By law, your employer cannot fire you over a wage garnishment, but they will know you owe money to the IRS. This is the most common type of levy the IRS will use because it is the most efficient way for them to get their money. The levy will stay in place until the debt is paid off, an agreement is reached with the IRS, the statutes of limitations is applied, or the levy is released. If you decide to get a tax attorney and they can prove hardship to the IRS, the wage garnishment can be reduced or removed. The IRS can also levy your Social Security Benefits or even your Medicare if they need to.
A Bank levy is the IRS seizing funds from your bank account. The IRS can levy any type of bank account- savings, checking, school bank, mortgage escrow or even retirement accounts like your 401K. You will be notified beforehand that your bank is going to be levied. If you are going to have your bank levied, the IRS will contact your bank and demand that they put a hold on the funds. After 21 days they will start deducting money from your account. The 21-day delay is a grace period for taxpayers to get into compliance with the IRS. During this time, the funds in the account are frozen so you can’t use them. The IRS can take all the money in your account if it covers what you owe. They will not take more money out of your account, just enough to cover your tax debt. If your account doesn’t have enough to cover the full amount owed, they may keep coming back as you receive more money in your bank account. If you are able to get compliant with the IRS, then you can get an IRS Bank levy release. It’s important to know that the IRS can only levy the funds that are in your account the day the bank receives the levy. Any money you deposit into the account after the levy is placed, is free from the IRS and can’t be taken with the levy.
A Property Seizure is when the IRS seizes your assets in order to sell them to cover the tax debts owed. The IRS can seize almost all of your assets if they need too. Assets can include items such as your car, house, and furniture you may own. The IRS can seize land you own or equipment that belongs to you. The IRS cannot seize tools necessary for trade, business, or profession up to a specific value. A property seizure is one of the most severe actions imposed by the IRS. To legally seize your assets, the IRS will warn you with a Final Notice of Intent to Levy. You have 30 days to make payment arrangements or settle your tax debt, or the IRS will start taking assets.
The IRS or some states depending on where you live may issue multiple levies to collect your 1099 payments. It is important to know that the IRS can levy any amount you owe currently. They cannot go after future payments or payments for future work.
In some cases, the IRS can request that the State Department not allow you to renew or apply for a passport. They usually only request this for taxpayers who owe more than $50,000 in back taxes, penalties and interest. Taxpayers may even get their passport revoked or denied if the money is not paid back in a certain period of time.
If the IRS sends you a notice for any type of levy, you are entitled to a Collection Due Process hearing (CDP). You have 30 days to request the hearing and you will need to fill out Form 12153. A CDP hearing gives you the opportunity to appeal any lien or levy actions. If you request a CDP hearing, the IRS may not execute a levy on your property. A CDP hearing is conducted by an impartial employee of the IRS Office of Appeals.
Tax levies are not limited to the types mentioned above, those are just the most common levies that many taxpayers encounter. The IRS can also levy retirement accounts, life insurance, rental income and accounts receivable. If you are worried about being levied or are currently being levied, it’s good to get representation to help you negotiate with the IRS. Polston Tax Resolution & Accounting can help. Our team of tax attorneys are on the phone with the IRS daily negotiating resolutions and getting levies released. Call us today at 844-841-9857 or click here to schedule your free consultation.