What is a Levy & When the IRS Will Use

IRS bank levies can be stressful and scary. An experienced tax debt lawyer can help. If you fail to pay your taxes, the Internal Revenue Service can use various methods to obtain the money owed. After several fines and warnings, they may issue a levy: the legal seizure of your finances and personal property. With the assistance of an experienced tax attorney, it may be possible to have a tax levy reduced or even stopped. But if you don’t appeal the levy process in time, the IRS can legally seize your assets.

Key Takeaways: IRS Levies and Seizures

  • A Levy is the actual legal seizure of property, unlike a lien, which is merely a legal claim against it.
  • Bank Levies involve a 21-day holding period where funds are frozen before being sent to the IRS.
  • Form 668-W is the specific document sent to employers to initiate continuous wage garnishment.
  • Notice CP297A represents the Final Notice of Intent to Levy, triggering a critical 30-day window to appeal.
  • Offer in Compromise allows for debt settlement, though the IRS typically only approves about 33% of requests.

Bank Account Balances

The first levy the IRS enacts is usually a levy on your bank accounts. Typically, they will initially have your bank accounts frozen with a tax lien. They will then give you a short period to pay your tax debt. If you fail to pay your taxes during that period, they’ll enact the bank levy and take the full tax liability figure directly from your bank account. The IRS can take this money even if it’s in a joint bank account and the other account holder owes nothing to the IRS.

Wage Garnishment

When a taxpayer’s bank account has insufficient funds to cover their unpaid taxes, the IRS will often use wage garnishment to make up the difference. This levy seizes a portion of your wages every month before you even receive it. Your employer would be forced to send the money directly to the IRS based on the instructions on Form 668-W. A wage garnishment levy typically continues until the unpaid tax debt is paid off in full.

Social Security Garnishment

The Internal Revenue Code allows the IRS to garnish your Social Security benefits. While only certain Social Security benefits are at risk of garnishment, the IRS can levy a full 15% until your tax debt is paid in full, and in some cases, the IRS may be able to seize even more of these payments.

Other Financial Assets

The IRS can also levy your rental income, dividends, accounts receivables, bonuses, and commissions. In some cases, Internal Revenue Code even authorizes levies against retirement accounts, social security benefits, and the cash loan value of a taxpayer’s life insurance. One of the first things they’ll levy is any state tax refund owed to you. There are only a few financial assets the IRS cannot levy, which are detailed below.

Vehicle Seizure

The IRS can also legally seize any vehicles you own to pay for your back taxes. This includes cars, motorcycles, trucks, trailers, and boats.

Home Seizure

In the most extreme cases, a taxpayer may find a tax levy issued against their real property: their real estate and any rights attached to that property. So if you fail to pay your tax debt in time or appeal the levy, you may find yourself forced to give up your home to the IRS.

What Assets Can’t the IRS Seize?

When seizing assets, the IRS does face a few constraints. Neither child support payments nor unemployment benefits can be levied, for example. Neither can certain disability payments, pension benefits, annuity benefits, or worker’s compensation payments. Some household items are also protected, as are possessions required for school or work.

Forewarning of an IRS Tax Levy

The earlier you act to combat a levy, the better your chances of saving your finances and property. With this in mind, it’s best to hire an attorney as soon as the Internal Revenue Service provides you with advance notification of a levy, and preferably even earlier than this.

The 30-Day Deadline To Pay Your Tax Debt

This notice of intent to levy gives you at least 30 days to pay off your tax debt before the levy is issued. It will be delivered via certified or registered mail to your home or place of business, with a return receipt requested. Sometimes it might even be delivered in person. You’ll also receive a letter from the IRS notifying you that your bank, employers, colleagues, friends, neighbors, and other third parties will be contacted. This is part of their investigation into your full financial situation.

Your Last Chance To Appeal

At about the same time as the notice of levy, you’ll also receive a notice of your right to a hearing. This hearing is an opportunity to have the levy stopped or reduced, ideally with the help of an IRS tax attorney. Often, these notices will state that your account is in jeopardy of a lien or levy. Read the notice carefully to figure out when the IRS is going to take these actions and what you can do to stop it.

An Initial Tax Lien Will Secure Your Property

IRS tax levies are also usually preceded by a federal tax lien. When the IRS has decided to levy property and sent out the levy notice, they may first secure the assets in question with a tax lien. While a tax levy is the act of seizing money or property, a tax lien is only a legal claim to the property: an agreement that it can be seized if the tax debt remains unpaid. When a lien is issued, a public notice is published that alerts other creditors and local governments that the IRS has a prioritized legal claim against your property.

How To Handle an IRS Tax Levy

When the Internal Revenue Service carries out a tax levy, the results can be devastating to the taxpayer’s finances, reputation, and personal life. The harm is often especially significant if you don’t appeal or attempt to reduce the levy in a timely and effective manner. It goes without saying that you shouldn’t ignore IRS billing notices: do everything you can to pay off your tax debt. But if for any reason you’re unable to do so, and you’ve received Notice CP297A or other final notice of levy, there are a few steps you can take to address the problem.

How Can I Get Released From a Bank Levy?

You may be able to achieve an immediate release from a bank levy or any other kind of levy. The easiest way to release a levy is, of course, to settle your tax liability. Failing that, you may be released if you can show that releasing the levy will help you pay your taxes. When a levy is going to put the taxpayer into immediate economic hardship, the IRS might also agree to release a levy. If the property levied is worth significantly more than the amount of tax owed, you might also secure a release, provided that releasing it doesn’t hinder the ability of the IRS to collect the taxes owed. But this is more likely to be the case with a large asset like a boat or house than as liquid an asset as money in your bank account.

Arrange a Payment Plan for Your Tax Bill

You might also be released from an IRS levy if you set up an IRS payment installment plan that will pay off your tax debt. The terms of this agreement should stipulate that the levy is canceled. And if you can pay three consecutive payments at once, the IRS might even agree to remove any liens from public record. Arranging a payment plan might cost you a setup fee, but this is often a small price to pay to have the threat of levies removed.

Appeal the Levy Decision

If you cannot request an immediate release, and you still disagree with the levy decision, you can request a hearing with the IRS Office of Appeals. If your case is reviewed, the IRS might stop, reduce, or at least delay the legal seizure of your money, home, and other assets. The IRS doesn’t take canceling levies lightly, so you need to have a very good reason and persuasive legal argument. It’s important to prepare your case with care, which will almost always require the work of an experienced tax attorney.

Request an Offer in Compromise

It is sometimes possible to have your tax debt reduced, meaning you settle your tax liabilities for less than the total amount you owe. This is achievable in the IRS Offer in Compromise program. Only a minority of applicants applying to this program are accepted. The first hurdle is to ensure you meet a list of stringent qualifying conditions. You can hire a lawyer who can help determine whether or not you meet these qualifications. They can then prepare your application, carefully calculating a proposed amount to pay.

When an Offer in Compromise Is Granted

If you pass the initial qualifiers, the IRS will investigate your financial situation in detail and determine your reasonable collection potential. There are typically three reasons the IRS might grant an Offer in Compromise. The first is if the amount and validity of your tax debt are under genuine dispute. The second is when a full payment would create an unfair economic hardship upon you due to exceptional circumstances. The third reason is if the IRS thinks you’ll never be able to pay the full tax liability. You’ll need to decide which of these conditions, if any, apply to your situation. If you need help facing the IRS, contact Seattle Legal Services, PLLC today at 206-895-7268. Our experienced tax attorneys can protect you from the IRS and work hard to achieve the best possible outcome to your tax problems.