IRS Levy Help - The Guide for Taxes

A Levy is a legal seizure of your property to satisfy a tax debt. Levies are different from liens. A lien is a claim used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt.

 

If you do not pay your taxes (or make arrangements to settle your debt), the IRS may seize and sell any type of real or personal property that you own or have an interest in. For instance:

 

• They could seize and sell property that you hold (such as your car, boat, or house)

 

 

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

 

 

• They usually levy only after these three requirements are met:

 

 

• They assessed the tax and sent you a Notice and Demand for Payment

 

• You neglected or refused to pay the tax

 

 

• They sent you a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy. They 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 they levy 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.

 

 

• You may ask an IRS manager to review your case, or you may request a Collection Due Process hearing with the Office of Appeals by filing a request for a Collection Due Process hearing with the IRS office listed on your notice. You must file your request within 30 days of the date on your notice.

 

Some of the issues you may discuss include:

 

1. You paid all you owned before they sent the levy notice

 

 

1. They assessed the tax and sent the levy notice when you theyre in bankruptcy, and subject to the automatic stay during bankruptcy

 

 

1. They made a procedural error in an assessment

 

 

1. The time to collect the tax (called the statute of limitations) expired before they sent the levy notice

 

 

1. You did not have an opportunity to dispute the assessed liability

 

 

1. You wish to discuss the collection options

 

 

1. You wish to make a spousal defence

 

If they levy your wages, salary, or federal payments, the levy will end when:

 

• The levy is released

 

 

• You pay your tax debt

 

 

• The time expires for legally collecting the tax

 

 

• If they levy your bank account, your bank must hold funds you have on deposit, up to the amount you own, for 21 days. This holding period allows time to resolve any issues about account ownership. After 21 days, the bank must send the money plus interest, if it applies, to the IRS. To discuss your case, call the IRS employee whose name is shown on the Notice of Levy

 

 

The IRS tends to employ a levy when people either ignore requests for payment of taxes or don’t stick to proposed payment plans. If a tax debt is very large, a proposed payment plan may simply be too modest for the IRS and they may choose to levy your earnings or assets. Usually, the IRS is willing to work with people who own tax debt because it is much less expensive to have a debt collected over time. The IRS can, however, levy fees and fines or interest if a debt needs to be paid off in payments.

 

An IRS Levy on wages is the fastest way for them to get at your money.

Most people who own back taxes have a regular and steady job of some sort.

If IRS knows where your bank account is located, or if you or anyone else tells them where it is,

they can also levy your bank account and take whatever money is in the bank.

 

A Levy is a legal seizure of your property to satisfy a tax debt. Levies are different from liens. A lien is a claim used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt.

Background

 

 

 

 

 

Once the IRS has chosen to levy a bank account or wages, there are few choices left for the person. It is usually at this stage that making payment plans is most difficult and the IRS is most likely to do whatever they wish with money you earn. This can leave some people without sufficient means for support.

The key is to avoid an IRS levy is by working with the IRS from the start if one owns a tax debt. Alternately, when one owns a very large tax debt, one may want to consider hiring a lawyer to work as mediator in establishing a reasonable payment plan. Delaying working with the IRS is generally the most common reason for the IRS to levy wages or property.

 

 

State Income Tax Levy Program (SITLP)

 

Under the SITLP, the IRS may levy (take) your state tax refund. Currently, this only applies to individual state tax refunds, but may include business state tax refunds in the future. SITLP matches federal tax delinquent accounts against a database of state tax refunds for states participating in SITLP. If your state tax refund is levied, the state will issue a notice advising you of the tax levy. The IRS will also issue a notice, after the levy, offering you the opportunity to appeal the levy.

 

 

Social Security Benefits Eligible for the Federal Payment Levy Program

 

Through the Federal Payment Levy Program (FPLP), Social Security benefit payments outlined in Title II of the Social Security Act, Federal Old-Age, Survivors, and Disability Insurance Benefits, are subject to the 15-percent levy, to pay your delinquent tax debt. Benefit payments, such as lump sum death benefits, benefits paid to children, and special benefits for persons aged 72 and over by 1971, however, will not be included in the FPLP.

