An IRS tax levy permits the seizure of property to satisfy a tax debt including garnishing wages, taking money in your bank account, taking & selling real property.
An IRS tax levy is a legal seizure of your property to satisfy a tax debt. If you owe taxes and do not pay them, the IRS may seize and sell any type of real or personal property that you own or have an interest in.
Here are some ways the IRS can levy (seize) your property:
- Garnish Your Wages: The IRS can contact your employer and take a portion of your wages until your tax debt is paid off.
- Take Money in Your Bank or Financial Account: The IRS can levy funds in your bank, savings, or other financial accounts.
- Seize and Sell Your Property: The IRS can seize and sell property that you hold, such as your car, boat, or house.
- Take Your Future Tax Refunds: The IRS can apply any future tax refunds to your past due tax debt.
It's worth noting that the IRS usually levies only after these three requirements are met:
- The IRS assessed the tax and sent you a Notice and Demand for Payment.
- You neglected or refused to pay the tax.
- The IRS sent you a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy.
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What is a Levy?
Help with IRS Tax Levy
A tax levy is a legal seizure of your property to satisfy a tax debt when you owe money to the IRS. Levies are different from liens.
A lien is a legal claim against property to secure payment of the tax debt.
A levy actually takes the property to satisfy the tax debt and the IRS most often levies your bank account for whatever amount of money you have in the account after several attempts to collect.
Where does Internal Revenue Service (IRS) authority to levy originate?
The Internal Revenue Code (IRC) Authorizes Levies To Collect Delinquent Tax. See IRC 6331.
Any Property Or Right To Property That Belongs To The Taxpayer Or On Which There Is A Federal Tax Lien Can Be Levied And Tax Levy Wage Garnishment Issued.
IRS Notice of Levy
Prior to issuing an IRS tax levy, the IRS must take the following steps:
Notice of Tax Due: The IRS sends a notice to the taxpayer stating the amount of tax owed, including any penalties and interest.
Notice of Intent to Levy: The IRS sends a "Final Notice of Intent to Levy" warning the taxpayer about their unpaid taxes and the potential for a levy action.
Notice of Right to a Hearing: The IRS provides the taxpayer with a "Notice of Right to a Hearing" to request a Collection Due Process (CDP) hearing within 30 days from the date of the notice.
CDP Hearing: If the taxpayer requests a CDP hearing, the IRS reviews the case and considers any proposed collection alternatives or payment arrangements.
Collection Alternatives: The IRS evaluates possible collection alternatives, such as installment agreements, offers in compromise, or currently not collectible status, if the taxpayer qualifies.
Exhaustion of Administrative Remedies: If the taxpayer disagrees with the IRS's decision, they can further appeal to the Office of Appeals or pursue legal remedies through the court system.
Final Notice of Intent to Levy: If the taxpayer does not respond or resolve the tax debt, the IRS sends a "Final Notice of Intent to Levy" specifying their intent to levy the taxpayer's assets or income.
Issuance of Levy: After the Final Notice is issued, the IRS can proceed with levying the taxpayer's wages, bank accounts, or other assets to satisfy the outstanding tax debt.
It is important to note that the specific steps and timelines may vary based on individual circumstances and the type of tax liability involved.
Consulting with a tax professional or referring to the IRS guidelines is advisable for accurate and up-to-date information.
Why is there a tax levy on my paycheck?
A tax levy on your paycheck, often referred to as a wage garnishment, is one of the tools the IRS (or state tax agency) uses to collect unpaid taxes. If you see a tax levy on your paycheck, it's typically because:
1. Unpaid Taxes: You owe back taxes and have not set up a payment plan or made arrangements to settle the debt.
2. Failure to Respond: Before the IRS issues a wage garnishment, they will send several notices to the taxpayer. If you don't respond to these notices or fail to make arrangements to settle your debt, the IRS may proceed with the levy.
3. Notice of Intent to Levy: Before the IRS can levy your wages, they must provide a final notice called a "Notice of Intent to Levy." This notice gives you 30 days to make arrangements or appeal the decision. If no action is taken, the levy process can begin.
