The IRS is required to notify you by mail of any tax that you owe, so be sure to open your mail. Keep your mailing address up-to-date, and communicate with the IRS if you’re having financial problems. If you receive a document titled “Final Notice of Intent to Levy and Notice of Your Right to a Hearing,” a tax levy may be imminent; the IRS could seize the funds or your property in 30 days. At that point, if you aren’t communicating with the IRS already, you should contact them.
Examples of a Tax Levy
A tax levy is a procedure that the IRS and local governments use to collect money you owe. Tax levies can collect funds in several different ways, including taking funds from your bank account or garnishing your wages. Some of the most common strategies include:
Bank levies: The IRS will give you 21 days to contact it to pay your taxes or bring up errors in the levy. After 21 days, the bank must forward the money you owe to the IRS.Wage garnishment: Your employer is required to hold back a portion of your pay and send it to the IRS until your tax debt is satisfied.Property seizure: The IRS can take the property you own (such as a house, boat, or vehicle), sell it, and apply the sales proceeds to your tax debt.Reduced tax refunds: The IRS may hold money that would otherwise come to you via a tax refund. The IRS can levy state and municipal refunds as well as federal refunds so that the state will send funds to the IRS instead of to you.Other options: Taxing authorities can collect money in surprising ways. If you don’t have liquid cash to satisfy tax debts, they may be able to find other forms of value, such as your Social Security benefits or business assets.
Can a Tax Levy Be Released?
It is possible to get a tax levy released. You have the right to appeal the event and prevent a tax levy from moving forward. You can even request that creditors return levied assets to you after the fact. To complete an appeal, contact the IRS immediately to arrange to pay your tax bill and request a tax levy release. Tax levies are generally released when you pay off your tax debt. But in some situations, you can appeal and have the IRS release a levy for other reasons. The IRS must release a levy if:
You paid the amount you owe. The collections period ended before the levy was issued. You will be able to pay your taxes if the levy is released. You set up an installment agreement and the terms do not allow for the levy to continue. The value of the property is greater than what you owe and releasing the levy wouldn’t stop the IRS from collecting the amount owed.
If the tax levy would create an extreme financial hardship for you, the IRS may hold off on collecting. However, as long as the tax debt still exists, you will need to deal with it eventually.
Tax Levy vs. Tax Lien
Liens give creditors interest in your assets, helping them secure a future payment. For example, there might be a lien on your home, giving the IRS interest in that asset. To create a tax lien, the IRS files documents at local government offices, making a public record of the interest. Because it’s a public record, it could impact your credit report. A tax levy is not a public record and should not impact your credit report. A tax lien may cause problems if you ever want to sell or refinance an asset, because the tax debt may need to be paid or settled before you have free-and-clear control of the asset. Lenders don’t want to get in line behind the IRS, so they’re typically reluctant to approve a loan on a property with outstanding liens.
How To Prevent a Tax Levy
There are methods you can employ to limit the chance of having a tax levy placed on your assets. If you can’t prove that the levy is unfair, or you aren’t able to pay your tax bill immediately, you may still be able to prevent a levy by contacting the IRS and working out an alternative arrangement.
Pay Your Tax Bill Over Time
You don’t always have to pay your full tax bill in April. If you’ve fallen on hard times, it may be possible to set up a payment plan with the IRS that allows you to pay taxes over a more extended period. You may still owe interest and penalties, but formalizing an installment plan with the IRS prevents them from assuming that you simply decided not to pay.
Make an Offer
You can also negotiate and try to settle your tax debts with the IRS. An offer in compromise allows you to show that you’d be unable to pay what you owe, given your income, expenses, and assets. If successful, the IRS will allow you to pay less than your full tax bill.
You paid your debt to the IRS in full.The period for collection had already ended when the levy was issued.Removing the levy will help you pay your taxes.You have an installment agreement with the IRS, and the terms of the agreement do not permit a levy on your property.You can prove to the IRS that the levy keeps you from paying for basic, reasonable living expenses.The property is worth more than your debt and releasing the levy will not keep the IRS from collecting the money you owe them.
