An Internal Revenue Service (IRS) tax levy is one of the most powerful collection tools used to recover unpaid taxes from defaulting taxpayers. Unlike an IRS lien, which is simply a claim on assets, a levy takes immediate possession of them.
Facing an IRS tax levy is a serious matter that requires immediate attention. This is because the IRS is legally authorized to seize wages, bank accounts, Social Security benefits, and even property to pay back taxes.
Have you received an IRS notice over a pending tax Levy? Contact us now to help you resolve it.
This article covers what an IRS tax levy is, common types of tax levies, and how to stop them.
What Does an IRS Tax Levy Do?
An IRS tax levy is the legal seizure of a taxpayer’s property to satisfy a tax debt. This can be achieved through a bank levy on bank accounts, wage garnishment from an employer, or taking either personal property or real property. However, before this happens, the IRS must send a notice of intent to levy, giving the taxpayer a chance to pay the tax bill or set up an installment agreement.
If the taxpayer does not take any action, the IRS will proceed with the collection process, which includes seizing municipal tax refunds, bank funds, or other assets the taxpayer holds. Understanding the difference between an IRS tax levy and an IRS tax lien is important. A tax lien is only a legal claim filed against a taxpayer’s property, showing other creditors that the IRS has rights if taxes owed are unpaid.
It does not seize property but attaches to assets until the tax liability is fully paid. A levy, in contrast, is direct enforcement through IRS seizure. So, while a lien is about securing the government’s interest, a levy is about collecting the money owed.
How Does an IRS Tax Levy Work?
An IRS tax levy does not happen immediately; it follows a set process. First, the IRS issues a Notice CP14, which is the initial bill showing the tax liability and any back taxes owed. If the taxpayer fails to respond, the IRS sends a Notice CP504, warning that the government may use a levy to collect the unpaid tax.
The most serious notice is the Final Notice of Intent to Levy and Notice of Your Right to a Hearing, which can be given in person, left at the taxpayer’s home or workplace, or sent through certified mail. Under the Internal Revenue Code (IRC), the IRS must wait 30 days after sending this notice before proceeding with the collection action.
This is to give the taxpayer time to pay, to appeal, or to set up an installment agreement. After this waiting period ends, the IRS reviews the taxpayer’s property and decides what to take to satisfy the debt. This could be freezing funds in bank accounts, garnishing wages from an employer, withholding tax refunds, or seizing physical property.
Common Types of IRS Tax Levies
When taxes go unpaid, the IRS can take money or property through different kinds of tax levies. Below are the common types of IRS tax levies and the different sources they target.
Bank Account Levy
A bank levy happens when the IRS tells a bank to freeze the money in a taxpayer’s account. The funds stay frozen for 21 days, which gives the taxpayer a chance to pay or make an agreement. But if nothing is done at the end of the 21 days, the bank sends the money needed to offset the debt to the IRS. However, if the funds are not enough, the IRS can continue the process until the debt is fully paid.
Wage Garnishment
An IRS wage levy, also called a wage garnishment, is when the IRS takes part of a taxpayer’s wages directly from their employer. The amount taken depends on income, family, and the IRS guidelines. Wage garnishment continues until the tax debt is paid or the taxpayer sets up a payment plan. This process can create financial stress, but the IRS allows relief if the levy causes serious economic hardship.
Decreased Tax Refunds
When a taxpayer owes back taxes, the IRS can keep money that would normally be sent as a tax refund. Instead of sending the refund to the taxpayer, the IRS uses it to lower the balance owed. This can happen with both federal tax refunds and, in some cases, state tax refunds.
Property Levy
A property levy allows the IRS to take physical assets instead of just money. This may include personal property, vehicles, houses, or even real estate. Once taken, these assets can be sold to cover the tax liability. Property levies are usually used when bank or wage levies are not enough to satisfy a tax debt.
Seizure of Passports
If a taxpayer has a seriously delinquent federal tax debt over $64,000 (including penalties and interest, amount adjusted annually for inflation), the IRS can certify the debt to the U.S. State Department. When this happens, the State Department may deny a new passport application or revoke a current passport until the tax debt is resolved or a qualifying payment arrangement is made.
Social Security or Retirement Account Levy
The IRS can also levy Social Security benefits or funds in retirement accounts. While certain protections limit how much can be taken, these levies still reduce a taxpayer’s income. They are often used when other collection methods fail and the taxpayer has ignored repeated IRS notices. Other assets, such as stock dividends, licenses, life insurance policies, and accounts receivable, can also be levied.
Warning Signs You May Face a Tax Levy
Before the IRS takes property, it usually gives several signals that collection is coming. Recognizing these signs early can help a taxpayer take action before IRS collection actions begin.
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Unpaid Tax Notices: The IRS usually sends several letters before taking property. These notices serve as a tax enforcement warning that the debt must be resolved.
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Collection calls or Letters: The IRS may follow up with phone calls or letters reminding the taxpayer of the taxes owed. Ignoring them raises the risk of harsher action.
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Financial or Legal Consequences: If, after all this, nothing is done, the IRS may freeze bank accounts, garnish wages, or file a lien against property. These steps often come before a full IRS tax levy.
What Are Your Rights When Facing an IRS Tax Levy
Even when taxes are owed, the IRS must give taxpayers certain protections before taking money or property. You have the right to notice before levy, which means the IRS must send a written notice. This includes the final notice of intent to levy, giving you time to respond.
You also have the right to appeal, either through a Collection Due Process hearing or by submitting an Offer in Compromise if you cannot pay the full amount. The law also gives you the right to request a payment plan or installment agreement, which allows the debt to be paid over time. If a plan is approved, the IRS usually pauses levy actions while payments are being made.
