IRS Tax Levy

What is the Difference Between a Tax Levy and a Tax Lien?

You may have heard that the IRS can file a lien against you or levy your assets in response to unpaid tax debts. While there are some similarities, they are different collection actions. A tax lien is the IRS’s claim on your property, which allows them to secure payment when you eventually sell the asset. They file a Notice of Federal Tax Lien, which notifies creditors that the government is first in line to seize your property or any proceeds from the sale of that asset.

A tax levy is a bit different. It is a more direct collection action that allows the IRS to actually seize your property in order to pay off your past-due tax debt. Once this collection action has been initiated, the government doesn’t just have a legal claim to your property; they actually own your property.

When Can the IRS Impose a Levy?

A levy should never be a surprise. The IRS goes through a long list of notices and steps before they seize your property, so you should know about the threat long before the asset seizure actually occurs. 

Notices Leading Up to a Levy

First, the IRS will send you a notice and demand letter. This letter informs you that you have past-due taxes and demands that you pay them by the deadline on the letter. After that, the IRS sends several other notices, including CP504, reminding you of your past-due taxes and their intent to levy your assets if you do not comply. 

Finally, the IRS will send you a final notice that says “Notice of Intent to Levy and Notice of Your Right to a Hearing.” This is similar to the Notice of Intent to Levy, but the one labeled “Final Notice” and including information on your right to a hearing is the one that legally allows the IRS to seize your assets.

When you receive this notice, you have 30 days to request a hearing. The hearing gives you a chance to explain why you don’t want the IRS to seize your assets and to suggest alternative arrangements such as a payment plan. If you don’t respond in 30 days, the IRS can move forward with the levy.

Can the IRS Levy Without Notice?

The IRS generally cannot levy assets without giving you at least 30 days after they send out the Notice of Intent to Levy and Notice of Your Right to a Hearing. However, there are very limited circumstances in which they can seize money from your bank account or other assets without notice. 

The IRS can generally do this if they believe that their ability to collect is in jeopardy or if they plan on seizing your state personal income tax refund. The IRS can also levy federal contractor payments without notice, and they can levy assets without notice if you’re dealing with a disqualified employment tax levy. That means you owe employment taxes, and you’ve requested a hearing related to the same type of tax in the last two years. 

Types of Tax Levies

There are numerous types of tax levies, and the route the IRS chooses depends largely on which types of assets you own and how easily they can satisfy your tax debt. Levies are either continuous levies or one-time levies. Continuous levies allow the IRS to continue drawing from your asset until the tax debt is paid. One-time levies allow the IRS to collect once, after which they need to issue another levy to continue seizing your assets.

• Wage Garnishment – Wage garnishment is one of the most severe collection actions the IRS can take. The IRS issues a notice to your employer that informs them of the garnishment. They also send Publication 1494, which tells your employer how to calculate how much is exempt from being levied. The amount levied depends on your filing status and how many dependents you have. The IRS will continue to levy your wages until your entire balance due is paid off.

• Bank Levy – The IRS may seize the contents of your bank account to pay off your tax debt. The waiting period for a bank account levy is 21 days. This is a one-time levy, so they can only seize what is currently in the account. If they want to seize additional funds, they need to levy it again.

• Social Security Levy – The IRS can levy up to 15% of the Old Age and Survivor benefits you receive through the Automated Federal Payment Levy Program (FPLP). Disability Insurance Benefits cannot be levied through the FPLP. The IRS can take even more of your SS payments if they do a manual levy. However, the agency cannot take children’s benefits, SSI, or lump sum death benefits.

• Retirement Levy – The Internal Revenue Code gives the IRS permission to levy an individual’s property and rights to property, which includes retirement accounts. This can severely impact your retirement plans and wipe out decades of hard work.

• Asset Seizure – If you have physical assets, such as vehicles or real estate, the IRS may seize them and use the proceeds to pay your tax debt. The IRS can even take your home in extreme situations.

