If you are confused about what a tax levy is and how it works, here is a guide to help you understand and deal with the legal seizure of properties.
In this article:
- What Is a Tax Levy?
- How Does a Tax Levy Work?
- Why Does a Tax Levy Happen?
- Where Do You Go If You Need Assistance with a Tax Levy?
- Who Can Help You with a Tax Levy Aside from the IRS?
- When Does the IRS Release a Tax Levy?
- How Do You Stop a Tax Levy?
Understanding What a Tax Levy Is
What Is a Tax Levy?
A tax levy is when the IRS places a “fine” on a taxpayer’s assets or property due to unpaid tax debt. An IRS tax levy is a legal seizure of your property to compensate for your tax debt.
A property tax levy is different from a tax lien as the lien is only a legal claim against your assets. The IRS uses a tax lien to secure that you pay off what you owe.
With an IRS levy, the government actually takes your assets, which may include rental income, retirement funds, wages, bank accounts, cars, and home, if you failed to pay off your tax debt.
How Does a Tax Levy Work?
Generally, when you have overdue taxes, the IRS will send you a tax bill, and if you do not pay this bill, they will send you an updated one.
If you still cannot pay the final bill, the IRS will start to take collection actions. These can range from seizing your property to taking future tax refunds.
For a tax levy, the IRS first reviews your tax report, and if you are a candidate, they will send you Notice and Demand for Payment. If you neglect or refuse the notice, the IRS will send a Final Notice of Intent to Levy and Notice of Your Right to a Hearing.
If the government gets no response from you within 30 days from the date on the notice, the IRS will then place a tax levy on your property.
Why Does a Tax Levy Happen?
Just like a tax lien, a tax levy occurs primarily because of unpaid tax liabilities. Before the IRS places levies on your property, they always follow the correct procedures of reviewing, billing and notifying, and then collecting.
Nobody knows better than you do if you filed late on your returns and have not paid your income taxes. Always check your mail if you failed to pay your taxes and reach out to the IRS if you receive a notice from them regarding any tax-related concerns.
Where Do You Go If You Need Assistance with a Tax Levy?
There is no other government organization that can better help you with your tax issues than the IRS. Once you receive the first notice, immediately contact them so they can discuss your tax debt and help you pay it off.
You may call their hotline number, but it could be better to go directly to their office and talk to an IRS staff member who can help you. You can always refer to your local directory to check the location of an IRS office near you.
If you ignore their notice of tax payment or do not file your returns, you may face a more complicated tax problem.
Who Can Help You with a Tax Levy Aside from the IRS?
You can always seek help from a tax professional if you find the process overwhelming and confusing. These professionals can work with you to make sure you receive the best resolution to your tax levies.
Like the IRS, tax professionals will review your tax returns and financial records to verify your debt. They will also ask how much you can afford to pay, so they know how they can help you.
They can discuss with you the amount from your assets that you can retain as well.
Tax professionals are also knowledgeable about tax policies and IRS workarounds, so they can give you advice on how you can pay off your debt with less stress and hassle.
When Does the IRS Release a Tax Levy?
The IRS may release the tax levy if they can determine that the taxpayer is having immediate financial hardships. The taxpayer can then file an appeal to release the levy.
Here are other factors that IRS may consider in releasing an IRS levy on a taxpayer’s assets:
- The taxpayer pays the balance in full.
- The collection period ended before the IRS issued the levy.
- If the IRS sees that releasing the levy can help you pay what you owe, they may do so.
- A taxpayer applies for an installment agreement to pay the tax debt, and the terms on the agreement do not permit the levy to continue.
- The property value is more than a taxpayer’s tax balance, and releasing the levy will not hamper the IRS’s ability to collect the payment.
How Do You Stop a Tax Levy?
There are a few ways to stop the IRS from taking your property or assets. You only need to select the option that best suits your financial situation.
- Pay What You Owe in Full
The most effective way to clear your IRS levies is to pay the full balance. You can sell off some of your assets, borrow from family members or friends, or use some of your savings.
If you can apply for a loan with lower interest rates than the IRS, you may opt for this as a better option.
- Arrange an Installment Payment
Applying for an installment payment may also be a good choice because you will pay what you owe on a monthly basis. Typically, you have to pay your balance within 72 months or less for a streamlined plan, but interests continue to accrue.
- Offer in Compromise
The IRS allows you to pay less than what you owe with an offer in compromise, but you have to meet their strict financial criteria. You need to prove to the IRS that you cannot afford to pay what you owe with other means and this is your only choice.
- Currently Not Collectible (CNC)
This is when you prove to the IRS that you are dealing with financial difficulties or will go through one when you pay your balance.
If the IRS places you in CNC status, collection activities will stop, but penalties and interests continue to accrue.
An IRS tax levy can be stressful because it can significantly impact your financial capabilities. You can always avoid this situation if you file your income taxes and pay what you owe on time.
Once you receive the levy notice, immediately get in touch with the IRS to help you out with your tax liability.
Do you have any other tips to avoid a tax levy? Let us know in the comments section.