If you don’t pay your taxes, the IRS or your state tax agency can use a tax levy to collect the funds. Sometimes referred to as an asset seizure, a levy is one of the most severe collection actions you can face if you have unpaid taxes. Ideally, you should try to avoid a levy — resolving your tax debt before a levy occurs is usually easier and less expensive than dealing with a levy and its aftermath. But if there’s already a levy in place, there are ways to stop it.
You just need the right legal assistance. Regardless of which stage of the tax collection process you’re in, we can help you plot the next steps forward. At Wiggam Law, our tax attorneys specialize in tax debt resolution. If you’re worried about a levy, just received a levy notice, or already had your assets levied, contact us for help today. In the meantime, keep reading for an overview of tax levies.
What is a Tax Levy?
A tax levy is when the IRS or a state revenue agency seizes your assets for unpaid taxes. This may include your bank accounts, wages, physical assets, intangible assets, and money owed to you by other parties.
Tax levies are a tool generally used after the IRS or state agency has made multiple attempts to request payment and there was a failure to respond or take action to fix the tax problem.
Legal Prerequisites for IRS Levies
Luckily, the IRS can’t just show up and start taking your cars, boats, RVs, and other assets. They also can’t just seize the money in your bank account or garnish your wages out of the blue. Instead, the agency must give you notice.
Before issuing a tax levy, the IRS must send you a notice of your delinquent tax debt. Then, if you don’t pay, the agency can issue a Final Notice of Intent to Levy. This notice explains that the IRS could leave your assets after 30 days, and it also explains your right to a hearing to contest the levy.
If you don’t appeal the levy or make payment arrangements with the IRS by the deadline on the notice, the levy could move forward. Once that happens, you may still have a chance to stop the levy, but the process will be harder and more expensive than if you dealt with the debt proactively.
Note that there are two exceptions to this rule. The IRS doesn’t have to send you a notice before levying your tax refund. If you have unpaid taxes, the agency can seize your refund without notifying you in advance. Additionally, in the case of a jeopardy levy (where the IRS feels like notice may prevent it from being able to collect the tax bill), the IRS doesn’t have to provide advance notice.
Types of Tax Levies
There are many different types of tax levies. Generally, each type of tax levy relates to the assets being seized. Here is an overview:
- Refund Offset — The IRS seizes your federal or state tax refund to cover your tax bill. Usually, there is no way to avoid this, but if you’re facing severe financial hardship, you can request to keep a portion of your tax refund through the bypass offset refund program.
- Wage Garnishment — The IRS instructs your employer to send your disposable income to the agency to cover your tax debt. With an IRS wage garnishment, you only get to keep a small amount of your paycheck (based on your filing status and number of dependents) and the rest goes to the IRS.
- Bank Account Levy — The IRS seizes the funds in your bank account up to the amount of your tax debt owed. It sends a notification to your bank, and then, the bank freezes and holds the funds for 21 days so that you have a chance to respond.
- Retirement Account Levy — The IRS takes the funds in your 401(k), IRA, or other retirement account. There are limits on what the government can take, but in most cases, in addition to losing the funds in your account, you will also face a tax bill.
- Asset Seizure — The IRS seizes your physical assets and auctions them off. This can include business assets, business inventory, personal property, and real estate. In rare cases, the agency can even seize your primary residence.
- State Tax Levy — This is when your state revenue agency seizes your wages, the funds in your bank account, your retirement accounts, or your other assets to cover a state tax debt.
- Levies on Federal or State Payments — If you receive contractor payments from the state or federal government, they can also be levied for unpaid taxes. Often, these levies apply to 100% of the payment.
- Jeopardy Levy — The IRS believes that the tax collection is in jeopardy so the agency levies your assets without notice. For instance, if the agency believes that you’re going to flee the country or sell your assets, it may issue a jeopardy levy.
Lien Vs. Levy: What’s the Difference
A lien is a legal claim to your assets, while a levy is the actual seizure of your assets. The IRS usually issues a federal tax lien on anyone who owes $10,000 or more in unpaid taxes. This creates the legal foundation required to move onto a levy.
To explain how liens and levies work, imagine that you owe $20,000 in unpaid taxes. The IRS issues a tax lien against your current and future assets for $20,000 plus the lien filing cost. A few months later, you sell a vacation home for $300,000. Before transferring the title to the new owner, the title company will clear all of the liens on the title.
Say you owe $100,000 to a mortgage company that has a lien on the property. This will get paid first. Then, the tax lien will get satisfied. Only then will you receive the remaining portion of the funds.
Now, let’s say that you don’t sell any property, and the IRS decides that it needs to forcibly collect the debt. In this case, the IRS moves forward with the levy. It seizes your vacation home and auctions it off. The proceeds from the auction go to the mortgage holder to cover the tax debt plus levy costs, and then, any remaining amounts are paid to you.
In both cases, you no longer have a vacation home, and your tax bill has been paid. However, with the levy, you end up with less money in your pocket because the IRS will charge you for the cost of the seizure, the auction, and any related collection costs.
This example is of an asset seizure, this form of levy is generally an uncommon method used, and the IRS is much more likely to garnish wages or seize funds from a bank account before resorting to this type of levy.