• Offset to Refund – When you are owed a tax refund but you owe federal taxes, the IRS will apply the refund toward your other federal tax liability.

Assets Exempt from Levies

The Internal Revenue Code specifies certain assets that are exempt from levies including the following:

• Clothes and school books
• Fuel, furniture, and personal effects up to a value of $6,250
• Books and tools used for a trade or profession
• Unemployment benefits
• Undelivered mail
• Specific annuity and pension payments
• Workers’ compensation benefits
• Child support judgments
• An exempt amount of wages and other income to cover necessary living expenses
• Certain disability payments
• Certain public assistance payments
• Certain business assets

How to Stop a Tax Levy

The best way to stop a tax levy is to prevent it by being proactive. While you may be able to get a levy released after the IRS imposes it, it is far easier to address your tax debt ahead of time and prevent a levy. Here are some tips on dealing with a levy during different stages of the process.

Preventing a Levy

You can prevent a levy by filing all of your tax returns on time and paying your taxes on time. Even if you are unable to pay the taxes you owe, you should still file your tax return and then contact the IRS to set up payment arrangements for your taxes. Depending on your financial situation and how much you owe, you may arrange an installment agreement, make an offer in compromise, or apply for currently not collectible status. The sooner you contact the IRS after realizing you cannot pay in full, the easier it is to prevent a levy.

Releasing a Levy

If the IRS has already moved forward with a levy, you can request a levy release by contacting them directly. They will release the levy if it is causing you financial hardship, but you will need to prove this claim. Other reasons the IRS will release a levy include:

• You pay off the amount you owe in full.
• The CSED ended before the levy was issued.
• You’ll be able to pay off your taxes more easily if the levy is released.
• You enroll in an installment agreement that doesn’t allow the levy to remain in place.
• The value of what was seized is greater than the amount owed and releasing the levy will not stop the IRS from collecting what they are owed.
• The levy was issued in error.
• The levy was issued on assets that you don’t own.
• The IRS didn’t follow the correct protocol when issuing the levy – for example, they failed to provide the right notice.

Naturally, the IRS does not want to release an asset that it now has under its control, so convincing them to release the levy is exceedingly difficult. It’s important to note that even if the IRS releases a levy, that doesn’t mean that your tax debt goes away—unless, of course, the reason for the levy release is that you paid the debt off in full. You must still make payment arrangements to avoid having the levy reissued.

Appealing a Levy

If the IRS is threatening to levy your assets or wages, you should request a Collection Due Process hearing. You must do so before the deadline laid out in your final notice. If a levy has already been issued, this appeals program is likely no longer available to you. The next option is the Collection Appeals Program, but despite the similarity in names, these two programs are very different and we would recommend discussing options with a tax professional before deciding how to proceed.

You may appeal the levy if you are interested in setting up an alternate payment arrangement, such as an installment agreement or an offer in compromise. You may also appeal if you disagree with the amount that the IRS claims you owe or if the levy would cause you economic hardship.

Consider appealing the levy if the CSED has expired, which means that the IRS is no longer able to collect what you owed, or if you have filed bankruptcy and their attempt to collect the debt is in violation of the automatic stay. You can also appeal if the IRS failed to send proper notice of their intent to levy.

When Do You Need a Tax Pro’s Help?

Once you’ve reached the point where the IRS is threatening to levy your assets, wages, or bank account, it is time to talk to a tax professional. The process of stopping or releasing a levy is time-consuming and requires you to provide substantial evidence to the IRS. Mishandling this process or delaying too long can leave you without access to your wages, the money in your bank account, or even your home or vehicle. 

If you have received a final notice from the IRS or they have already proceeded with the levy, the team of experts at McLaud Law P.C. is here to help you find the best tax solution for your needs. Contact us online or call us at 585-397-7785 to set up a consultation now. Solutions for your tax problems are in reach—you just have to take action.

This communication is Attorney Advertising. It is presented for informational purposes only and does not constitute legal advice. Every legal situation is different, and prior results do not guarantee a similar outcome. This communication