IRS Tax Levy

What Is An IRS Tax Levy?

A tax levy (not to be confused with a tax lien) is one of the most merciless methods of IRS and state tax collection. If the IRS is not satisfied with its amount of collected tax or finds a delinquent balance, then the governmental organization may resort to a Notice of Levy. A tax levy is the lawful seizure of taxpayer assets and properties to fulfill owed taxes. A tax levy differentiates from a tax lien because, in the event of a tax lien, the IRS does not seize any assets or property; but rather, the IRS makes a claim against your property and assets to further protect its interest against your tax issue.

California Tax Levy

Located in Los Angeles, Victory Tax Lawyers often receives questions regarding a tax levied by the State of California. VTL specializes in California bank levy cases, as well as levy cases nationwide.

The California Franchise Tax Board (FTB) lawfully holds authority over the collection of an illegal tax balance through a bank levy, under the California Revenue and Taxation Code. This means that the FTB holds full power over controlling the owed balance directly out of your bank account. If there is any confusion regarding the process of the collection action, please contact Victory Tax Lawyers today. Our California tax consultants and specialists are prepared to help you avoid a notice of levy.

State of California: Offer in Compromise

If you are a taxpayer who doesn’t have the proper income, assets, or circumstance to pay off tax liabilities on time, or in the near future, then you should consult with a tax expert about qualifying as a candidate for an Offer in Compromise. This program provides the taxpayer an opportunity to pay less than the total amount for payment of non-disputed final tax liability.

The evaluation for an Offer in Compromise is based on each unique case, focusing on the facts and circumstances. In accordance with the California Franchise Tax Board (FTB), the main factors that go into consideration are:

Taxpayer’s ability to settle payment;
Amount of equity in taxpayer assets;
Amount of current and future income, and expenses;
Potential for changed circumstances;
If the offer is in the best interest of the State of California.

What Is A Tax Lien?

A tax lien is different from a tax levy. In the event of a tax lien, the IRS does not seize property. They are merely making a claim against your property to protect their interest against your tax issue. For more information on tax liens, visit our page on what is a tax lien.

How Does A Tax Levy Work?

While working on our client’s taxes, we want to help them understand what leads to an IRS tax levy and how they should avoid one in the future. We encourage our clients to monitor all communication they receive from the IRS. The IRS usually issues 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.

Different Types of Levies

There are four 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.

Wage Garnishment

The most common type of an IRS tax levy is a wage garnishment or a wage levy. This allows the IRS to garnish your 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 from 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.

Bank Levy

Similar to a wage levy, a bank levy is when the IRS contacts your bank to freeze your funds. After 21 days, the IRS will begin deducting funds from your account. 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.

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.

1099 Levy

The IRS can also levy tax forms like 1099, which is traditionally used to report payments to independent contractors. With a 1099 levy, tax authorities can take any amount of money you’re presently owed. However, they cannot attempt to seize any income for work to be performed in the future.

Additional Seizures

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.

The Ripple Effect of Tax Levy

Different Types of Auctions

A tax levy doesn’t only gouge the immediate tangible assets. Its ripple effects can cascade through various aspects of an individual’s or a business’s fiscal health, particularly when it comes to creditworthiness.

Credit Score Impact: A tax levy can potentially tarnish a credit score. While the tax lien (a related but distinct concern) is not reported directly to the credit bureaus anymore, the consequences of a levy, like unpaid bills, can indirectly ding your score.
Loan Approval: With a hampered credit score, future loan applications might either be denied or approved with less favorable terms.
Business Operations: For businesses, an IRS tax levy could potentially signal instability to partners, suppliers, and customers, which could, in turn, affect relationships and operations.

The Essence of Retirement Accounts

Retirement accounts, encompassing instruments like 401(k)s, IRAs, and pension plans, symbolize more than mere financial assets. They embody an individual’s envisaged stability and security in the sunset years, a safeguard against uncertainty, and a conduit to explore aspirations unhindered by occupational obligations.

Defined Contribution Plans: Involving 401(k)s and 403(b)s, where employees contribute a fixed amount or a percentage of their paychecks.
Defined Benefit Plans: Pensions guarantee a specified payout in retirement, dictated by factors like salary and duration of employment.
Individual Retirement Accounts (IRAs): Often categorized into Traditional and Roth IRAs, offering different tax benefits and withdrawal rules.

Understanding the intrinsic connection between an individual and their retirement savings underscores the gravity of contemplating an IRS levy on these funds.

IRS Levies on Financial Sanctuaries

An IRS levy, stark in its authority, empowers the Internal Revenue Service to legally seize assets to reconcile tax debts. While its gaze often fixates on readily available assets, like bank accounts and wages, retirement accounts do not dwell entirely outside its reach.

