A Comprehensive Guide to IRS Levies
When you owe money to the IRS and fail to settle your tax debt, the IRS has the power to issue a levy against your income or assets. Before a levy is issued, the IRS usually sends a series of notices to inform you of the impending action. Unlike a lien, which gives the IRS a legal claim against your property, a levy grants the government the right to seize your property directly. This can include:
- Bank, Investment, and Retirement Accounts: Funds in these accounts can be accessed and taken by the IRS.
- Wages and Other Earnings: This includes salaries, bonuses, commissions, and other income.
- State Tax Refunds: Your state tax refund may be intercepted.
- Social Security and Pension Payments: These payments can also be subject to a levy.
- Cash Value of Life Insurance: The IRS can claim the cash value of your life insurance policy.
- Inheritances: Any inheritance you receive may be levied.
- Accounts Receivable and Merchant Accounts: Funds owed to you or held in merchant accounts can be taken.
- Structured Transactions from Illegal Sources: Proceeds from illegal activities may be levied.
How to Seek Levy Relief
Addressing an IRS levy promptly is crucial. If you face a levy, your tax professional can help you seek relief through the following options:
- Pay the Balance in Full: Settling your tax debt completely can remove the levy.
- Prove Financial Hardship: If the levy is causing significant financial difficulty, you may qualify for relief.
- Establish a Payment Agreement: Work out a payment plan with the IRS that avoids the need for a levy.
- Prove the Levy Was Issued in Error: If the levy was mistakenly issued, demonstrate the error to seek relief.
- Show the Collection Period Has Expired: If the IRS’s time to collect the tax has passed, the levy may be lifted.
- File for Bankruptcy: Bankruptcy can sometimes affect the levy status.
- Apply for an Offer in Compromise: Propose a settlement for less than the full amount owed.
- Show That Releasing the Levy Will Help You Pay More: If releasing the levy would enable you to pay a greater portion of the tax debt, this could be a valid argument.
What Your Tax Professional Will Do
- Review Your Situation: Your tax professional will assess where you are in the collection process.
- Determine Relief Basis: They will identify the best basis for seeking levy relief, which may include requesting a payment plan or proving financial hardship.
- Request Levy Relief: Your tax professional will contact the IRS to request relief based on your situation.
If the IRS denies your relief request, your tax professional will explore appeal options and may request a hearing with the IRS Office of Appeals.
What You May Need to Do
- Provide Financial Information: Share detailed financial information with your tax professional to help in seeking relief or preventing a levy.
- Sign Authorization Forms: You might need to authorize your tax professional to communicate with the IRS on your behalf.
Timeline for Resolution
The IRS can take from several days to three months to decide on a levy relief request, depending on the type of levy and the method of submission. The appeals process, if necessary, can extend up to six months.
FAQs
How much of my income and assets can the IRS levy?
For wage levies, the IRS will leave you with an exempt portion of your income, based on your filing status and exemptions. For asset levies, such as bank levies, the IRS can seize the full amount of your assets up to the levy amount.
Will the IRS return funds received from a levy?
Typically, the IRS does not return levied funds. However, they might consider returning funds if:
- The IRS did not follow proper procedures when issuing the levy.
- The levy caused undue financial hardship.
- Returning the funds would aid in collecting the unpaid balance.
- The National Taxpayer Advocate requests the return of the funds.
- The levied funds included stimulus payments or PPP loan proceeds.
You must request the return of levied funds within two years of the levy issuance, though requests made after nine months may not be considered.
Navigating an IRS levy can be challenging, but understanding your options and working with a tax professional can help you address and resolve the situation effectively.