Nationwide Tax Levy Lawyers

What Is an IRS Tax Levy?

An IRS tax levy is a legal action taken by the Internal Revenue Service (IRS) to seize a taxpayer’s property or assets to settle unpaid tax debts. It is one of the most serious steps the IRS can take to collect back taxes. A levy differs from a tax lien in that it involves the actual seizure of property, whereas a lien is a legal claim against the taxpayer’s property.

Before issuing a levy, the IRS sends a “Notice and Demand for Payment” as the first step following tax assessment. If you ignore this notice or refuse to pay, the IRS will then send a “Final Notice of Intent to Levy and Notice of Your Right to A Hearing.” If you don’t respond to this notice within 30 days, the IRS will issue a tax levy and seize your property.

When the IRS eventually initiates a tax levy, they can withdraw funds directly from your bank account or issue a wage garnishment to your employer, requiring a portion of your paycheck to be sent to the IRS. They may also seize and sell physical assets such as cars, real estate, or other valuable items, to cover your tax debt.

How Does a California Tax Levy Work?

In California, an IRS tax levy functions similarly to how it operates in other states because the IRS is a federal agency, and its actions are governed by federal tax laws. However, California also has state-specific tax levies handled by the California Franchise Tax Board (FTB) for state tax debts.

The FTB’s levy authority is broader than the IRS’s in some respects. For example, the FTB can levy state tax refunds without prior notification. There are also fewer exemptions for FTB wage garnishments than IRS garnishments. Note that taxpayers are entitled to due process, including a Notice of Intent to Levy and the right to request a Collection Due Process (CDP) hearing. Additionally, taxpayers have the right to dispute the debt or set up payment plans or compromise offers.

How a Tax Levy Lawyer Can Help

If you’re facing a potential tax levy in California, you have the right to dispute the debt or set up a payment plan to help you pay in installments. However, it’s not a process you should go through on your own; that’s why our experienced tax attorneys are here for you. We can help you assess your tax debt situation, find the best solution for you, and represent you in tax court. If you cannot pay your IRS tax debt, our IRS tax attorney can also help you set up an installment agreement or other available tax relief programs to make repayment easier for you. We serve clients not only in California, but nationwide as well! Contact us today for a free attorney consultation.

Different Types of Tax Levies

There are different types of tax levies that can be issued by the IRS and the California Franchise Tax Board. These levies may be issued on any type of property and/or assets that you own or have an interest in such as your home, retirement funds, wages, rental income, bank accounts, and vehicles. Our tax experts will help you deal with any and all of these types of tax levies.

1. Wage Garnishment

The most common type of tax levy is a wage garnishment or a wage levy. This allows the IRS to garnish wages directly from the taxpayer’s employer. The IRS will contact your HR at work and order your employer to subtract a certain amount of money from each pay period. This amount will go toward paying off your tax liability. In these cases, only a small amount of your pay will be left for you. This type of levy will continue until:

• The IRS has garnished enough of your wages to cover the back taxes owed, in addition to interest and penalties;
• An alternative tax resolution has been agreed upon;
• The tax issue expired.

2. Bank Levy

A bank account levy allows the IRS or FTB to seize funds directly from your bank account. When the IRS issues an IRS bank levy, your bank is required to freeze the account for 21 days, giving you time to negotiate or resolve the issue before the funds are transferred to the IRS. If the first bank levy doesn’t resolve the full tax issue, the IRS maintains the right to continue levying your bank account as it replenishes.

This process can drain your account of all available funds up to the amount of the tax debt, potentially leaving you unable to pay bills or meet basic financial obligations. State tax agencies also use bank levies, often with fewer procedural safeguards than the IRS.

3. Property Seizure

The seizure of property can be both broad-reaching and vague. Essentially, the IRS has the authority to seize and sell nearly any form of asset to your name in order to recoup your owed tax liability. This includes real estate, vehicles, artwork and more.

In some cases, the IRS can seize physical assets, such as real estate, vehicles, or personal property, to satisfy unpaid taxes. This is known as property seizure. The IRS or state agency may sell the seized property at auction and apply the proceeds to your tax debt. Property seizures are relatively rare and are typically used only when other collection methods fail.

Before the IRS executes a property seizure, you’ll usually get ample notice and opportunities to address the debt. Losing property can be devastating, especially if it involves a primary residence or a vehicle needed for work. Therefore, you don’t need to wait until you lose your property before you act. As soon as you get the first notice, the best thing to do is to reach out to a tax lawyer to help you. As the best Los Angeles Tax attorney, we can help you take advantage of tax relief or represent you if you wish to dispute the tax claims.