4. Exempt Amount: The IRS doesn't take all of your paycheck. They will leave you with an "exempt amount" based on your filing status, pay period, and number of dependents. However, the remaining amount can be significant, making it difficult for many people to manage their finances.
5. Continuous Levy: Unlike other types of levies, a wage garnishment is continuous. This means it will remain in place until the debt is paid off, you make other arrangements with the IRS, or the levy is released for another reason.
6. State Tax Agencies: While the IRS is the most well-known for wage garnishments, state tax agencies can also issue levies for unpaid state taxes.
If you find that there's a tax levy on your paycheck, it's essential to act quickly.
I can help you understand your rights, potentially negotiate with the IRS, and explore options like setting up a payment plan or making an offer in compromise.
An IRS levy does serious damage to a taxpayer
A levy is the IRS’s way of getting your money and your immediate attention.
What they are saying is, “We have tried to communicate with you, but you have ignored us. If you own it, we can take it.”
That includes bank accounts, autos, stocks, bonds, boats, pension checks, paychecks, and even Social Security checks!
Imagine waking up one morning and finding your bank accounts have been cleaned out.
If this amount did not cover what is owed, they will keep filing levies until they have collected every dollar you owe.
They know that levying your bank account will cause checks to bounce, alerting many people that you have tax problems.
They do not care! Their sole objective is to collect the taxes owed. Period.
As bad as a bank levy is, a worse problem is a wage levy (or garnishment).
That is when most of your paycheck goes to the IRS or State, and they do not even leave you enough to pay the bills.
If that doesn’t accomplish what they want, they’ll pull out all the stops.
They can seize and sell your assets.
UNDERSTANDING IRS LEVIES
If you are one of the millions of American taxpayers who find themselves in the IRS’s crosshairs, an IRS levy is stressful and disruptive at best, and financially catastrophic at worst.
The IRS is in the business of collecting money for the Federal Government and often finds itself in the position of needing to compel taxpayers to meet their tax obligations. Levies are one of the tools they use for that compulsion.
The IRS prefers seizing liquid assets such as bank accounts, wages (through garnishment), and social security benefits. However, they will also seize and liquidate assets such as retirement accounts and cash value life insurance policies. The IRS will even seize and liquidate vehicles and real estate if the assets hold sufficient equity to justify the cost of the liquidation process.
Frequently Asked Questions
Which branch of government is responsible for levying taxes?
Congress has the power to levy taxes. The U.S. Constitution gives Congress the authority to collect taxes, duties, and excise fees for the purpose of paying debts (Article 1, section 8). Because this power involves such matters as raising revenues, authorizing expenditures, and borrowing money, it's sometimes referred to as a "power of the purse.”
What is a tax levy?
A tax levy is a government's legal power to compel persons subject to that power to pay taxes. The term levy may mean either the "collection" or "enforcement" of the tax.
What is a notice to levy from IRS?
A "Notice to Levy" is a writ authorizing the Internal Revenue Service (IRS) agent to seize property or assets belonging to an individual or business taxpayer for collection of debt. This document differs from other IRS legal Writs in that it does not directly order or instruct the person with whom the levy was served to pay the debt immediately, but only requires them to turn over funds of their own volition when they have sufficient funds available for payment of debts.
Can IRS levy my bank account?
IRS can levy your bank account. It all depends upon how much do you owe in taxes and how many times did you ignore the requests of the IRS for paying what you owed. You should understand that you can be levied if your income tax returns are not filed for 3 years and the IRS has sent you notices repeatedly to make payments. In the case of people who are employed, usually, they will get notices from employers as well, requesting them to pay taxes on what they owe under their company name.
What is a tax levy release?
If you owe the government money (for example, back taxes), the government can take funds from your bank account to recoup the debt. However, for tax levies that were issued before 1990, if the IRS takes too much money from your bank account they have to reimburse you later. This is called a 'tax levy release.’
I’ve received an IRS notice of intent to levy, what do I do?
If you get this notice, then the IRS has decided to file a tax lien on one of your assets.
- Gather as much information as you can about taxes that may be owed by contacting a CPA or meeting with your accountant.
- Depending on what you decide, consider consulting with a tax attorney before deciding how best to proceed. Any action is better than inaction; however, waiting too long could cause more damage than is necessary and will cost more in the long run.
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