Levy Notices From the IRS
Again, the IRS must give you at least 30 days’ notice before levying your assets, and it must notify you about your right to a hearing. There are a few different notices that the agency sends out, including the following:
- LT11 — The IRS plans to seize your property or rights to property
- LT 1058 — This is the same as the LT11 notice
- CP90 — This notice says that the IRS plans to levy “certain assets” and it’s usually in reference to federal contractor payments
- CP297 — This notice lets you know that the IRS plans to levy “certain assets”
- CP504 — Usually sent by the automated system, this notice says that the IRS is providing a final notice before they levy your wages, bank accounts, or state tax refunds and that it will begin looking for other assets to levy
The IRS is constantly changing and updating its notices. This is not an exhaustive list. If you’re unsure of whether or not you’ve received a levy notice or just a demand for payment, reach out to a tax attorney for clarification.
How to Prevent the IRS From Levying Your Assets
You just need to pay your tax bill to prevent the IRS from levying your assets. If you don’t have money to pay in full, reach out to the IRS and set up payment arrangements on your account before it gets levied. Or if you can’t pay anything, apply for currently not collectible status to get the IRS to stop collections against you. You can also submit an offer in compromise to try to settle the debt.
How to Appeal a Tax Levy
Before levying your assets, the IRS will send you a notice that outlines your rights to appeal. Usually, the notice will tell you how to request a Collection Due Process (CDP) hearing. You have 30 days from the notice date to request a hearing.
Typically, the hearing happens over the phone. Be prepared to explain how the levy will affect you, but also make sure you propose a solution, like setting up an installment agreement. If you don’t agree with the decision issued at the end of the hearing, you have the right to appeal to the U.S. Tax Court.
If you miss the deadline for a CDP hearing, you can request an equivalent hearing. This is similar to the CDP, but if you don’t like the results, you cannot appeal to the U.S. Tax Court.
To appeal a levy proposed by an IRS employee, you can use the Collection Appeals Program (CAP). First, you must request to speak with the employee’s manager. If you can’t get a resolution from them, you can request a hearing. There are very short deadlines for this particular appeals process.
How to Stop a Levy in Progress
Once a tax levy is in place, you can appeal to have it removed. You will need to explain how the levy is affecting you financially, and you will also need to propose alternatives such as setting up a payment plan or an offer in compromise.
After seizing physical assets, the IRS can usually auction them off as soon as 10 days later. If you don’t act before the auction, you have two years from the levy date to request a refund of the funds. Generally, you have 180 days to buy back auctioned-off assets, but you must pay the seller the cost they paid plus 20% annual interest compounded daily.
The IRS must stop a levy if any of the following apply:
- You pay the tax debt, including interest and penalties, in full
- The collection statute of limitations expires — Usually, this is ten years after the tax assessment
- Releasing the levy would help you pay your tax bill — For instance, if the IRS is trying to seize the car you take to work or the tools you use to earn a living, or an asset that you could borrow against to make your payment
- You set up an installment agreement that says the IRS can’t levy your assets as long as you make your monthly payments
- The property being levied is worth significantly less than the tax owed
Of course, you can also get the levy released if it was issued in error or against assets that aren’t actually yours. Say for example, that you are the signatory on your disabled adult child’s checking account and the IRS levies this account. However, you are just on the account as a custodian. You don’t actually owe the funds. In this type of situation, a tax attorney can help you get the levy removed.
FAQs About IRS Tax Levies
Can the IRS take all of your assets?
No. The IRS cannot seize school books, tools of the trade, and personal effects, including clothing, furniture, and livestock owned for personal use. The IRS also cannot seize unemployment benefits, worker’s compensation benefits, service-related disability payments, and certain pension payments such as payments under the Railroad Retirement Act.
Additionally, if the IRS garnishes your wages, it must leave you a small amount of money to live on, and it cannot take any wages that are earmarked for court-ordered child support.
How much can the IRS levy?
The IRS can levy the full amount of your tax bill plus collection costs. Your tax bill includes tax, penalties, and interest. Collection costs include costs related to issuing tax liens and/or seizing and auctioning off assets.
How much is a tax levy on your paycheck?
An IRS tax levy can take everything from your paycheck minus the exempt amount. The amount you get to keep varies based on your filing status and number of dependents, and it’s not a lot.
For instance, if you’re a single filer with no dependents, you get to keep $1,154.17 per month. If you’re married and filing jointly with three dependents, your exempt amount is $3,483.34 per month. The IRS can take everything over this amount.
Can the IRS issue a tax levy without notice?
The IRS must give you at least a 30-day warning before levying your assets. However, if the IRS believes that collection is at risk, they can issue a jeopardy levy without any advance warning. Additionally, the agency doesn’t have to warn you before levying your federal or state tax refunds.
What is an IRS Social Security levy?
This is when the IRS seizes the money from your Social Security payment. The IRS can take 15% of Old Age and Survivor’s benefits, but it cannot levy disability payments received from the Social Security Administration.
Can the IRS take money from my bank account?
Yes, if you don’t pay your taxes, the IRS can seize the funds in your bank account. The agency can take all of the money in your account up to the amount of your tax bill. The levy applies to the existing funds in your account, and it doesn’t take into account outstanding checks or automatic payments. When your bank receives notice of the levy, it will freeze the funds for 21 days. Then, if you don’t contest the levy, it will send the money to the IRS.
How do you stop an IRS wage garnishment?
You can stop a wage garnishing by paying your tax bill in full. If that’s not possible, contact the IRS to explain that the garnishment is causing financial distress. Then, set up payments, apply for an offer in compromise, or make other arrangements with the IRS to take care of your tax liability.
Get Help With IRS or State Tax Levies
A tax levy can be financially devastating, but in most cases, there are ways to prevent a levy from happening or release it once it’s in place. At Wiggam Law, we have helped many clients deal with tax levies and other collection actions. To discuss the best steps forward in your situation, fill out our online consultation form or call us at (404) 233-9800.