4. 1099 Levy

For self-employed individuals or contractors, the IRS can issue a levy to collect payments from clients or businesses that owe you money. This is called a 1099 levy, as it targets income reported on Form 1099. When a 1099 levy is issued, clients must send payments directly to the IRS instead of to you, which can disrupt cash flow and make it difficult to sustain your business. This levy is often used when self-employed taxpayers fail to pay their taxes and lack other attachable assets. However, they cannot attempt to seize any income for work to be performed in the future.

5. State Tax Refund Levy

A state tax refund levy occurs when a taxing authority seizes your state tax refund to pay off your debt. For instance, if you owe federal taxes, the IRS can claim your state tax refund through an agreement with the state government. Similarly, if you owe state taxes, the state agency can seize your refund. This type of levy is one of the easiest for tax authorities to implement because the refund is already in their control before it reaches you. While it may not cover the full amount of the debt, it is an effective collection method.

Other Types of Tax Levies

If it comes down to it, the IRS may also resort to levying your retirement accounts, life insurance, rental income, and business dividends, licenses, accounts receivable or commissions. Taxing authorities can also request that the State Department revoke or deny your passport in the event your tax issue exceeds $50,000.

Differences Between State Tax Levies and Federal Tax Levies

While both state and federal tax levies serve the same purpose, which is recovering tax debt, they differ in terms of authority, processes, and how they impact taxpayers. Here, we’ve provided a detailed breakdown of the key differences between state and federal tax levies.

1. Governing Authority

Federal tax levies are issued by the Internal Revenue Service (IRS), the federal government’s tax collection agency. They apply to unpaid federal taxes, such as income taxes, payroll taxes, or penalties.

On the other hand, state tax levies are issued by a state’s tax agency (e.g., California Franchise Tax Board, New York State Department of Taxation and Finance) under the state tax code. They collect unpaid state-level taxes, such as state income taxes, sales taxes, or property taxes. The authority of the IRS is nationwide, while state tax agencies operate only within their respective states.

2. Scope of Power

Federal tax levies can levy a broad range of assets, including bank accounts, wages, Social Security benefits, retirement accounts, and real estate. Federal levies can also cross state lines, meaning the IRS can seize assets regardless of where they are located in the U.S.

State tax levies, on the other hand, generally target assets within the state where the taxes are owed. Some states have reciprocal agreements with other states to enforce tax levies across borders, but their reach is often more limited than federal levies.

3. Notice Requirements

For federal tax levies, before issuing a levy, the IRS sends a series of notices, including a Notice of Intent to Levy and a Final Notice of Intent to Levy (Letter 1058 or LT11), giving taxpayers at least 30 days to resolve the issue or request a hearing.

For state tax levies, states also provide notices, but the process and timelines vary widely. Some states may send fewer notices or provide shorter response times before issuing a levy. You should find out your state’s specific requirements/tax code to avoid surprises.

4. Resolution Options

For federal tax levies, the IRS offers standardized programs for resolving tax debts, such as Installment Agreements, Offer in Compromise, and temporary status as Currently Not Collectible. Taxpayers also have the right to appeal the levy or request a Collection Due Process (CDP) hearing.

For state tax levies, resolution options vary by state. Many states offer payment plans or settlements, but the terms and processes can differ significantly. Some states may not provide formal appeals or hearings, making it harder for taxpayers to dispute a levy.

5. Coordination With Other Debts

For federal tax levies, the IRS operates independently of state tax agencies. If you owe both federal and state taxes, you may face separate levy actions from each agency.

For state tax levies, some states coordinate with local governments or other state agencies to collect debts. For example, unpaid state taxes might lead to consequences like suspension of a driver’s license or professional license in addition to a levy.

How Does an IRS Tax Levy Affect Taxpayers?

The effects of a tax levy can be severe and far-reaching, impacting nearly every aspect of a taxpayer’s life. You should know and understand these consequences so you can make the right effort to avoid them. A tax levy can cause the following:

1. Loss of Property or Assets

When the IRS issues a tax levy, they take control of your property or assets to recover the unpaid taxes. This may include freezing and withdrawing funds directly from bank accounts, garnishing wages, or seizing valuable assets like real estate, vehicles, or business equipment. In extreme cases, the IRS may even seize retirement accounts, dividends, or rental income. Losing access to these assets can be devastating, particularly if they are critical for your day-to-day living or running a business.

