5 questions you need to ask about an IRS levy

5 questions you need to ask about an IRS levy

5 things you need to understand about a levy are :

  1. Knowing what a levy means

  2. When are you subject to a levy

  3. Which of your assets can be affected

  4. How can a levy be released

  5. How to avoid a tax levy


What is an IRS levy?

A levy is a legal seizure of your rights to property by the Internal Revenue Service (IRS). The purpose is for the IRS to recover the federal taxes you owe them by selling your property or getting a hold of your cash. They can garnish your wages, withdraw money from your bank account, seize your real estate property, vehicles, and other personal property.

Am I going to be issued a notice of levy?

If you are delinquent on your taxes, the IRS will send you a Notice and a Demand of Payment. If you fail to make the payment, they will send you a 30-day levy notice. This notice is known as “Final Notice of Intent to Levy and Notice of Your Right to A Hearing.”

What can the IRS levy against?

  • Bank levy: The IRS will freeze your bank account and give you 21 days to arrange payment or notify them of errors in the levy. If you do not make payment within 21 days of the notice, your bank will transfer the funds to the IRS. The IRS will keep deducting any future bank deposits until the debt is satisfied in full.
  • Wage garnishment: Every month, your employer will be instructed by the IRS to withhold and send a portion of your salary or wage to them. This garnishment will stay in effect until you either settle the tax debt in full or establish an installment agreement.
  • Federal Payment: Under the Federal Payment Levy Program (FPLP), certain federal payments that you receive from the Bureau of the Fiscal Service (BFS) are levied. It may include social security benefits, federal salaries, travel advances by the government, federal employee retirement annuities, military retirement annuities, and others.
  • State tax refund: If you’re a delinquent taxpayer, IRS may levy your state tax refund. Your account will be matched against state databases and a notice of levy will be issued.
  • Municipal tax refund: If you haven’t cleared your tax liability, your municipal tax refund may be levied by the IRS under the Municipal Tax Levy Program (MTLP). Prior to the levy being imposed, the IRS will issue a notice of intent to levy and notice of your right to a hearing to levy.
  • Property seizure: The IRS can sell your property or legal claim to property by seizing it. The sale proceeds are then applied to your tax debt.

How is the tax levy released?

A tax levy is only released when you pay back the amount owed in full, or you have set up a payment plan. The IRS may determine a levy release due to the following reasons:

  • Notice of levy was issued after the collection of payment period had ended
  • Entering an installment agreement program, the terms of which don’t comply with the levy
  • Creates financial hardship preventing you to meet your basic necessities
  • IRS determines that releasing the levy won’t affect the collection of tax bill owed in any way.

The levy will be reissued if you don’t immediately apply for a payment plan right after the release of levy.

How to avoid tax levy?

Pay on time: Paying your income taxes by the due date is the only foolproof way of avoiding tax levy completely.

Pay over time: You can apply for an installment agreement plan to pay off your tax debt over a period of time. The payment will include accrued interest and penalties.

Offer in compromise: IRS allows you to discharge your tax liability by paying less than the amount you owe. Your eligibility for this negotiation is based upon your income, ability to pay, expenses and equity in assets.


Key Take Away

  • An IRS tax levy is the legal seizure of your property or right to property
  • The IRS can levy your wages, bank accounts, federal payments, state and federal tax refunds and the property you own.
  • After filing of tax and assessment of tax liability a notice and demand of payment is issued along with the tax bill.
  • If you neglect or refuse to pay tax, IRS issues final notice of intent to levy and notice of right to a hearing 30 days before the levy is imposed.
  • Once the IRS sends a notice of levy to your bank, the bank account freezes and you cannot make withdrawals for 21 days during which you can make other arrangements for payment of tax liability. In case you fail to do so, the amount you owe is forwarded to the IRS by the bank.
  • You can avoid tax levy by paying your taxes in full by the due date, establishing an installment agreement or filing for an offer in compromise.
  • Your eligibility for offer in compromise depends upon your disposable income, ability to pay, and equity in assets.
  • Contact a Tax Resolution Expert to discuss your options.

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