Owing back taxes can be stressful, but few things are as stressful as getting a letter from the Internal Revenue Service (IRS) that tells you they have your assets on their radar for seizure. We understand the alarm a levy notice causes; it’s an alarm that often comes with countless questions about the process and what options you have. We’re here to shed some light on some of your most frequently asked questions about IRS levies.
How does IRS Tax levies work?
However unnerving, the IRS has the legal authority to seize your property without a court order to collect back taxes. Revenue agents prefer to collect taxes via the easiest path available to them. To initiate the collection process, a letter is sent to the address they have on file, which notifies the taxpayer of their past-due balance and payment instructions.
If they don’t receive an acceptable response, they examine the taxpayer’s assets, including financial accounts, wages and property, to determine the most efficient avenue of collection.
The collection efforts most commonly used are levies and liens. Levies should not be confused with liens. A lien gives the IRS a legal claim against the property for collection of due funds at the time of sale or refinance. A levy removes assets from the control and possession of the taxpayer.
At least 30 days before acting on the intent to levy, a final notice will be delivered in person to your home or business address, or by certified U.S. Mail. Banks, employers and others in the position to do so, are required by law to comply with a request to seize the taxpayer’s assets.
The funds obtained through seizure are applied to your back-tax debt, and continuing seizure efforts remain in place until the debt is satisfied.
When does the IRS levy bank accounts?
If a revenue agent concludes that your back-tax debt is most efficiently settled via a seizure of funds in a bank account, action on the levy intent is taken 30 days after the Final Notice of Intent to Levy is generated.
A demand is presented to the bank by the IRS, which results in a freeze on the funds in the account. Although the funds remain in the account, neither the taxpayer nor the IRS has access to them. This serves as the ultimate attention-getter for the IRS. If the debt isn’t satisfied voluntarily by the taxpayer within 21 days after the freeze, the bank removes the funds from the account and transfers them to the IRS.
Can the IRS levy an independent contractor or other 1099 income?
If a revenue agent imposes a wage levy – also referred to as a wage garnishment – on a taxpayer with back-tax debt, the employer is notified that their employee is behind on a tax obligation. They are then required by law to withhold a specific amount along with their regular income tax holdings. These funds are then forwarded directly to the IRS by the employer.
In the case of an independent contractor, income doesn’t come from an employer, and therefore no taxes can be withheld. Independent contractors pay their annual tax obligations throughout the year by sending quarterly tax payments to the IRS based on specific and careful estimations. The process of a typical wage garnishment can’t be applied to this system of income, as the IRS would essentially need to contact clients and collect payments from them, which would be a pretty tall order – even for the IRS.
Revenue agents exploring collection options for independent contractors must turn to other assets for seizure. These may include seizure of other assets like bank account balances, retirement account balances, real estate property, and cars or boats.
What if I can’t afford a levy?
Many taxpayers experience severe financial struggles, which make it difficult – or impossible – for them to settle their back-tax debt. While the IRS regularly resorts to collection efforts that can seem ruthless to a besieged taxpayer, revenue agents are rarely unreasonable when the taxpayer is experiencing a severe economic hardship.
In circumstances in which a levy on a financial account stops a taxpayer from being able to pay rent or buy food, and he or she can provide documented verification of this, the IRS has a legal obligation to release the levy.
Although a release of the levy is possible, the IRS is diligent in its scrutiny of supporting documentation submitted with this claim. Professional tax representation is often essential when claiming financial hardship to release a levy, as the process and qualifications can vary and are often complex.
How can I appeal a bank levy?
Initiating this collection process is sometimes done at inappropriate times. For example, taxpayers who’ve recently settled their balance, are in an installment agreement with the IRS, or are awaiting a response to an offer in compromise should not experience this collection attempt. If you’re notified of the IRS’s intent to levy your property and it’s an error, appealing the decision is an appropriate remedy.
A written response to the Notice of Intent to Levy is required within 30 days to halt the levying process. Complete IRS Form 12153, entitled Request for a Collection Due Process or Equivalent Hearing. This form offers an opportunity to explain why a levy is inappropriate in your circumstances. Print neatly and use clear and concise language.
The Notice of Intent to Levy lists the appropriate address that the form should be mailed to. Collection efforts will halt as the appeal is addressed. The Office of Appeals will notify you of their decision and the reasoning behind their determination. If you disagree with the response, you have the right to appeal a second time when a written response is received by the IRS within 30 days of the notification of the first appeal decision.
Enlist the help of a tax relief professional when crafting your appeal. Tax relief professionals have extensive knowledge and a thorough understanding of the internal processes of the IRS, which allows the taxpayer to establish a verifiable response that fits within their strict guidelines for granting an appeal.
Does the IRS ever levy without a notice being sent?
The IRS makes reasonable efforts to obtain payment from a delinquent taxpayer before taking collection action. First, a paper bill is mailed or delivered in person to the taxpayer at his or her home or business address. This is called a Notice and Demand for Payment and essentially serves as the tax bill.
If the bill isn’t paid in a timely manner and no method of payment has been established by the taxpayer, the Final Notice of Intent to Levy, including the Notice of Your Right to a Hearing, will be sent or delivered to the taxpayer. If no response is received by the IRS within 30 days, steps toward the levy immediately take place.
Most taxpayers with back-tax debt can expect this process to be followed; however, the IRS has the right to levy a taxpayer in extenuating circumstances without notice. This is called a jeopardy levy, and it’s commonly used when the IRS believes that giving notice to the taxpayer will put the collection of their back taxes in jeopardy.
The IRS offers the following example, “There may be a prompt assessment on a voluntarily filed return. Then, if the taxpayer starts moving property to hide it, a revenue officer may make a jeopardy levy if collection is in jeopardy, after securing the required approvals outlined in IRM 18.104.22.168, Getting Approval.”
How much can the IRS take in a wage levy?
With many Americans living paycheck to paycheck, this is a question we tend to get often. Rest assured that the IRS will not take your entire paycheck until the debt is settled, unless you have more than one job.
That’s not to say that they’re kind when determining how much you’ll pay each month, but they will consider your filing status and number of independents for the applicable year. Once your employer receives the notice of levy from the IRS, they will provide you with a form called Statement of Dependents and Filing Status. It must be returned to your employer within three days or the deduction from your paycheck will be calculated based on a status of married filing separately with no dependents.
What’s more, they may opt to assume that you live on income from another source and require your employer to withhold all income earned until the back-tax debt is paid.
How do I stop an IRS levy?
The IRS proposes the following suggestions for halting an IRS levy:
- Pay the tax debt in full.
- Enter into a mutually agreeable installment agreement with the IRS.
- File an appeal, as outlined above.
- Submit an offer in compromise.
The goal of the revenue agent is to successfully collect overdue taxes from taxpayers in a manner least intrusive on their resources. They commonly resort to levies if their attempts to reach the taxpayer or otherwise obtain payment or an arrangement for payment are unsuccessful.
If you’ve found yourself in a position in which the IRS is poised to seize your assets, call Tax Champions now at 800.518.8964. Our experienced and friendly staff is available day and night for a free consultation with no obligation to hire our firm. Let us help you find clarity in your situation and the best options available to you.