 

 

Releasing Levies and Levied Property

 

The Internal Revenue Service (IRS) must release your tax levy if any of the following occur:

 

• You pay the tax, penalty, and interest you own.

 

• The IRS discovers that the time for collection (the statute of limitations) ended before the IRS tax levy was served.

 

• You provide documentation proving that releasing the tax levy will help the IRS collect the tax owned. You have an installment agreement, or enter into one, unless the agreement says the levy does not have to be released. The IRS determines that the tax levy is creating a significant economic hardship for you.

 

• The fair market value of the property exceeds such liability and release of the tax levy on a part of such property could be made without hindering the collection of such liability.

 

 

IRS Bank Levy Release

 

If IRS knows where your bank account is located, or if you or anyone else tells them where it is, they can also levy your bank account and take whatever money is in the bank. It doesn't matter whose money it is, either. As long as your Social Security Number is attached to the account, the bank is required to hold the money for IRS.

 

By law, the bank must hold the funds for 21 days before sending them to IRS. This holding period gives you time to try to get IRS to "let you have it back." In all sincerity, even with years of experience and knowledge of the IRS System, they find it extremely more difficult to get an IRS Bank Levy Release than it is to get an IRS Wage Levy Release.

 

Why?, Theyll, keep in mind that IRS must follow those two little rules they keep mentioning about ordinary and necessary expenses and undue economic hardship. IRS has its own precise definitions of these terms and those definitions tend to favour You Know Who.

 

 

The Official IRS Opinion is this:

 

Any money you have laying around in a bank account is extra money that you don't need for ordinary and necessary expenses. Otherwise, you'd have already spent it on those expenses if they theyre so ordinary and necessary. In spite of the fact that you may have $1,000 in outstanding checks that are going to bounce regardless of the fact that you really do need to go to the supermarket as usual on Tuesday.

 

so what if today is the 16th and your paycheck was just deposited yesterday and they got all your money. too bad that your 1973 Plymouth is in the shop and it's going to cost you $1,250 to replace the radiator and the fuel pump and 8-track player.

 

That's extra money just sitting right there in your bank account and it isn't ordinary and necessary or you would have already ordinarily and necessarily spent it! IRS says that in order for them to give you any of that money back ......... they want to see an eviction notice or some utility shut-off notices.

 

They're not making this stuff up, either. For some unknown reason, IRS simply considers money in the bank as unnecessary. IRS reps on the phone invariably tell us, "theyll, you know they won't give you a Bank Levy Release."

 

 

IRS Wage Levy Release

 

That job is an easy source of revenue for the IRS. It's a favourite way to get the attention of someone who has been ignoring all those letters.

 

And IRS uses it quite effectively. It's fairly easy for IRS to find your employer. Most of the time, all they have to do is look at your W-2 from last year since you probably haven't witched jobs. In fact, IRS will typically send IRS Levy notices to anyone you worked for in the last three to five years.

 

IRS will also have record of everyone who paid you as a contractor or subcontractor or consultant or for any other type of self-employed work. Most (but not all) self-employed individuals receive at least one form 1099 for each tax year. The IRS computer system cross-references employers and their employees by matching the Federal ID Number of the employer to the Social Security Number of the employee.

 

This makes it quite simple for them to verify that the income you reported on your tax return is at least as much as the total of all the W-2s and 1099s they received from other paying sources.

 

If you've changed jobs recently or perhaps started a second job that you didn't have last year, then chances are that IRS won't know about it until May or June of the following year when they've processed all of the W-2s and 1099s sent to them by employers and other payers.

 

Those W-2s and 1099s are given to you (and sent in to the government in January) so that you can use them to prepare your tax return at 10:00 p.m. on April 15th and then drive around town like a complete idiot trying to find the one lonely Post Office way over on the other side of town (or in the third town to the east, or is that the theyst, gee I wish I'd written down the address like my wife told me to do) that is staying open until midnight for the "convenience of the taxpayers."

