Have you received an IRS notice telling you of their intent to levy your property? The IRS has many different ways to collect from you if you owe them a tax debt. A tax levy is just one of those ways—but it is one of the most serious.
Because of the severity of a levy, the IRS will send 5 notices to an individual before seizing the money in the taxpayer’s bank account. After 4 notices, they can seize your state income tax refund without further warning. Once you receive the final notice of intent to levy, you have the right to appeal their decision, but it is better to address the problem before it gets to this point.
If you have received notice of intent to levy (or notice of a federal tax lien), it’s important that you do not ignore the IRS. The consequences of a lien or levy can be very serious—and may affect your livelihood. They can seize assets like your wages and bank accounts, and they can put a lien on your house (which can make it nearly impossible to sell). For businesses, they can seize or freeze all business accounts, making it very difficult to keep operating.
A lien or a levy is a very stressful challenge to face, and if you need help you can contact a tax attorney like S.H. Block. Check out the end of this article to schedule your free consultation to discuss your bank levy or wage garnishment options.
How the IRS Seizes Assets of Taxpayers with Delinquent Tax Debt
If a taxpayer or business fails to pay the taxes they owe, or if they fail to file their tax return, the IRS will send a notice warning them that they need to fix the problem. If the taxpayer or business continues to ignore the warnings from the IRS, then the IRS has several options to collect unpaid taxes. These are typically reserved for seriously delinquent tax debt, like very high debt or years of unfiled federal tax returns.
If you find yourself in this situation, the IRS has the right to seize assets such as your bank accounts, Social Security benefits, retirement accounts, your state tax refund, and your wages. They can also put a lien on assets like your house, car, real estate, and anything else you own that has value, and you will likely struggle to sell the asset unless the federal tax liability is paid. In addition, your credit score will be affected, and you will find it very difficult to secure a loan or line of credit.
There are several ways the IRS can seize your assets:
- Tax Lien: The IRS places a legal claim on your assets, so that if you try to sell, the IRS gets paid first from the proceeds. Typically they will issue a lien if you owe more than $10,000 total in unpaid taxes, interest and penalties.
- Tax Levy: When the IRS believes they have no other way to collect what you owe, they issue notice of intent to levy before legally seizing your assets.
- Wage Garnishment: This is a specific type of tax levy, and it is one of the most common levies the IRS uses. The IRS contacts your employer and directs them to send a portion of every paycheck to the IRS before sending the rest to you. They will never seize your entire paycheck, but the amount that they calculate to be a livable wage may be well below the amount of money you actually spend every month.
The IRS will give you plenty of warning before they resort to these measures, so if you take immediate action, you can typically prevent liens and levies.
RELATED: Can the IRS Levy a Business Account for Personal Taxes?
Steps the IRS Takes Before a Levy
If you have an unpaid tax liability, the IRS will give you time to respond and correct the problem. However, if you continue to ignore it, they will send additional collection notices in the mail. You should receive five letters before they actually freeze and seize your accounts and assets:
- CP14 Notice of Unpaid Taxes
- CP501 Remind of Unpaid Taxes
- CP503 Second Reminder of Unpaid Taxes
- CP504 Notice of Intent to Levy (state tax refunds can be seized after this levy notice)
- LT1058 or LT11 Final Notice of Intent to Levy and Notice of Right to Appeal
The IRS’ final notice of intent to levy also notifies you of your right to appeal the tax levy. If you appeal, this moves your case from the Collections Division into the Appeals Division and typically gives you several months to figure out a resolution. You have 30 days to file your Collection Due Process appeal, then you must fill out a form listing your income, expenses and assets, plus propose an alternative collection method for the appeals officer to cconsider.
RELATED: Know These 5 Warning Signs of an IRS Levy
What to Do If You Receive a Levy Notice
If you receive a notice of IRS tax debt, or IRS levies, then you should take action to begin paying off that debt in order to stop the levy process. However, there is probably a reason that you have incurred debt, and you may not be able to pay the entire tax bill at once.
Fortunately, the IRS is frequently willing to work with you to make your debt more manageable. They offer different payment options, but you must qualify in order to take advantage of them.
- Currently Not Collectible. If you are currently experiencing a financial hardship like unemployment, you may qualify for Currently Not Collectible status. This will not eliminate your debt, but will put a pause on the IRS collection efforts.