Legal Framework: The Internal Revenue Code does permit the IRS to levy retirement accounts when necessary.
Policy Restraint: Historically, the IRS has exhibited restraint, considering levying retirement accounts generally as a last resort, driven by specific circumstances and after exploring alternative avenues.

Understanding the scenarios and conditions propelling such an action unfolds the next chapter of our exploration.

Protection for Spouses or Dependents

Safeguarding the financial well-being of spouses and dependents amidst the turbulent waters of a tax levy necessitates a meticulous and empathetic approach. Several strategies, such as “Innocent Spouse Relief,” provide a valuable avenue for spouses to shield themselves from shared tax debts, provided they can substantiate a lack of knowledge or involvement in the accumulation thereof. Another pivotal strategy encompasses the separation of assets, where understanding and, if necessary, altering how assets are titled, can offer a semblance of financial protection. Moreover, in navigating these tumultuous fiscal seas, ensuring the basic needs of dependents are met becomes a paramount consideration, possibly demanding a prudent financial restructuring to ensure stability. However, it’s imperative that while defensive strategies form the bedrock of immediate response, a comprehensive understanding of and navigation through the pathways toward financial resolution and recovery remain equally pivotal, ensuring long-term safety and stability for the family unit amidst fiscal challenges.

The Implications of Bankruptcy on Tax Levies

Navigating through bankruptcy inherently alters the fiscal landscape, often inducing a plethora of questions regarding its impact on tax liabilities and the potential for future levies.

Automatic Stay: When bankruptcy is filed, an automatic stay is typically invoked, temporarily halting most collection activities, including tax levies.
Dischargeable Tax Debts: Some tax debts, particularly income tax debts, can be discharged under specific circumstances in a bankruptcy proceeding.
Non-Dischargeable Tax Debts: However, certain tax debts, such as payroll taxes or penalties from tax fraud, are typically non-dischargeable and remain intact post-bankruptcy.

Navigating through these variables, a complex matrix of considerations and potential pathways unfolds.

Future Tax Levies Post-Bankruptcy

Peering through the lens of bankruptcy, a landscape punctuated by both relief and persisting obligations emerges, steering us toward the core inquiry of protection against future tax levies.

Prevailing Debts: Although bankruptcy can discharge certain debts, non-dischargeable tax debts will persist and potentially subject the individual to future IRS collection efforts, including levies.
Future Tax Obligations: It is pivotal to acknowledge that bankruptcy does not absolve one from future tax obligations. Failure to meet these could indeed result in future levies.
Re-establishing Compliance: Adhering to future tax obligations with meticulous compliance becomes integral to navigating away from the spectre of future levies.

Through this lens, the protective capacity of bankruptcy against future tax levies reveals itself to be potent yet punctuated by critical vulnerabilities.

Differences between State Tax Levies and Federal Tax Levies

State Tax Levies

State tax levies represent a critical component of each state’s fiscal framework, demonstrating both commonalities and distinctions across different states.

Jurisdiction and Applicability: State tax levies are administered by state taxation authorities and pertain to state tax obligations.
Varied Tax Codes: Each state may possess its own tax code, underscoring variations in taxation rates, structures, and levy protocols across different states.
Residency and Income Source: Typically, state tax obligations and, by extension, levies are influenced by factors such as residency and the source of income.

Exploring further, we set our sails toward understanding federal tax levies.

Federal Tax Levies

Contrasting with their state counterparts, federal tax levies provide a panorama of broader, nationwide applicability and structure.

Nationwide Jurisdiction: Administered by the Internal Revenue Service (IRS), federal levies pertain to federal tax obligations and possess nationwide jurisdiction.
Unified Tax Code: The federal tax code, applicable nationwide, provides a uniform framework through which federal tax obligations and levies are structured and administered.
International Reach: In certain instances, the IRS can exert its levy authority on global assets owned by U.S. taxpayers.

With the individual landscapes of state and federal levies unveiled, exploring their intersections and contrasts becomes pivotal.

Levy On Your Financial Accounts

An IRS bank levy can be issued on your financial accounts, including investments, retirement accounts, dividends, life insurance, and so on. The IRS will access your financial accounts, monitor them, and withdraw from the funds in the account to pay off your tax problems.

In the case of an IRS levied bank account, the bank will be issued an order to withhold the deposited funds for 21 days. The holding period exists in case there are any issues with determining account ownership. Once the 21 days have passed, the bank will send the money to the IRS. In the case of a California bank levy, the FTB will be involved and will send the levied funds after only ten days.

If you were charged bank fees on your bank account due to an IRS error during a levy, you can practice your right to reimbursement. Our tax attorneys will help you file for reimbursement and help you communicate with the bank and IRS.

For more information, or if you have an IRS tax levy and need assistance, please call Victory Tax Lawyers at 866.640.0640.

IRS Tax Levy: Frequently Asked Questions

What is a tax levy?