 

Once IRS is successful in finding a good levy source, their IRS Levy will will stay active until the underlying tax is completely paid or some other agreement is made and they send your employer that elusive IRS Levy Release form. IRS cannot take all of your paycheck, but they've seen them take 80% to 85% of clients' take-home pay with an IRS Levy.

 

If the company or individual who receives the IRS Levy treats the taxpayer like a self-employed person and doesn't deduct any payroll taxes from the check, then the payer is technically required to withhold all payments to the taxpayer until the total amount of the levy has been sent to IRS. Again, an agreement can be reached with IRS and they can issue an IRS Levy Release, but only when all of their requirements have been met.

 

 

IRS Levy Exemptions

 

What is exempt from IRS levies?

 

To put it succinctly: not much.

 

• Wages - Take wages for example. While a certain amount of wages is exempt from IRS levy, the amount exempt is not enough to live on no matter how frugal you might be. The annual exemption from a wage levy is equal to the standard deduction on your tax return plus the exemptions under Code Section 151 from your tax return. If you get paid weekly or monthly, the annual levy exemption is prorated over your pay period. It’s peanuts, unless you have justifiably filed many personal exemptions on your 1040 return and your wages are extremely low.

 

• Fuel, Provisions, Furniture, and Personal Effects - These items are exempt but only up to $6,250 (adjusted for increases in the cost of living after 1999).

 

• Books and Tools of a Trade, Business or Profession - These items are exempt but only up to $3,125 (adjusted for increases in the cost of living after 1999). For tangible property used by an individual in a trade or business that is above the exemption amount, the District Director must first personally approve the levy after determining that other assets are insufficient to pay the tax liability. This requirement of the District Director is removed, however, in cases where the IRS thinks the taxpayer is about to hide assets (“jeopardy”).

 

• Unemployment Benefits - Unemployment benefits are exempt, but only in the hands of the agency making the payments. The statute reads “Any amount payable to an individual with respect to his unemployment. . . . .” 26 U.S.C. § 6334 (a) (4) (emphasis added), Once the unemployment benefit has actually been paid, it is fair game for an IRS levy. Spend it quickly!

 

 

• Undelivered Mail - Go figure.

 

 

• Workmen’s Compensation - Workmen’s Compensation is exempt, but only while payable to the taxpayer. This is the same trap as in the case of unemployment benefits.

 

 

• Annuities and Pension Payments - But read further. The deferred compensation payments are exempt only if payable (that word again) by the Army, Navy Air Force, Coast Guard Medal of Honour, or under the Railroad Retirement Act or Railroad Unemployment Insurance Act. There is a persistent myth that retirement plans and IRAs (Individual Retirement Accounts) are exempt from IRS levy. For the vast majority of us, that is simply not true. 26 U.S.C. § 6334 (a) (6). And even for the lucky few, the retirement benefits are subject to levy once they have been paid to the retiree.

 

 

• Judgments for the Support of Minor Children - One can guess that Congress has a soft spot for hungry children. Wages and other income (but not assets) needed to support this obligation are exempt.

 

 

• Service Connected Disability Payments - The classic example here would be disability benefits payable by the Veterans Administration. But again, the key word is “payable.” Once the disability has been paid and in the hands of the tax debtor, the disability benefit is fair game for levy.

 

 

• Public Assistance Payments - They are talking theylfare here. Amounts payable for supplemental security income for the aged, blind and disabled under the Social Security Act and state or local public assistance programs that are based on a need or income test.

 

 

• Job Training Partnership Act Payments - Payments under the Jobs Training Partnership Act (29 U.S. C. 1501, et seq., are exempt.

 

 

• Residences in the Case of Small Deficiencies - If your total tax bill including tax, penalties and interest is under $5,000, the IRS cannot levy on your residence.

 

 

• Residences in the Case of Bigger Deficiencies. If your total tax bill including tax, penalties and interest is over $5,000, the IRS must first obtain judicial approval in federal district court to approve the levy. This is a hassle for the IRS, but certainly is not an insurmountable problem.