IRS levy is one of the most aggressive and feared collection actions. Under the United States Federal law, the IRS can seizure the property, right to property and assets of taxpayers who fail to pay their tax debt. Court permission is not required to place an IRS levy. The Internal Revenue Code gives the IRS the power to levy upon wages, bank account(s), accounts receivables, social security payments, property, right to property and insurance proceeds of a taxpayer to fulfil tax debt.
Types of IRS Levy
Depending upon a case of tax debt, the IRS may choose the asset(s) to seize. The IRS may seize and sell any type of property a taxpayer has or have a right to. They can place an IRS levy on the taxpayer’s house, boat, car or any other property. They can also levy property that belongs to the taxpayer, but is held by someone else. For example: wages, dividends, bank account(s), rental income, retirement account(s), cash loan value of life insurance or commissions.
If the IRS levy is placed on wages, state refunds, salary or federal payments, the levy ends if:
- Tax debt is paid in full
- A debt payment program is chosen to fulfil the tax debt
- The levy is released due to error or any other reason
- The time expires for legally collecting the tax
If the IRS levy is placed on a taxpayer’s bank account(s), the IRS allows the bank to hold the funds up to 21 days before transferring a certain amount to the IRS to fulfil a tax debt. This time is given to resolve any ownership disputes regarding the bank account.
Conditions for IRS Levy
The IRS levy can only be placed if certain conditions are met. The primary three requirements that need to be fulfilled by the IRS before placing a levy are:
- They assessed the tax and sent the taxpayer the Notice and Demand for Payment
- The taxpayer neglected or refused to pay tax debt
- They sent the taxpayer the levy notice, Final Notice of Intent to Levy and Notice of Your Right to a Hearing, at least 30 days before the levy. The IRS may give this notice in person, leave it at the taxpayer’s home or office, or send it through mail to the last known address. If the IRS levies state tax refund, they may send a Notice of Levy on Your State Tax Refund, Notice of Your Right to Hearing after the levy.
IRS levy does not come as a surprise to taxpayers because the IRS keeps sending various IRS notices to taxpayers who are under tax debt, informing them about the tax debt and ways to pay it. It is only when after several ignored notices that the IRS begins to consider lien or levy to collect back taxes. Therefore, taxpayers are advised to resolve their tax debt problem as early as possible to avoid aggressive collection actions by the IRS such as lien or levy.
Releasing a levy requires expert help and much negotiation with the IRS. Taxpayers are advised to avoid IRS levy by using a tax debt payment program of the IRS such as Installment Agreement, Offer in Compromise, Partial Payment Installment Agreement or Currently Not Collectible to pay their tax debt. It is always better to be safe than sorry.