What is an IRS Tax Levy?
A tax levy grants the IRS, legal possession of a taxpayers financial assets. As a result, proceeds from tax levies offset back tax debts owed to the federal government. Assets commonly levied include:
- Checking Accounts
- Savings Accounts
- Retirement Accounts
- Investment Accounts
- Paycheck Levy (Wage Garnishment)
- Real Estate Assets
- Business Assets
Therefore, any valuable assets the IRS knows about, is subject to a tax levy.
Why Does the IRS Use Tax Levies ?
The IRS will not impose a tax levy before properly notifying the taxpayer. By the time a taxpayer receives a “30 Day Intent To Levy Notice”, the Internal Revenue Service would have, previously mailed several notices. In addition, a tax lien is filed before the IRS attempts to levy assets. Tax levies are among the final actions taken by the IRS, to collect on back taxes and; as a result, should be taken very seriously. If taxpayers fail to respond, the IRS will follow through with one of the various tax levies.
An IRS tax levy is not a “quiet” action, due to, communications with a taxpayer’s bank, employer and other parties. For example, IRS correspondence sent directly to employers, instructs companies to garnish wages. Companies must divert part of a taxpayer’s income and remit it to the IRS. Employers may be liable for garnishment amounts and therefore, often comply with IRS wage garnishment orders.
Types of Tax Levies
There are no rules that dictate the type of tax levy used against a delinquent taxpayer. Yet, the IRS will take a course of action which quickly resolves unpaid back taxes. If unpaid tax debt amounts are large and old, the IRS may seize physical assets. The 10 Year Statute Of Limitations, may affect the IRS’s course of action. Here are the most common tax levies:
An IRS wage garnishment forces your employer to deduct income from your payroll check and, forward it to the Internal Revenue Service. Employers become financially responsible for the amount of garnished wages. Thus, most companies comply with IRS wage garnishment orders unless, the taxpayer is no longer employed. It is important to note, social security benefits are subject to tax levy/garnishment.
Bank Account Tax Levy
A bank levy is a direct order to a taxpayer’s financial institution (bank, brokerage, etc), to send money from an account directly to the IRS. Consequently, taxpayers must pay or arrange to pay unpaid tax debts, to remove bank levies.
The least common of all IRS tax levies are property seizures. Taxpayers with large tax debts and who ignore the IRS, are more likely to get asset seizures. The IRS will take control of personal assets, including real estate, cars, boats and any other valuable assets. Seized assets are hard to recover. In most cases, seized items sold at auction, do not fetch market prices and therefore, have less impact on unpaid back taxes.
Dealing with an IRS Tax Levy
Taxpayers must understand, use of tax levies are dependent on, the cooperation and responsiveness of the taxpayer. The IRS would rather resolve tax problems through agreeable means (via installment agreements, Offer in Compromises, etc). Contacting the IRS prior to a tax levy, may prevent the levy altogether. It is important to note, once the IRS has taken possession of an asset (cash, house, etc) through a tax levy, it is near impossible to recover.
Releasing or Removin a Tax Levy
Taxpayers have two options to release or remove a tax levy; satisfy the unpaid tax debt owed or prove financial hardship. It is important to get the facts on proving a financial hardship before, approaching the IRS. Therefore, taxpayers should consult a professional. (Ask A PRO) A tax levy may be released by appeal. The release of a lien through appeal requires experience. Taxpayers should consider their options and hire a tax professional when appealing a tax levy.