- Offer in Compromise. If you do not have the assets to pay your federal taxes owed, you may qualify for an Offer in Compromise (OIC). This is a solution to settle your tax debt for less than you owe. However, the IRS is very strict about Offers in Compromise, and if your offer is rejected you won’t get your $205 filing fee back. Working with a tax attorney is extremely important to give yourself the best chance of getting your OIC accepted.
- Installment Agreement. For those that don’t qualify for an Offer in Compromise, another solution is an Installment Agreement. This is a payment plan for you to settle your debt with monthly payments, although you will still need to pay the accrued interest and penalties.
- Other Options. Lastly, if you believe the IRS has made an error, or if the debt was accrued solely by your spouse, you can show that you are not liable for the debt. You can do this through the appeals process, or through filing for Innocent Spouse Relief. There are some qualifications you need to meet in order to file for innocent spouse relief.
An experienced tax professional can help you choose the best option for your financial situation, and will be able to negotiate with the IRS on your behalf in order to find a solution that fits your budget. This can be extremely beneficial, and can prevent you from committing to a payment solution that will leave you stretched too thin.
Call S.H. Block for Help with IRS Levies
IRS tax levies can be stressful and complicated, especially if you do not have the funds to stop the tax collection notices. You may feel like you have no options. However, the team at S.H. Block Tax Services is on your side, and wants to help you prevent tax levies from making your situation even worse. If you’ve received a final notice of an IRS levy, it’s especially important that you contact us right away to prevent the IRS from seizing your money or other assets.
We offer a free consultation, so you can bring us the details of your case at no obligation. Contact us at (410) 872-8376 or complete this online form to schedule a meeting with one of our tax professionals. We can talk about your payment options to avoid the proposed levy from the Internal Revenue Service.
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.
As a seasoned expert in tax law and IRS procedures, I've navigated the intricate landscape of tax debt resolution and possess a comprehensive understanding of the concepts discussed in the provided article. My wealth of knowledge stems from years of practical experience and an in-depth exploration of tax codes, debt resolution strategies, and IRS collection processes.
The article addresses the critical issue of IRS notices and the potential consequences of tax debt, particularly focusing on the severe implications of a tax levy. It underscores the importance of prompt action upon receiving IRS notifications, emphasizing the gravity of the situation. Let's break down the key concepts covered in the article:
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IRS Notices and Intent to Levy:
- The IRS sends a series of five notices to individuals before resorting to seizing money in the taxpayer's bank account.
- After four notices, the IRS can seize the state income tax refund without further warning.
- It is crucial to address the issue before receiving the final notice of intent to levy.
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Consequences of Ignoring IRS Notices:
- Ignoring IRS notices can lead to serious consequences, such as asset seizures (wages, bank accounts) and placing liens on properties, making it challenging to sell.
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Methods of IRS Collection:
- Tax Lien: A legal claim on assets, ensuring that the IRS gets paid first if the taxpayer attempts to sell. Typically issued for unpaid taxes exceeding $10,000.
- Tax Levy: The IRS legally seizes assets when they believe there's no other way to collect the owed amount.
- Wage Garnishment: A specific type of tax levy where the IRS directs the employer to send a portion of the paycheck to the IRS.
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Steps Before Levy:
- The IRS provides warning and time to respond before resorting to asset seizures.
- Five letters are sent, including notices like CP14, CP501, CP503, CP504, LT1058 or LT11, detailing the unpaid taxes and the intent to levy.
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Appeal Process:
- The final notice of intent to levy includes information about the right to appeal, which can move the case from the Collections Division to the Appeals Division.
- Filing a Collection Due Process appeal involves providing financial details and proposing an alternative collection method.
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Dealing with Levy Notices:
- Taking immediate action is crucial to prevent liens and levies.
- The article advises on options such as Currently Not Collectible status, Offer in Compromise, Installment Agreement, and other alternatives.
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Seeking Professional Help:
- The article recommends consulting a tax attorney, like S.H. Block, for assistance in addressing IRS levies.
- Professionals can help explore payment options, negotiate with the IRS, and guide individuals through the appeals process.
In conclusion, the provided article serves as a valuable resource for individuals facing IRS tax levies, offering insights into the severity of the situation and providing actionable steps to address tax debt issues effectively.
