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How an IRS Tax Levy Works, Types of Levies & Garnishment

If you fail to pay your tax debts, the IRS can legally seize your property in order to pay it off.  This seizure of your property is called a “levy”.  Property which the IRS can seize and sell in order to pay off tax debts you owe might include a large percentage of your paycheck, your retirement accounts, bank accounts, life insurance cash value, commissions owed to you, accounts receivables owed to you, rental income, or even your home, boat, or car.

When Will The IRS Begin a Tax Levy

A tax levy is a serious situation, and you should do everything you can to avoid it from happening.  If the following three situations occur, you can count on having a tax levy imposed on your personal property:

  • You've received a Notice and Demand for Payment from the IRS;
  • You've ignored, refused to pay or neglected to pay the taxes the IRS say you owe;
  • About 30 days have passed since you've received a Final Notice and Intent to Levy

Types of IRS Tax Levies

There IRS uses three main forms of levies. It is nearly impossible to know which form the IRS will use before they actually use it, which is for good reason. The IRS will try to analyze your income, assets, and other personal property and make a decision as to which form of IRS levy would allow them to recover the most amount of money with the least amount of effort. Below are the 3 most common forms of levy used by the IRS.

  1. IRS Bank Account Levy

    A bank levy is when the IRS seizes funds directly from one of your bank accounts. The IRS will not give you notification prior to seizing funds. Most people find out that the IRS intends to levy their bank account when they go to withdrawal funds and notice that their account has been frozen. The bank that is holding your funds will freeze the account for 21 days prior to transferring the funds to the IRS. This is one of the most common forms of levy because it is the easiest for the IRS to do. All the IRS needs to do is look on your tax return and see if there were any banks that you reported earning interest from and they will check those banks to see if you have any cash.

  2. IRS Wage Garnishment

    Wage garnishment is another common form of levy used by the IRS. With wage garnishment, the IRS will contact your employer and require them to withhold a certain portion of your pay in order to satisfy unpaid tax bills. Again, this is easy for the IRS because they can easily find out who your employer is from looking at past tax returns or tax statements that your employer is required to report to the IRS with payments made to you.

  3. Asset Seizure

    This is typically the least common form of levy used by the IRS because it is typically the most difficult. If you do not have an employer or have a bank account that the IRS can find with funds in it, it is likely they will attempt to seize hard assets. The IRS may seize cars, boats, homes, or any other asset that they feel has monetary value and will be able to satisfy some or all of the taxes that you owe.

Can an IRS Tax Levy Be Stopped?

If you receive the Final Notice and Intent to Levy, you need to take action immediately to stop the tax levy proceedings.  There are certain situations in which you can legally stop a tax levy.  Request a Collection Due Process Hearing with the Office of Appeals.  The contact information for doing so will be found on your Final Notice and Intent to Levy notification.  You only have 30 days to request the hearing from the date printed on the notice.

You want to request a Collection Due Process Hearing even if you've already paid the tax owed because it's possible it wasn't applied correctly to your account and they will begin seizing your property if you don't make the IRS aware of the situation.

Other reasons for requesting the Collection Due Process Hearing that may possibly stop a tax levy from occurring:

  • At the hearing, you can let the IRS know that you already paid the taxes due before the levy notice was sent to put a stop to the levy proceedings.  
  • If you've filed bankruptcy and are subject to the automatic stay, you can bring proof of the bankruptcy to the hearing to stop the levy proceedings.
  • The statute of limitations for collecting the tax debt you owe has passed before the levy notice was sent.
  • You are prepared to discuss various collection options for paying your tax debt.

When Does a Tax Levy End?

A tax levy will remain in place and the IRS will continue collection actions until your account is back into compliance with the IRS. Below are some of the ways to stop a tax levy.

  • IRS seizes enough funds

    If the IRS successfully levies your assets and seizes enough funds to cover the amount of money that you owed to the IRS, the levy will stop.

  • Taxes are paid

    If the taxes are paid off in full then the IRS will immediately halt all collection actions and your account will be back in good standing with the IRS.

  • Statute of limitations expires

    If the IRS cannot collect the taxes in a period of 10 years from the date they were assessed (some exceptions apply), then they can no longer enforce the collection of the taxes owed.

  • Taxes are settled

    If you come to another form of agreement with the IRS they will halt collection actions. Below are some forms of settlement that individuals can enter to stop a tax levy if they cannot pay taxes in full.

    • Installment agreement

      An installment agreement allows you to pay back your taxes in mothly increments. If the IRS accepts your installment agreement and you do not default on the agreement the IRS will not continue to levy. If a levy is already in place it may be hard to get the IRS to accept this type of agreement.

    • Offer in compromise

      An offer in compromise is for taxpayers that have bad financial situations and would likely never be able to pay back the taxes owed in full. With an offer in compromise the taxes owed can be settled for less than the total amount.

    • Partial payment installment agreement

      If a taxpayer doesn't qualify for a regular installment agreement, it is a possibility that they will consider them for a partial payment installment agreement. With this type of payment agreement, you will be able to pay back the taxes owed (sometimes equal to less than the total amount owed) in monthly increments that are smaller than the required monthly payments for a normal installment agreement.
  • IRS Hardship

    Hardship is when the IRS recognizes that seizing your assets will leave you without enough money to "live". The IRS does not intent to seize people's assets and leave them without enough money to eat or put a roof over their head, but they sometimes do because they never received proof that financial hardship would occur if the assets were seized. This is not a way to make the tax problem go away, but can buy you more time to get your financial situation in order without worrying about the IRS seizing your assets.

Get Tax Relief Help For:

  • Unfiled Tax Returns
  • Unpaid Taxes / Back Taxes
  • Bank Levies & Tax Liens
  • Tax Penalties & Interest
  • Business Tax Problems
  • Wage Garnishment
  • Seizures, Audits & More


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