According to federal law, citizens of the United States need to file taxes every year and pay off any tax debts. Unfortunately, not everyone can afford to cover a tax bill. While the IRS does offer opportunities to mediate debts, which can help you pay off your debt over a reasonable amount of time, not everyone is aware of this option.
When tax debt is neglected, the IRS tends to go after taxpayers aggressively. Tax liens and levies are among the most daunting penalties that people can experience when dealing with the IRS.
A notice of levy is a written letter that explains the conditions of the tax penalty. The notice states that the IRS has the legal right to collect an unpaid debt by levying actions like wage garnishment, bank account holds, and property seizure. An IRS levy release is the only means of getting out of this difficult predicament.
What Does a Notice of Levy Mean?
A levy is a legal seizure of your property to satisfy a tax debt. Note that levies are different from liens. A lien is a claim used as security for the tax debt, while a levy actually enables the IRS to take property in order to satisfy the tax debt. If you do not pay your taxes (or decide to settle your debt), the IRS or state agency may seize and sell any type of real or personal property that you own or in which you have an interest.
- The IRS could seize and sell property that you hold (such as your 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, return receipt requested.
Understanding an IRS Notice of Levy
When you receive an IRS notice of levy, you are officially notified. The letter explains that the agency will begin collecting the debt by any means necessary.
Tax levies include harsh punishments like wage garnishment and property seizure. Consequently, such a notice from the IRS is not only disconcerting, but also extremely stressful. It means that you might not only lose out on wages, but that you might also have trouble accessing your bank accounts or lose a property to settle the debt.
At this point, it may feel like you are frozen in terms of your power and control over the situation. How do you cover bills when the IRS refuses to let you touch your bank account? How do you afford your mortgage if the IRS takes your business? What do you do when you want to sell items to help settle the debt, but the IRS has seized everything?
The most pressing issue is this: a taxpayer only has 30 days to resolve the debt before the levy actions become official. Receiving an IRS levy release is a delicate process in which it’s best not to fight the matter without professional help.
It is critical to take care of the tax debt before the 30-day grace period expires or request another type of action to temporarily settle the matter before your bank accounts and property get seized. Speaking with a qualified tax professional can make all the difference in the world.
Types of Tax Levies
Taxpayers have 30 days to settle tax debt after receiving a Notice of Levy from the IRS. Failing to pay back the full amount of the debt after receiving the notice carries significant repercussions.
Levies are more serious than tax liens because they enable the IRS to not only hold your assets, but also to legally take them away from you. The IRS may take the following levy actions against you after you receive a notice:
- Wage Garnishment: No one enjoys taxes getting taken out of every paycheck. But that pales in comparison to giving the IRS free reign over your wages, where they can take as much from each paycheck as they deem necessary. Garnishing your wages is a serious threat to your wellbeing, especially if you are having trouble getting by in the first place. It can make it difficult for you to afford your home, put food on the table, cover utilities, and take care of your children.
- Bank Account Seizures: The IRS begins the process by placing a lien on your bank account. This essentially freezes the funds, which prohibits you from taking anything out of the account. After 45 days, the IRS can begin withdrawing money from the account. The IRS can also go after commissions, contractor or vendor payments, and retirement benefits.
- Property Seizures: The IRS can seize any property that a taxpayer owns under a levy. This not only includes your home, but also a business or other assets like RVs, motorcycles, and boats. Any piece of property that you own that the IRS considers valuable is fair game.
What Is a Notice of Levy From EDD?
The Employment Development Department (EDD) serves as an ally for the Internal Revenue Service. It helps collect employment-related taxes, but it also has the enforcement powers to investigate and levy against business assets because of tax debt.
If you owe money to the IRS, you have the potential to receive a notice of levy from EDD. The Employment Development Department places a lien first on your business assets (including property), though it does not have the power yet to seize anything.
However, the IRS allowing the EDD rights to your property is damaging enough. It means the taxpayer cannot sell the property to obtain funds for the debt. It also severely hampers your credit rating, which may make it impossible to receive another loan to settle the debt.
Steps of a Tax Levy
So, what do you do to resolve the matters when the IRS or EDD has frozen your assets, and you don’t have the means to gather the funds by selling personal possessions, business interests, or taking out a new loan?
If the IRS levies your state tax refund, you may receive a Notice of Levy on Your State Tax Refund and Notice of Your Right to Hearing after the levy.
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 limit for legally collecting the tax expires.
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.
Get Tax Help Before It’s Too Late
If you are facing a bank levy, you should seek tax resolution help from the experienced professionals at Levy & Associates. Our team of CPAs, attorneys, and tax consultants will thoroughly research the details of your situation and advise you on the appropriate actions and likely results. Our team will put our expertise to work in order to represent your best interests and negotiate with the IRS to free your resources as quickly as possible. Contact us today to schedule an appointment with a specialist from Levy & Associates.