You may have a family or currently support just yourself—either way, you work hard for your earnings. As a responsible citizen, you have to pay taxes on those earnings. But what happens when you are unable to pay or can no longer cover back taxes?
The IRS has a series of penalties and punishments they may employ to go after delinquent taxpayers. The bottom line is that you can’t ignore unresolved tax debt because the tax agency is not going to back down and leave you with a simple warning.
Tax levies are the most severe action utilized by the Internal Revenue Service. Levies allow the IRS to freeze your bank accounts, garnish wages, and seize personal property and assets.
What Is a Tax Levy?
A levy is a legal seizure of your property to satisfy a tax debt. It’s important to note that levies are different from liens. A lien is a claim used as security for the tax debt, while a levy takes the property to satisfy the tax debt. If you do not pay your taxes (or make arrangements to settle your debt), the IRS or a state agency may seize and sell any type of real or personal property that you own or have an interest in.
- The IRS could seize and sell your property (such as a car, boat, or house).
- The IRS could levy property that is yours but is held by someone else (such as your wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, or commissions).
The IRS usually levies only after these three requirements are met:
- The IRS assessed the tax and sent you a Notice and Demand for Payment.
- 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.
The IRS may give you this notice in person, leave it at your home or your usual place of business, or send it to your last known address by certified or registered mail with a return receipt requested. Note that if the IRS levies your state tax refund, you may receive a Notice of Levy on Your State Tax Refund, Notice of Your Right to Hearing after the levy.
Consequences of Tax Levies
Back taxes are among the most difficult debts to eliminate. Bankruptcy doesn’t even eliminate all of your taxes owed, which makes it complicated to get out of the dilemma. Furthermore, the federal government gives the IRS a lot of power when it comes to bringing down harsh punishments to collect a tax debt.
Tax liens and levies are the two most serious types of punishments that the IRS can hand out to individual taxpayers. While tax liens are a claim on your property and hamper your ability to take out new loans (because they destroys your credit score), tax levies are far more serious.
Tax levies provide the IRS the legal right to take your assets. With a tax levy, the IRS may:
- Freeze your bank accounts.
- Garnish your wages.
- Seize personal property.
- Seize assets like cars and other vehicles that you own.
Example of Tax Levies
Here are a few examples of how tax levies can inhibit your life and hurt your future:
- You owe taxes, and the IRS places a tax levy. You go to the bank to withdraw funds, and the bank notifies you that the IRS froze the account. Now you can’t access any of your money.
- Every two weeks when you receive a paycheck, you get the usual deductions for Social Security and Medicare. Now, you also have a significant portion of your earnings held back because that money goes to the IRS to satisfy the debt. The leftover money may not be enough to pay your bills.
- The IRS seizes your property. You lose a home or car, and you will not recoup anything from the sale. All the proceeds go directly to the IRS to resolve back taxes.
The IRS has more power than creditors. Therefore, if you owe a substantial amount in back taxes, you should speak with a tax professional immediately before the IRS turns to tax liens or levies.
When Does the IRS Start a Levy?
A tax levy is a procedure the IRS uses to collect money that you owe to the federal government. Consequently, the IRS may collect funds in several different ways to resolve the debt.
It is vital not to let your back taxes get to the point of a tax levy. Thankfully, there is usually enough time to act before the IRS even sends a warning of a tax lien or levy. If you do find yourself facing a levy, contact a tax professional immediately to discuss your options.
The good news is that most taxpayers are not caught off guard by a tax levy. Generally, taxpayers have a lot of notice before things get to the point of a lien or levy. Federal tax levies follow the same procedures, while state tax levies have different rules depending on where you live.
Typically, the IRS will take the following steps:
- A tax amount is assessed after you file a tax return, or the IRS files a tax return on your behalf.
- Individuals who owe money receive a tax bill from the IRS notifying them of how much they owe. The letter is sent to the last known address on file at the IRS. This is why some delinquent taxpayers do not receive important notices if they have not filed returns in years, or have recently moved.
- The IRS gives you time to settle the tax bill without any warnings or threats. During this time, you can arrange an alternative payment method, such as establishing an installment agreement or submitting an Offer in Compromise.
- You will receive a Final Notice of Intent to Levy. The letter will also contain a Notice of Your Right to a Hearing. Once you receive a Final Notice of Intent to Levy, you have 30 days to act before the IRS can start freezing your accounts, garnishing wages, and seizing assets.
Tax levies are a last resort for the Internal Revenue Service. However, that does not mean that the tax agency will not enforce a levy. Therefore, if you receive a Final Notice of Intent to Levy, it is incredibly important to speak to a tax professional at your earliest convenience. Don’t wait for the issue to worsen.
How to Remove Tax Levies?
If the IRS levies your wages, salary, or federal payments, the levy will end when:
- The levy is released.
- You pay your tax debt.
- The time expires for legally collecting the tax.
If the IRS levies your bank account, your bank must hold funds you have on deposit, up to the amount you owe, for 21 days. This holding period allows time to resolve any issues about account ownership. After 21 days, the bank must send the money plus interest, if it applies, to the IRS.
Who Do I Call About a Tax Levy?
If you are facing a bank levy, contact Levy & Associates immediately. Levies are serious matters best handled by tax professions with in-depth experience in tax resolution. Our team is prepared to help you. We will research the details of your unique situation and advise you on the best actions and likely results. We’ll also represent you and negotiate with the IRS to free up your resources as quickly as possible.
Reach out today to schedule an appointment with a tax specialist from Levy and Associates.