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.
According to federal law, citizens of the United States need to file taxes every year and pay off any tax debts.
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.
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:
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.
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.
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.
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.
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.
What Assets Can the IRS Take with a Tax Levy?
While some of your assets are protected, the IRS can still get to a lot of them including, but not limited to, your retirement accounts. With a tax levy, the IRS has the power to seize control of your bank account. This includes funds available for withdrawal up to the amount of the seizure.
You will be given a 21-day notice to resolve the dispute and if it is not resolved, the bank will send the IRS your money along with any other interest earned on that amount. Property such as your house and car can also be seized. If they seize your car or other property, they will apply the proceeds to your tax debt.
Wages, salary, or commission held by someone else is also fair game for the IRS to seize in a tax levy. In cases such as this a levy will only be served once, not every time you are paid. The levy will remain until the debt has been paid in full, other arrangements have been made, or the collection period ends. Your federal payments may also be seized under the Federal Payment Levy Program. In this program, up to 15 percent of your federal payments can be seized.
If you are facing an IRS levy as the result of failure to pay your taxes or to come to some arrangement with regards to paying your taxes, there are a number of options that could result in the IRS levy being stopped. This includes the following:
Pay off the tax debt: If you pay off the tax debt in full you can stop the tax levy. This includes paying any interest and penalties that have been imposed.
Set up an arrangement: If you set up a formal repayment arrangement for the amount you owe with the IRS you can stop the tax levy.
Prove financial hardship: If you are hit by a tax levy but you can prove that it is causing you financial hardship, the levy may be removed.
Set up a partial payment agreement: Depending on your financial circumstances, you can also set up a partial payment agreement that would result in lower payments than a regular agreement and would mean paying off less of the total debt.
Make an offer in compromise: Another solution that you may be eligible for is an offer in compromise, where you make a reasonable repayment offer that may be accepted in place of the actual amount that you owe.
Appeal the tax levy: Another option you can look at is appealing against the tax levy. There is no guarantee that this will result in removal but if you have a valid case you may be able to get it removed.
Speak to an expert: Discussing the case with an expert tax accountant is also advisable, as this could help you to find a suitable solution to get the tax levy removed.
How Can I Appeal a Tax Levy?
So you want to appeal a tax levy? This is a lot easier than you might think. Before you do this you must first be warned that it will be extremely difficult to get back any of your assets that have been seized after the levy has already taken full effect. First, you have to request the appeal. You can go about doing this by requesting a Collection Due Process hearing with the Office of Appeals.
Then you will need to file a request for a Collection Due Process hearing with the IRS office that you received the notice from. There are some things you may want to consider before appealing a tax levy. One of the most common reasons to appeal a tax levy is that if your taxes were paid in full. There are some occasions where the IRS will make a mistake; after all they are only human.
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.
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