2. Financial Hardship

The sudden loss of money or property caused by a levy can lead to immediate financial hardship for taxpayers. For individuals, this might mean an inability to pay for essentials like rent, groceries, or utility bills. For businesses, the impact can be even more severe. If business accounts are levied or equipment is seized, operations may grind to a halt, potentially resulting in loss of revenue or even bankruptcy.

3. Credit Impact

Although a tax levy itself does not directly appear on a credit report, the financial difficulties it creates can indirectly harm your credit score. For example, if a levy causes you to miss mortgage payments or default on other financial obligations, your creditworthiness will decline. Additionally, the underlying tax debt and potential liens associated with the levy can make it harder to secure loans, open credit lines, or refinance existing debt. This damage to credit can take years to repair.

4. Emotional and Psychological Stress

The emotional toll of a tax levy can be overwhelming. Many taxpayers experience significant anxiety, fear, and uncertainty when they lose control over their assets or income. The stress can be compounded if the levy comes as a surprise or if you are unaware of your rights or options to resolve the issue. The psychological strain often spills over into personal relationships, causing tension with family members or business partners who are also affected by the financial fallout.

5. Damage to Reputation

If you’re a business owner, a tax levy can damage your business reputation in your industry or community. Customers, clients, and business partners may lose trust in a company if they perceive financial instability. Vendors and suppliers may hesitate to extend credit or continue doing business. Even personal relationships can be affected when friends or colleagues find out about your financial troubles. This reputational harm can have lasting consequences, especially if you’re a small business owner who relies heavily on local goodwill.

6. Increased Financial Obligations

A tax levy often leads to additional costs beyond the original tax debt. The IRS imposes penalties, interest, and administrative fees that increase the total amount owed. For example, if a property is seized and sold, you may still be responsible for any remaining debt after the sale, along with related expenses like auction fees. Additionally, you may need to replace essential items that were taken, such as vehicles or equipment, adding further financial strain.

7. Legal and Administrative Consequences

Getting a tax levy can complicate future dealings with the IRS. If you have been subjected to a levy, you may find it harder to negotiate payment plans or offers in compromise because of your history. If the levy does not fully satisfy the tax debt, the IRS may continue enforcement actions, targeting additional assets or income until the debt is paid. You may also face difficulties in disputing the levy after it has been executed; that’s why proactive communication with the IRS is important. Even after paying off the unpaid taxes, you might come under an IRS tax audit more frequently and under stricter conditions.

How to Avoid an IRS Tax Levy

Yes, it is possible to avoid a levy by taking proactive steps to resolve tax issues before they escalate. Below are strategies and actions you can take to prevent an IRS tax levy.

1. File Your Tax Returns on Time – One of the easiest ways to avoid a tax levy is to file your tax returns on time, even if you cannot pay the full amount owed. Filing late or failing to file altogether triggers penalties and interest, which can worsen your financial situation and attract IRS tax audit plus enforcement actions, including tax levies. If you are unable to meet the filing deadline, request an extension to buy additional time.
2. Pay Your Taxes in Full or Set Up a Payment Plan – Paying the full amount of taxes owed is the most effective way to avoid a levy. If you cannot pay the full amount immediately, you can apply for an Installment Agreement (payment plan) with the IRS. With that, you can pay your tax debt in manageable monthly installments. As long as you stick to the agreed payment schedule, the IRS will not proceed with a levy.
3. Respond to IRS Notices Promptly – The IRS will not issue a levy without notifying you beforehand. Usually, they send a Notice of Intent to Levy (Form CP504) and a Final Notice of Intent to Levy (Letter 1058 or LT11). Ignoring these notices increases the likelihood of a levy. On the other hand, responding promptly to these communications shows the IRS you are serious about resolving your debt and can open the door to options like payment plans or settlement agreements.
4. Negotiate a Settlement Through an Offer in Compromise – An Offer in Compromise (OIC) is an agreement with the IRS that allows you to settle your tax debt for less than the full amount owed if you can prove that paying the full debt would cause financial hardship. Applying for an OIC can halt levy actions while the IRS reviews your case. This option is particularly useful for taxpayers with limited income or significant financial challenges.
5. Request a Currently Not Collectible (CNC) Status – If you are unable to pay your tax debt due to a temporary financial hardship, you can request the IRS to classify your account as “Currently Not Collectible” (CNC). While in this status, the IRS will pause collection efforts, including levies. However, interest and penalties will continue to accrue, so this should only be a short-term solution.
6. Seek a Collection Due Process (CDP) Hearing – Before issuing a levy, the IRS is required to send a Final Notice of Intent to Levy, giving you the right to request a Collection Due Process (CDP) hearing. Filing for a CDP hearing within the specified timeframe (30 days) will temporarily stop the levy process. During the hearing, you can present arguments for why the levy should not proceed and propose alternative solutions. If you’re in California, it’s best to hire a Los Angeles tax lawyer to represent and guide you.
7. Communicate with the IRS Proactively – The IRS prefers to work with taxpayers who are willing to resolve their tax issues. Proactively contacting the IRS as soon as you realize you have unpaid taxes can prevent a tax levy and other potential tax implications from being issued. The IRS has a variety of programs and options, such as payment plans and hardship relief, to help taxpayers manage their debts.
8. Consult a Tax Professional – Handling IRS procedures can feel complicated and intimidating sometimes. It’s recommended to consult with a qualified tax professional, such as a tax attorney, CPA, or enrolled agent, to help you understand the tax law in your jurisdiction, your options, and negotiate effectively with the IRS. Tax attorneys and professionals can also identify errors in your tax liability, help you file appeals, and make sure your rights are protected throughout the process.
9. Stay Current on Future Tax Obligations – Once you have resolved your existing tax issues, it is essential to stay compliant with future tax obligations. This means filing and paying your taxes on time moving forward. If you fall behind again, the IRS is more likely to take enforcement actions like levies or liens.
10. Understand the Fresh Start Program – The IRS Fresh Start Program offers expanded options for taxpayers to resolve their debts without facing severe collection actions. Under this program, you may qualify for a streamlined installment agreement, an Offer in Compromise, or penalty relief. Learning about and utilizing this program can help you avoid a levy and resolve your tax debt more easily.

