A tax levy, according to the IRS, is a legal seizure of your property to satisfy a tax debt.
Before levying, the IRS will usually take specific measures. They are required by law to send a series of reminder notices, followed by a last reminder, "Notice of Intent to Levy." The IRS should provide a "Final Notice of Intent to Levy and Notice of Your Right to a Hearing" at least 30 days before it intends to seize any assets, outlining its purpose to levy, the rationale, and your options.
If you do not pay or make arrangements to pay your taxes within 30 days of receiving the Final Notice, the IRS may levy your property or rights to property and apply any proceeds to the taxes you owe. To deal with it, it’s better to ask for assistance from a levy CPA firm professional.
What Assets Are Affected by a Tax Levy?
The IRS has the authority to levy property or rights to property that you own, such as your car, house, or boat. When the IRS seizes property, it sells it at fair market value and applies the proceeds to your tax liability. Any money left over will be refunded to you. The IRS cannot seize this type of property unless they believe the net proceeds will be sufficient to cover your tax liability. Seizing a primary house and some company assets is also restricted. Property seizures are normally reserved for serious cases such as tax evasion.
Wages, commissions, bank accounts, retirement accounts, dividends, rental income, accounts and promissory notes payable, and the cash surrender value of your life insurance policy are all examples of property that the IRS can levy. The asset holder may be required to submit the funds in your accounts to the IRS, and you will be unable to access them until your taxes are paid.
Wage garnishment is a typical sort of tax levy in which companies are required to deliver the IRS a certain proportion of each paycheck. Banks may restrict accessible funds. IRAs, qualifying pension, profit-sharing, and stock bonus plans under ERISA, self-employed retirement plans such as SEP and Keogh plans, and thrift savings programs are also examples of retirement assets that can be seized. The IRS may also apply any future federal or state tax refunds to taxes owed in the past.
Unemployment, worker's compensation, child support, certain public assistance and disability payments, and certain annuities and pension benefits are not subject to seizure by the IRS.
IRS Publication 594 discusses the IRS collection procedure, including tax levies and taxpayer rights. Contact a licensed tax professional if you need assistance with an IRS debt, requesting an installment agreement, or resolving a tax levy.
How to Avoid Tax Levies
The easiest method to avoid a tax levy is to submit your tax returns on time, pay your taxes when they are due, and speak with the IRS as soon as possible if you have any questions or disagreements about the amounts you may owe.
If you disagree with the intent to levy, you have 30 days from the date of the IRS notification to file a form requesting a Collection Due Process hearing. There are some circumstances in which the IRS is not required to provide you with a hearing before seizing your property under a levy. Levies to collect taxes from state tax returns, to collect a federal contractor's tax debt, or if tax collection is considered to be in peril are examples of these. In certain cases, the IRS will send a letter outlining the procedure.
If you disagree with an IRS decision about a levy, you may be entitled to appeal it under the Collection Appeals Programme, whether before or after the IRS files a notice or seizes your property. The deadline for filing an appeal varies based on the type of asset. This procedure is described in IRS Publication 1660.
Can a Tax Levy Be Released?
Under some other conditions, the IRS must release a levy. These are some examples:
- If you pay the amount owed;
- If the charge causes you such financial hardship that you are unable to fulfill your essential and acceptable living expenditures;
- If releasing the levy will assist you in paying your taxes;
- If you get into an installment agreement with the IRS that prohibits the levy from continuing.
Filing for bankruptcy can result in the release of a tax levy, but you should only do so as a last choice due to the long-term ramifications for your business and credit.
Levies are typically used as a last resort by the IRS, therefore it is preferable to negotiate with them to resolve your tax debt rather than allowing a levy to occur.
In addition to the substantial economic ramifications of a tax levy, the FAST Act of 2015 requires the IRS to notify the State Department of taxpayers who owe "seriously delinquent tax debt," defined as federal tax debt plus penalties and interest of more than $51,000 for which a levy was imposed. In this instance, the State Department would normally not grant or renew your U.S. passport and may revoke it.