How to Stop IRS Tax Levy
An IRS tax levy can be a devastating event for most taxpayers. If you have received a levy notice or a notice of intent, these are steps you can take under federal law to stop the process and protect your property.
Seek Professional Help
One of the first steps to take is to hire a tax attorney, CPA, or enrolled agent who understands the IRS levy process. They know how to deal with an IRS notice, request relief under the Internal Revenue Code, and protect you from mistakes. A professional can also help identify exemptions and negotiate with the IRS on your behalf.
Pay Your Tax Debt in Full
The fastest way to end a levy is to pay the balance immediately. The IRS accepts payments online, by certified check, or money order. Once the tax liability is fully paid, the IRS must release the levy and stop further collection actions. Always keep proof of your payment to show the IRS.
Request a Payment Plan or Installment Agreement
When the tax bill is too large to pay at once, you may request an installment agreement. Doing this allows the taxpayer to make monthly payments until the federal tax debt is settled. The IRS usually pauses levy actions if the plan is approved, as long as the taxpayer stays current with all new taxes owed. You can apply for a payment plan or installment agreement via the IRS website or through Form 9465.
File an Offer in Compromise (OIC)
If paying the full debt is impossible, an Offer in Compromise may let the taxpayer settle for less. However, you must show financial limits, such as immediate economic hardships, by filing Form 656 with supporting records. If the IRS accepts, the reduced payment clears the debt and stops the levy.
Prove Financial Hardship
According to the Internal Revenue Manual, in cases where the taxpayer truly cannot pay due to financial hardship, the IRS may mark the account as Currently Not Collectible. To qualify for this, you must prove your inability to pay by revealing income, expenses, and assets. This stops levy actions on bank accounts, wages, and other property until your finances improve.
Appeal the Levy
You can appeal the levy by requesting a Collection Due Process hearing by filing Form 12153. And in cases where the IRS did not follow the collection process set out in the Internal Revenue Code section 6331, taxpayers have the right to challenge the levy. If you qualify for any form of relief, you can also appeal for the levy to be lifted.
How to Prevent an IRS Tax Levy
The best way to avoid a tax levy is to deal with the tax problems before they reach the point of seizure. The first step in tax levy prevention is to file taxes on time. Even if you cannot pay the money in full, sending your return prevents larger penalties and keeps you in good standing with the IRS. Another essential step is responding quickly to the IRS notice.
Ignoring letters often leads to harsher events, but replying promptly gives you the chance to either set up a payment plan or discuss other solutions. If you’re unsure how to handle the situation, getting help from a tax attorney or CPA can give guidance on the steps to take and help protect your property from levy action.
Need a Tax Lawyer for Your IRS Tax Levy?
An IRS tax levy is a serious action that can impact your income and property. When the IRS takes this step, it means they are legally seizing assets such as wages, bank accounts, or even personal property to satisfy unpaid taxes. The good news is that taxpayers are not without options.
From installment agreements to filing an appeal, there are legal ways to stop or remove a levy and protect your assets. If you’ve received an IRS levy notice, contacting a qualified tax professional is the next best step you can take. Reach out to Victory Tax Lawyers today to help you resolve the tax levy efficiently.
FAQ
Below are some common questions and answers about the IRS tax levies.
What Does IRS Tax Levy Mean?
An IRS levy is a collection process through which the IRS can seize a taxpayer’s money or property to pay tax debt. This can include freezing bank accounts, garnishing taxpayers’ wages, or taking personal or real property.
How Do I Remove an IRS Levy?
You can remove a levy by paying your balance in full, but that is not the only option. Many taxpayers stop levy actions by setting up an installment agreement, filing an Offer in Compromise, or proving economic hardship. If the IRS did not follow proper steps in the collection process, you may also appeal.
What Does It Mean if the IRS Puts a Levy on You?
If the IRS puts a levy on you, it means the government has taken the legal step of seizing your assets to satisfy unpaid taxes. This action begins when a taxpayer does not pay their taxes and ignores repeated notices from the IRS.
Why Do I Have a Tax Levy?
A tax levy happens because of unpaid or unresolved taxes. When a taxpayer ignores a levy notice, the IRS may take stronger steps. The IRS typically issues several warnings, but if there is no response, the levy is used to enforce payment under federal law.
How Much Do You Have to Owe the IRS for Them to Levy?
There is no fixed amount for a levy. The IRS can act on small or large balances if notices are not responded to. However, when the amount is significant, the IRS may act more quickly to protect its claim. If you owe taxes, even a smaller tax bill can eventually lead to a levy if left unpaid.
What Is the Difference Between an IRS Levy and a Lien?
A levy is when the IRS takes property to satisfy a tax debt. This can mean freezing a bank account, taking wages, or seizing assets. A federal tax lien, on the other hand, is a legal claim filed in the public record showing that the IRS has rights over a taxpayer’s property. A lien does not take property but can damage credit and make it harder to sell assets.
Can the IRS Levy My Social Security?
Yes, the IRS can take part of your Social Security benefits through the Federal Payment Levy Program. While some protections limit how much they can withhold, the levy can still reduce monthly income and cause hardship. Taxpayers facing this type of levy should contact the IRS quickly to explore relief options.
How Long Does It Take for the IRS to Levy Property?
The IRS cannot levy immediately. First, it must send a notice of intent to levy and wait for at least 30 days before taking action. During that time, the taxpayer has the right to appeal, pay, or set up a plan. The timeline is designed to give taxpayers a final chance to resolve their debt issues before the IRS takes property