The Implications of Bankruptcy on Tax Levies

Bankruptcy is a legal process that helps individuals or businesses struggling with overwhelming debt. If the IRS has issued a tax levy against you, filing for bankruptcy can give you temporary relief or even eliminate certain tax obligations under specific conditions. However, the impact of bankruptcy on a tax levy depends on the type of bankruptcy you file and the kind of tax debt you owe.

1. Automatic Stay: Immediate Relief from Tax Levies

When you file for bankruptcy, the court issues an automatic stay, which immediately stops most debt collection activities. This includes stopping IRS tax levies. This means that any ongoing wage garnishments, bank levies, or property seizures due to a tax levy must stop immediately. The automatic stay gives you time to figure out your finances without the pressure of collection actions. However, there are exceptions. For example, the IRS can still demand you file your tax returns or continue a tax audit during this period.

2. Treatment of Tax Debt in Bankruptcy

Bankruptcy can remove (discharge) some types of tax debt, but not all. The rules depend on factors like the type of tax debt and how old it is. You might eliminate income tax debts if the tax debt is at least three years old, if you filed the tax return for that debt at least two years ago, and if the IRS assessed the debt at least 240 days before your bankruptcy filing.

Other types of tax debts, such as payroll taxes or fraud-related penalties, typically cannot be discharged in bankruptcy. These debts will remain even after the bankruptcy case concludes, and the IRS may resume levy actions.

3. Chapter 7 vs. Chapter 13 Bankruptcy

The type of bankruptcy filed determines how tax levies and tax debts are addressed.

• Chapter 7 (Liquidation Bankruptcy): In Chapter 7, the taxpayer’s non-exempt assets are liquidated to pay creditors, including the IRS. If the tax debt is dischargeable, it may be eliminated entirely. However, if the debt is not dischargeable, the IRS can resume collection actions, including levies, once the bankruptcy case is closed.
• Chapter 13 (Repayment Plan): Chapter 13 allows you to create a repayment plan to pay your debts over three to five years. Your tax debts, including those under a levy, are included in this plan. During the repayment period, the IRS cannot take further action against you, as long as you stick to the plan. This gives you time to pay off the debt without losing your assets.

4. Recovery of Levied Funds

If the IRS levied funds from your bank account shortly before the bankruptcy filing, those funds may be recoverable under certain circumstances. For example, if the funds were taken within 90 days before the bankruptcy filing and exceed a specific amount, they may qualify as a preferential transfer and could be returned to the bankruptcy estate.

5. Limitations of Bankruptcy Protection

While bankruptcy can provide significant relief, it is not a cure-all for tax levies. Certain tax-related obligations and penalties, such as trust fund recovery penalties or recent tax debts, are not dischargeable. Additionally, if you fail to comply with bankruptcy requirements, such as filing returns on time during the case, the IRS may request permission from the court to lift the automatic stay and resume levy actions.