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IRS Tax Levy

When a taxpayer owes money to the IRS, the IRS can collect the unpaid taxes, penalties, and interest in several ways. Among these collection methods are tax liens, levies, and IRS wage garnishments. This article will discuss each method, offering a broad description and explanation of each. The IRS is required to send you letters before taking any collection actions and these letters are sent in an augmenting pattern. This means that the IRS will begin by sending a letter stating that you owe unpaid taxes and gradually step up the collection procedure if you do not make arrangements to pay. Taxation attorneys and Enrolled Agents are specialists in IRS collection relief and tax resolution. If you have not dealt with the IRS in the past, hiring a local tax attorney or Enrolled Agent can help save your assets.

What is a Tax Levy?

A federal tax levy is when the IRS seizes your property to pay taxes you owe without the need to take you to court. Tax levies can also include such actions as the garnishment of your wages and seizing your bank accounts.

You will be levied after you have received a notice of tax lien from the IRS.

What is a Tax Lien?

A Federal Tax Lien is filed against taxpayers who owe a minimum of $25,000. IRS tax liens are often misunderstood to be filed against a taxpayer’s property. However, a tax lien is actually filed against a taxpayer as an individual, granting the IRS the ability to take possession of any of your assets. When the IRS issues a lien against a taxpayer, it simultaneously issues a Notice of Federal Tax Lien which can be found on your credit report, preventing you from taking out any new loans and signaling to all of your current debtors that the IRS tax debt takes priority over the debts you owe to them. IRS tax liens can be removed if a taxpayer enters into an arrangement to pay the IRS, however, it is the duty of the taxpayer or the tax professional representing the taxpayer to ask the IRS to remove the lien. Generally, if a taxpayer does not take any action towards repaying their tax debt after an IRS lien is filed, the IRS may send a Notice of Intent to Levy.

Tax Levy Types

There are a number of ways that the IRS can use a levy to collect unpaid taxes from you. Some of the most common include:

  • Bank Levies. When the IRS uses a bank levy it can require your bank to prevent you from withdrawing money from your account for 21 days and then it can take the money that is in your account. The 21-day waiting period gives you time to notify the IRS if the levy was made in error or to arrange for the tax to be paid.
  • Wage Garnishment. When the IRS garnishes your wages it will require your employer to pay a portion of your wages to the IRS until you arrange to pay the unpaid tax, the garnished wages are adequate to pay the tax owed, or the levy is released by the IRS. Additionally, if you receive a separate bonus from your employer while your wages are being garnished, the IRS will receive the entire amount of the bonus.
  • Property Seizure. When the IRS seizes your property–such as your house–it will sell your interest in the property and, after it has paid the costs of seizing and selling your property, apply any money that is left over to your tax debt. If the money raised from the sale is more than your tax debt, you can ask the IRS to refund you the remaining amount.
  • Tax Refund Reductions. The IRS can simply keep your federal income tax refund and apply that amount to your tax debt. The IRS can also levy your state and municipal tax refunds and apply those amounts to your federal tax debt.

When is a Federal Tax Levy Issued?

If you fail to pay the federal income tax you owe or make arrangements to otherwise settle your debt the IRS may decide that a levy is the next appropriate action to collect the tax you owe. The IRS can levy any property in which you hold an interest or that is held by someone else.

What Does a Levy From the IRS Mean?

An IRS levy could result in one or more of the following happening to you:

  • Your paycheck could be reduced due to wage garnishment
  • Your bank accounts could be frozen and any funds in your bank account sent to the IRS
  • Your house, boat, or car could be seized

IRS Levy Procedures

If you receive this notice letter from the IRS, it is crucial for the protection of your assets that you immediately contact an IRS tax attorney or Enrolled Agent to represent you before the IRS. As opposed to a lien, a Tax levy is when the IRS actually takes possession of some or all of your assets and sells them in order to collect your unpaid taxes. The IRS can levy your personal property, investments, and real estate. Personal property is traditionally defined as “moveable property” and includes items such as your car, boat, motorhome, and jewelry. Investments that the IRS can levy include your traditional or Roth 401k or IRA accounts in addition to bonds or stocks that you own as well. Real estate property is property that cannot be moved such as your first and or second home, rental property, and land that you own. If you have received an intent to levy, it is not too late to halt the collection process. You can try removing the levy by entering into a monthly Installment Agreement or filing for Currently Non-Collectible status.  These processes can be very straightforward in some situations, but many others find this stage of the collection process to cause them the most stress.

 Before the IRS can take and sell your assets, they must issue you these three letters:

  • Notice and Demand of Payment
  • Notice of Intent to Levy
  • Notice of a Right to a Collection Due Process Hearing

The IRS may also place a levy on your work income, called wage garnishing. If the IRS begins to garnish your wages, they will directly contact your employer to begin the garnishing. Once IRS wage garnishing has begun, the IRS will usually only consider ceasing the garnishment of your wages if you can prove that it is causing you economic hardship. IRS wage garnishments are limited to 25% of your wages, or the amount by which your wages are greater than 30 times the Federal Minimum Wage ($7.25 x 30 = $217.50). In cases where a taxpayer owes child support and certain state and or federal taxes, up to 65% of your wages can be garnished. These rates are calculated using your disposable income. The IRS defines your disposable income from wages as your gross earnings less any legally required deductions. Legally required deductions include your federal, state, local, and social security taxes plus unemployment insurance and state employment retirement systems).

Contacting a professional to assist you throughout your tax resolution process can yield many benefits. Upon dealing with the IRS, it is critical to know their rules and abide by them. Knowledge of the Internal Revenue Code (IRC) and IRS procedures can remove months of waiting and accrued interest in your tax relief case.

How to Get Rid of a Tax Lien or Tax Levy

The easiest way to get rid of an IRS tax lien is to pay the tax due or work out another payment arrangement. After it has received payment the IRS will release the lien within 30 days. However, when it is in the best interest of both the taxpayer and the government the IRS may offer other options for reducing the impact of a lien. Those include:

  • Removing the lien from specified property
  • The IRS making its lien subordinate to other creditors to make it easier for you to get a loan or mortgage
  • Withdrawing the Notice of Federal Tax Lien to assure your other creditors that the IRS is not competing with them for your property but leaving you liable for the unpaid tax

The IRS will also release a tax levy if you pay what you owe or make other arrangements to resolve your debt. However, the IRS may also release the levy in other circumstances, such as if you can show economic hardship. Additionally, federal law requires the IRS to release the levy in the following situations:

  • The period the IRS has for collecting unpaid taxes expired before the levy was issued
  • Releasing you from the levy will help you pay your tax debt
  • You enter into an installment agreement and the terms of the agreement end the levy
  • The value of the property is more than what you owe and releasing the levy will not hinder the IRS’s ability to collect.

Contact Us for Levy Tax Solutions

If you have received notice that you may be subject to an IRS lien or levy the skilled tax professionals at Hillhurst tax group are here to help. Our skilled staff has experience working with the IRS to resolve clients’ tax debts and getting liens and levies released as quickly and efficiently so that they can move on with their lives without worrying about the IRS seizing their assets or garnishing their wages. For more information on how the Hillhurst Tax Group could help, email us at [email protected] or call us at (323) 486-3314 to set up a free consultation.