IRS tax levies mean serious business. An IRS levy allows the IRS to legally seize your property in order to satisfy a tax debt. A tax levy can affect you in a number of ways, including: garnish your wages, take money from your bank account or other financial accounts, seize and sell your vehicle(s), real estate, and any other personal property. If you receive an IRS bill titled Final Notice of Intent to Levy and Notice of Your Right to A Hearing, you must contact the IRS as soon as possible. If you receive an IRS notice of levy against your employee, vendor, customer, or another third party, it is important that you comply with the levy.
What’s the difference between a tax levy and a tax lien?
A lien is a legal claim against the property in order to secure payment of the tax debt. A levy, on the other hand, actually takes the property in order to satisfy the tax debt.
What must the IRS do before issuing a levy?
Generally, the IRS will issue a levy only after these requirements are met:
- The IRS assessed the tax and sent you a Notice and Demand for Payment (a tax bill)
- You neglected or refused to pay the tax
- The IRS sent you a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy. This notice can be delivered in person, be left at your home or work, or be sent to your last known address by certified or registered mail
- The IRS sent you to advance notification of Third Party Contact notifying you that IRS may contact third parties regarding the determination or collection of your tax liability.
When will the IRS issue a tax levy?
If you fail to pay your taxes or make arrangements to settle the debt, and the IRS determines that the next appropriate course of action is a levy, then they will levy any property or rights to property that you own or have an interest in, this includes your wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, or commissions. Or, in the worst of cases, the IRS could seize and sell property that you hold including your house, boat, and/or car.
How will an IRS tax levy affect me?
- Your paycheck becomes smaller via a wage levy and the IRS will garnish your wages
- Your bank accounts will become frozen. Generally, the IRS will call your bank and place a 21-day hold on your account. If, during that time, you don’t work things out with the IRS, it’s possible that the bank will send some or all of your money straight to the IRS.
- Your house and other property may be seized
How to stop an IRS levy
If you have received an IRS levy letter, you must do one of the following immediately:
- Pay your tax bill.
- If you can’t pay your bill in full, work with the IRS to agree on a payment plan. You can apply to do this directly on the IRS website.
- Ask for an Offer in Compromise: This means that you will submit a request to pay your back taxes for less than what you actually owe, but your account will be settled, if the IRS agrees to it. To be considered for an Offer in Compromise, you must have filed all of your tax returns and have made the estimated tax payments for the present year. If you are filing for bankruptcy or are being audited, you will not be considered for an OIC.
- File an appeal.
- File for bankruptcy: Obviously this is an extreme option but it is an option available to you if you are desperate to get rid of your tax debt.
How to prevent an IRS tax levy
- Pay your tax bill in full, on time
- Set up an installment plan with the IRS
- Make an Offer in Compromise
Frequently Asked Questions (FAQs)
“The IRS froze my bank account. What now??”
Once the IRS issues a tax levy on your bank account, the bank is required to freeze your account for 21 days. This actually is in your best interest because it gives you 21 days to appeal the ruling. When this happens, you should probably hire representation immediately to guide you through the process. You can also work directly with the IRS to start making payments towards your debt. You must note, however, that even if you make payments, your bank account will stay frozen for 21 days.
“I received an IRS CP504 notice, what does this mean?”
When you receive an IRS notice CP504, you have an unpaid amount due on your account. If you do not pay the amount due ASAP, the IRS will seize your state income tax refund and apply it to pay what you owe.
Now that you have read this article on IRS tax levy help, we hope you understand what a notice of levy from the IRS is and what next steps need to be taken once you receive one. Remember there are different kinds of levies: wage levy, IRS bank levy, and a federal tax levy, this means the IRS will have access to multiple assets and funds that are in your possession if you fail to pay your tax bill. If you find yourself in this situation, we recommend seeking legal counsel immediately.
If the IRS has levied your accounts, or if you have unresolved back tax debt, click here now to request a free tax relief consultation from the professionals here at the IRS Tax Relief Network.
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