The Basics of an IRS Tax Levy
A tax levy is simply the legal term for a seizure of property. Perhaps more accurately, it is the process through which your property can be seized. People often confuse tax levies with tax liens, but they are distinct legal terms. While a levy is the seizure of property, a lien is merely a legal claim (public notice) against property to grant the creditor secured status.
The IRS is permitted to use a tax levy to collect a tax obligation that is due and owing and delinquent per IRC §6331. However, §6331 sets forth certain conditions that must be met prior to the authorization of a levy. These steps are:
- A tax has been assessed by the IRS and is now due and owing by virtue of a Notice and Demand for Payment that was mailed to the taxpayer.
- The taxpayer did not pay the tax and did not engage in any appeals or other options to satisfy the debt.
- The taxpayer has received a Final Notice advising him or her of the intent to levy and the taxpayer’s right to a hearing at least 30 days before the levy.
Thus, there is a process that the IRS must follow before it can seize money from your bank account, state tax refund, or other property. Taxpayers who engage in this process can often prevent the seizure of their property.
Receiving IRS Notice CP90 – Final Notice of Intent to Levy and Notice of Your Right to A Hearing, IRS Notice CP504 – Notice of intent to seize (“levy”) your state tax refund or other property or other similar notices can be a harrowing and anxiety-inducing experience for any taxpayer. The first thought that will may spring to mind may be “How did it get this far?” or perhaps “Will I lose everything due to unpaid taxes?” It is certainly a difficult situation to face, but it is far from a hopeless one. However, the failure to take action can and probably will result in the loss or seizure of certain property to satisfy all or part of your unpaid tax.
Tips to Stop a Levy after You Receive an IRS Notice
The most straightforward way to stop an IRS tax levy is simply to pay the tax debt. However, payment of a lump sum to eliminate the debt may be impossible for a variety of reasons. Taxpayers do have other options to halt the levy process. The general options available to a taxpayer include:
- Online payment plan – A payment plan is one way a taxpayer can stop the IRS from seizing their property. An individual taxpayer is eligible for a plan of this type when he or she owes $50,000 or less and all required tax forms have been filed. Businesses are eligible when $25,000 or less is owed and all tax documents have been filed.
- Installment plan – An installment payment plan may be available when the online payment plan is not. Under an installment plan the taxpayer proposes a payment plan which the IRS will evaluate and then render a decision to accept or reject. An installment plan should be based on your ability to pay. Agreement that are not submitted on this basis are likely to be rejected.
- Small Business in-Business Trust Fund Express installment agreement – Small businesses with employees can typically qualify for an IBTF-Express installment agreement. Businesses owning $25,000 or less and able to satisfy the debt within 2 years (24 months) are eligible.
- Settle your tax debt — in certain situations the IRS may agree to an offer in compromise. However, this option is typically unlikely as the IRS will generally protect its claim if you may have future earnings or sources of income that can satisfy the debt.
- File a Request for a Collection Due Process (CDP) or Equivalent Hearing Appeal (Form 12153) – Taxpayers have 30 days to file a Collections Due Process hearing by filing Form 12153 – Request for a Collection Due Process or Equivalent Hearing. Only certain appeals can be raised in this program so it is often wise to consult with a tax attorney before filing.
- Collections Appeal Program (CAP) – The collection appeals process typically provides an answer more quickly than CDP. Furthermore, you may bring a broader range appeals in a proceeding of this type. However, upon entry to CAP, the taxpayer loses the right to further appeal in tax courts. Therefore, entry into CAP should not be filed before consulting with a tax attorney who can fully explain the program and the rights given up by the taxpayer.
The above provides many of the basic steps that a taxpayers may choose to take to stop an IRS levy from seizing his or her property. Other options may be available depending on how far the levy process has progressed and the type of seizure the IRS chooses to attempt.
What If the IRS has Already Garnished My Wages?
If the IRS has already garnished your wages, there are still ways you may be able to reduce the impact the wage garnishment has on your life. To start with, certain parts of your wages may be exempt from the levy. Publication 1494 sets forth the 2016 tables the IRS uses to determine the amount that may be exempt from a notice of levy. Your employer should follow these instructions, but many employers, especially in small businesses, may fail to return the document. If the document is not returned the IRS may select an exemption that is not to your benefit. However, individuals with levied paychecks should be aware that any bonus payments they may receive are not subject to the same exemptions. Furthermore, individuals who make child support payments from their paycheck should make sure this amount was exempted so that they can continue to make payments and avoid other serious consequences.
Taxpayers may be able to get the wage garnishment released if the period for collection ended prior to the issue of the levy. Furthermore a levy may be released if the levy prevents you from satisfying basic needs or meeting reasonable living expenses, if the taxpayer holds property worth more than the tax debt and the release will not degrade the IRS’s ability to collect, or when the taxpayer enters an installment agreement that prohibits a wage garnishment.
What If the IRS Has Already Levied My Bank Account?
All levies that the IRS places on a bank account are subject to a 21-day waiting period per IRC 6332(c). Thus, your bank cannot send or turnover your funds to the IRS until 21 calendar days have elapsed. Thus, you may still have limited options to prevent the funds from being seized by the IRS. One such situation is where the taxpayer with unpaid tax debts has signatory authority only over an account belonging to an elderly relative. Taxpayers may make a showing to the IRS that these funds do not belong to them and should not be levied. The IRS will typically ask for proof or evidence as to who owns the funds. An experienced tax lawyer can help you present evidence to avoid a levy of this type.
Other important fact to remain aware of is the levy will freeze your funds at the time and date of the delivery. In most cases the levy will not impact funds you add to the account following the levy. However, you should discuss how to proceed with an experienced tax lawyer before taking additional actions that may result in the levy of additional funds.
An Experienced Tax Lawyer Can Stop an IRS Tax Levy
If you have received an IRS tax levy notice, it’s time to contact an experienced tax lawyer who understands the levy process and solutions to prevent the seizure of your property, bank account, or garnishment of your wages. Read your notice, highlight or write down the notice code in the top right corner, usually beginning with CP, though you may also receive Letter 3172 – Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320 or similar letters such as L-1058 or LT11, and call an experienced tax lawyer immediately. The Tax Law Offices of David W. Klasing can assist individuals and businesses avoid the worst-case scenario by protecting what you have worked for. Call 800-861-1295 today to schedule a reduced-rate tax IRS tax levy consultation.
It is important to gather all relevant notices and tax records you may have an contact a tax lawyer immediately. David W. Klasing is a dual tax lawyer and CPA who can approach tax problems from the perspective of both a lawyer and an accountant. To discuss how the experienced team of the Tax Law Offices of David W. Klasing can work to stop a levy and protect your property call 800-681-1295 or contact us online.