What is a Tax Levy?
A tax levy is one of the harshest collection mechanism used by the IRS and state taxing authorities. A levy is the legal seizure of taxpayers assets to satisfy back taxes owed. This is different from a tax lien because a lien is only a claim to your assets while a levy is the actual seizure of the assets. Taxation authorities may levy your bank accounts, investment accounts, accounts receivable, wages, social security, pensions, insurance policies and actual physical assets.
General Tax Levy Process
Typically you will not be surprised by a tax levy because the IRS (and most other state tax authorities) will go through a series of steps prior to implementing a tax levy. Below are the steps that the IRS goes through prior to levying.
A tax amount will be assessed either by you filing a tax return with money owed or the IRS filed a tax return on your behalf (called an SFR or substitute for return)
A tax bill will be sent to your last known address that demands payment for the taxes owed.
You didn’t pay the tax bill that was sent to you or made some other form of arrangement to pay.
The IRS sends a Final Notice of Intent to Levy and Notice of Your Right to A Hearing. The levy will start as soon as 30 days after this notice. The IRS is required to notify taxpayers of an intent to levy at least 30 days before initiating a levy. This became law with the 1998 IRS Restructuring and Reform Act.
Tax Levy Types
The form of levy that the taxing authorities uses varies depending upon the situation of the taxpayer. They typically use the method that will be easiest for them to recoup the money that is owed. Below are the common levy types:
With a wage levy or wage garnishment, the taxing authority will contact your employer and demand your HR contact take out a certain percentage of your pay for unpaid taxes. Employers will almost never deny this request because the tax authorities can hold them liable for the amount owed that should have been deducted. This type of levy will remain in place until they have collected enough to cover taxes owed plus interest and penalties, some other resolution has been made, or the tax debt owed has expired. Generally, if a tax attorney proves hardship to the IRS the wage garnishment can be reduced or removed.
With a bank levy, the IRS will contact your bank and demand that they put a hold on your funds. Then, 21 days later, they deduct them from your account. If they do not satisfy the debt in full the first time they levy, they may keep coming back as more money appears in the account.
With this form of levy the taxing authority may seize almost any form of asset in order to sell it to cover tax debts owed. They could seizure items such as your car, boat, or house.
With this form of a levy, the IRS or some states may actually issue many levies to collect your 1099 payments. The IRS can levy any amount you are owed currently, but they cannot go after anything owed to you in the future for work to be done.
Other Asset Seizure:
Tax levies are not limited to the above mentioned forms. The taxing authorities can also levy retirement accounts, dividends. licenses, life insurance, rental income, accounts receivable or commissions.
Seizure of Passports:
Although not technically, the IRS can request that the State department can revoke, or deny your passport if you owe at least $50,000 or more.
Stopping a Tax Levy
The taxing authorities typically only use levies as a last resort option and would prefer to come to some other arrangement to resolve taxes owed. To stop a levy it will require swift action by the taxpayer or by a tax professional working on their behalf. There are many different types of arrangements that can stop a levy, below are a few.
Enter into a payment plan:
The IRS and state taxing authorities offer a variety of payment plans depending upon financial situation. Once an agreement has been made on a payment plan the levy will stop.
Submit an offer in compromise:
An offer in compromise is an agreement to pay less that the total amount of taxes owed. This option only exists for the taxpayers that qualify and are struggling financially. It is best to talk with a qualified tax resolution professional to determine if this method is for you.
Prove financial hardship:
If it can be proved that the existence of the levy creates significant financial hardship then the levy may be stopped. This does not mean taxes do not need to be paid, but it will temporarily stop the collection actions.
File an appeal:
You may appeal the levy if all taxes were paid before the notice was sent. Furthermore, you can appeal if you were in bankruptcy when the notice was sent, there was a procedural error in the assessment, you want to make a spousal defense, or you want to discuss other collection options. Sometimes, you can appeal because you did not have the opportunity to dispute the tax liability, or the statute of limitations has expired on the debt owed.
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See the list below for our frequently asked questions. If your questions are not listed here, please Contact us.
Generally speaking, we attempt to secure a 30-day collection hold with the IRS. Meaning the IRS will not take any aggressive actions during the 30-day term. Within the 30 day term, we will need to be sure you are taking corrective action to become current and compliant, file all missing returns, and work toward developing a financial strategy to resolve the balance dues. However, we do have tools that will allow us to extend this timeline and if our efforts are going in the right direction, the IRS will usually allow us additional time.
This is a yes/no answer. If you owe the IRS more than $10,000 in 941 tax liability you can fully expect to have to provide information about your business. If the liability is more than $25,000 in 1120 income tax debt, the same thing applies. However, if you owe less than $50,000 in personal income tax debt or trust debt you may not have to provide information about your personal finances.
The IRS uses Low-Income Certification guidelines to determine whether a person qualifies for poverty level. If you meet the criteria, you do not need to send in the $186 application fee, and you can wait to send in additional monies, including your initial payment and monthly installments until you hear back from the IRS.
If the IRS does not contact you within two years about the Offer in Compromise, the agency will automatically accept it.
Yes, if your balance is below $25,000, you’ve been on a direct debit payment plan for 3 months or longer, you can apply to have your tax lien withdrawn. The experts at Highland Tax Group, Inc. can assist with this application.
Yes/No. Recently, the credit bureaus stopped harvesting data concerning IRS tax liens and reflecting the same lien on a credit report. However, if your tax lien was filed more than 1 year ago, the lien may still show up on your credit report
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