A tax levy is a legal measure employed by taxing authorities, such as the IRS or state tax boards, to seize assets or income to settle outstanding tax debts.

How does a tax levy differ from a tax lien?

While both are measures to secure unpaid tax debts, a tax lien is a legal claim against a taxpayer's assets, whereas a tax levy involves the actual seizure of assets to satisfy the debt.

Can the IRS issue a levy without warning?

No, the IRS is required to provide several notices before enacting a levy, including a Final Notice of Intent to Levy, which is typically sent 30 days before the levy is enforced.

Which assets are susceptible to tax levies from the IRS?

The IRS can impose levies on a diverse array of assets, which may include income, bank accounts, Social Security advantages, retirement funds, and physical properties such as residential real estate and land.

Can a state tax levy affect my federal tax refund?

Yes, if you owe state tax debt, the state can claim your federal tax refund through the Treasury Offset Program to settle the outstanding amount.

How can I prevent a tax levy?

Preventing a tax levy involves addressing tax obligations proactively through timely filing and payment, negotiating payment plans if needed, and ensuring transparent communication with taxing authorities.

Can a tax levy be reversed?

While challenging, it is possible to have a tax levy reversed or released by taking certain actions, such as paying the tax debt in full, setting up a payment arrangement, or proving that the levy creates significant financial hardship.

Will a tax levy impact my credit score?

While tax levies themselves may not directly affect your credit score, the financial implications (like unpaid debts) of a levy can potentially have a negative impact.

Do various kinds of tax levies exist?

Indeed, numerous types exist, such as wage garnishment, bank levy, and property levy, each pertaining to the confiscation of distinct forms of assets or income.

What are my rights during a tax levy?

Taxpayers have certain rights, including the right to be informed, the right to appeal decisions made by the taxing authority, and the right to privacy during the levy process.

How can I seek help when facing a tax levy?

Engaging a tax professional, such as a Certified Tax Resolution Specialist or a tax attorney, can help you navigate the complexities and potentially negotiate with the taxing authority on your behalf.

Can a tax levy affect my spouse?

Depending on filing status and state laws, a tax levy for a debt owed by one spouse might affect the other. Engaging a tax professional can provide clarity based on specific circumstances.

How long can a tax levy last?

A tax levy lasts until the debt is paid in full, an arrangement is made to pay the debt, the levy is released, or the statute of limitations (typically ten years for the IRS) on the debt expires.

Is every kind of retirement account subject to a tax levy?

Certainly, the IRS has the power to levy a wide range of retirement accounts, including IRAs, 401(k)s, and pensions. However, they typically explore other assets first before resorting to utilizing retirement savings.

How is the amount for a wage levy ascertained?

The IRS establishes the sum to be seized in a wage levy by evaluating the taxpayer's standard deduction, filing status, and number of dependents, ensuring that a base amount is retained for the individual's essential living expenses.

Is it possible for a tax levy to be issued for state taxes?

Absolutely, tax levies can be issued by states for unpaid state taxes. Although the procedure might differ among states, it typically adheres to a pathway that is somewhat analogous to federal tax levies.

Can business assets be levied for personal tax debts?

It's possible, especially if you are a sole proprietor. Personal tax debts may lead taxing authorities to levy business assets if personal assets are insufficient to satisfy the debt.

How do tax levies affect joint bank accounts?

In a joint bank account, a tax levy can potentially impact all account holders. The exact repercussions might depend on state laws and specific circumstances.

Is there a maximum amount that can be levied from my bank account?

There is no maximum limit. The IRS or state tax authority can levy the full amount necessary to satisfy the tax debt from your bank account.

Can a tax levy be issued against a deceased person's estate?

Yes, the IRS and state tax authorities can levy assets from an estate if the deceased individual has unsettled tax debts.

Does filing for bankruptcy protect against future tax levies?

Bankruptcy can potentially provide some protection against future tax levies, but the specifics can be complex and depend largely on timing, the type of taxes owed, and the chapter of bankruptcy filed.

Can any assets or income be exempt from tax levies?

Yes, some assets and income streams, including unemployment benefits, specific annuity and pension benefits, and workers' compensation, might be protected from federal tax levies. However, exact exemptions can vary and are subject to both state and federal regulations.

Can a tax levy be contested in a legal forum?

Certainly, taxpayers retain the right to challenge a tax levy, having the option to appeal both prior to and following its enforcement. In particular scenarios, they might opt to seek resolution by engaging in legal proceedings.

What happens if I ignore a tax levy?

Ignoring a tax levy can result in the seizure of assets, garnishing of wages, and potential additional penalties. It's recommended to address tax levies promptly and seek professional assistance if needed.

Can a tax levy be issued against a minor?

Generally, tax levies are not issued against minors. However, in exceptional circumstances where a minor has a tax liability, it might be possible. Specific details would depend on jurisdiction and applicable laws.