If you have received a Notice of Intent to Levy, you need to take action soon in order to prevent the IRS from seizing your assets. Here we’ll explain what an IRS levy is and how to prevent the IRS from taking your assets.
An IRS levy is a legal seizure of property to satisfy an outstanding debt. Tax levies can garnish wages, take money in your bank or financial accounts, seize and sell your vehicles, real estate, and other personal property.
It is important to understand that levies are different from liens. A lien is a legal claim against the property to secure payment of the tax debt, while a levy actually takes the property to satisfy the tax debt.
The IRS will legally levy your assets only after these four requirements are met:
1. The IRS sent you a Notice and Demand for Payment.
2. You neglected or refused to pay the tax debt.
3. The IRS sent you a Final Notice of Intent to Levy at least 30 days before the levy.
4. The IRS sent you an advance notice of Third Party Contact notifying you that the IRS may contact third parties regarding the determination or collection of your tax liability.
If you do not pay your taxes or reach an agreement with the IRS to settle your debt, the IRS may proceed to seize your property. The IRS will not only be able to garnish property that you own (such as your car, boat, or house), but also property that is yours but is held by someone else (such as your salary, bank accounts, rental income, accounts receivables, etc.).
If you fail to pay your tax debt, the IRS may garnish your wages. That means that part of your salary will be sent to the IRS each pay season, until:
- You establish a plan to pay the taxes you owe.
- The amount of delinquent taxes you owe is settled, or
- The levy is released.
However, part of your wages may be exempt from the tax, so you will be paid the exempt amount. The exempt amount is based on the standard deduction for the number of dependents you are allowed for the year the levy is served.
When the levy is on a bank account, the Internal Revenue Code establishes a waiting period of 21 days to comply with the lien. This gives you time enough to contact the IRS and make arrangements to pay the taxes you owe or notify the IRS of errors on the levy.
If the IRS issues a bank levy, the funds in the account are frozen as of the date and time the levy is received. Generally, the levy does not affect funds you add to your bank account after the date of the levy. That means you are able to withdraw funds that were deposited after the levy was served.
If you received a Notice of Intent to Levy, you should contact the IRS immediately to resolve your tax debt and request a levy release.
The IRS will release a levy if it determines that:
- You settled the outstanding debt.
- The collection period ended before the lien was issued.
- You entered into an Installment Agreement and the terms of the agreement do not allow the lien to continue,
- The lien creates an economic hardship, meaning it prevents you from paying basic and reasonable living expenses, or
- The value of the property is greater than the amount owed and the release of the lien will not hinder the ability of the IRS to collect the amount owed.
It is important to note that a release of a levy does not mean that you do not have to pay the taxes owed. You will need to make arrangements with the IRS to settle your tax debt, or the IRS may reissue a levy.
If you have an outstanding tax debt with the IRS, you may qualify to request one of the following collection alternatives:
Before making any decision, consider consulting with a tax expert to determine the best alternative for settling your IRS tax debt.