Evergreen Tax Law

What is an IRS Levy?

               

    The IRS has the authority to levy your property when you have unpaid taxes. A levy is the legal seizure of your property in order to satisfy your debt to the IRS. The authority of the IRS to levy (or take) your property extends to any property or right to property that belongs to you or on which there is a Federal Tax Lien.

               

    While the IRS usually levies your bank account first, the following is an example of the type of property the IRS may seize (and sell, if necessary) in order to pay off your tax debt:

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• Any Property or right to property you own or have an interest in (house, boat, or car).

 

• Property that is yours but held by someone else (wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, or commissions).

 

 

Levy vs. Lien

               

    A levy is not a lien. A lien secures the government’s interest in your property when you don’t pay your tax debt. A levy actually takes the property to pay the tax debt. If you don’t pay or make arrangements to settle your tax debt, the IRS can levy, seize and sell any type of real or personal property that you own or have an interest in.

 

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How does the IRS Levy Property?

               

    Before the IRS can levy your property, the following must usually take place:

 

1.     The IRS must assess the tax (meaning they establish how much you owe and enter it into their records) and send you a Notice and Demand for Payment (often a CP501 Notice);

 

2.     You then fail to pay the amount in full;

 

3.     At least 30 days before the levy, the IRS must send you a Final Notice of Intent to Levy and Notice of Your Right to a Hearing (often a CP90 or CP297 Notice).

 

   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.

 

    Please note: 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.

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What happens when the IRS levies my bank account?

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    If the IRS decides to levy your bank account it will send a letter directly to your bank, instructing your bank to freeze the funds you have on deposit for 21 days (up to the amount you owe).  During these 21 days, you have some time to solve any problems from the levy or to make other arrangements to pay.  After 21 days, the bank MUST give the IRS the money, plus interest if it applies.  To discuss your case, you may call the IRS employee whose name is shown on the Notice of Levy or contact a tax law professional to do so on your behalf.

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What happens when the IRS levies my paycheck?

               

    If the IRS decides to levy your paycheck (garnish your wages), it will send a letter directly to your employer and part of your paycheck will be paid over to the IRS each pay period until you either make other arrangements with the IRS to pay your taxes, you pay off your entire tax debt, or negotiate with IRS to have the levy removed. A wage levy will also often apply to any bonuses you are set to receive.

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How to avoid a Levy by the IRS

               

    When a taxpayer owes the IRS, the IRS will attempt to collect that debt by mailing notices to your home address. The first notice is usually a CP501 Notice, which will tell you how much the IRS believes you owe for a given year. Each year is treated separately, so you if you owe for 5 separate years, you may receive five separate CP501 Notices at once. The IRS will also tell you the total you owe, which generally includes the original balance due and the interest and estimated tax penalties that have accrued since the original due date.

               

    A CP502 Notice is essentially a second warning, stating the same information as the CP501 Notice. However, because more time has passed, the amount owed in the CP502 Notice will often be greater than that in the CP501 Notice, due to the growth of penalties and interest. There is also a CP503 Notice, which is essentially a third warning.

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    Avoiding a levy: When a taxpayer receives these notices, it is important that action is taken AS SOON AS POSSIBLE in order to avoid the IRS levying any property. If no action is taken, the taxpayer will likely receive a CP504 Notice, also called a Notice of Intent to Levy. This notice states that the IRS intends to “seize your property or rights to property” if you do not pay the entire amount owed WITHIN 10 DAYS.

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    While the IRS usually uses a levy as a last resort, after sending many, many of the above types of notices, your best move is always to address the situation as soon as possible. If you have received any of the above notices from the IRS, please consider consulting with a tax law professional in your area immediately.