How to Stop an IRS Tax Levy

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  • The IRS can levy (seize) your assets if you owe taxes you have not made arrangements to repay.
  • Many taxpayers can avoid a levy by entering into an installment agreement.
  • Seek help from a tax professional if you can’t afford to make even a small monthly payment toward your balance.

An IRS tax levy occurs when a taxpayer ignores tax collection attempts from the agency. The levy allows the IRS to seize wages, bank accounts, real estate, vehicles, business accounts receivable, and other assets to repay the past-due tax debt. If you’ve received notice of a levy, these are the steps you need to take immediately to protect your property from seizure.

Understanding a Lien vs. a Levy

Although the words lien and levy are sometimes used interchangeably, these terms actually represent two separate steps in the IRS collections process. A lien is issued to give the IRS legal claim over the property in question, while the levy is the action of taking that property and selling it to satisfy the tax debt.

How to Stop an IRS Tax Levy

When a lien is placed on your property, the IRS has a legal right to the proceeds if you sell that specific asset. If you do not take action to settle the debt once a lien has been placed, you may receive a letter titled Final Notice of Intent to Levy.

The IRS Collections Process

Taxpayers have several opportunities to make arrangements for debt repayment before a levy takes effect. You will receive four notices about your tax balance before you receive the Final Notice of Intent to Levy, or Form CP90. Here are the other notices you will receive:

  • Notice CP14, Status 21. This form states your assessed federal tax liability and outlines the collection actions that will take place if you do not make arrangements to repay your taxes. It also discusses the penalties and interest that will be assessed on your past-due balance.
  • Notice CP501, Status 20. This recaps the information from the first letter and indicates that you are still subject to collection actions.
  • Notice CP503, Status 56 serves as a reminder that your property and assets can soon be seized if you do not make arrangements to pay your taxes.
  • Notice CO504, Status 58, is the final letter you’ll receive before the Notice of Intent to Levy. This is sent through the U.S. Postal Service and requires a return receipt.

Ways To Stop a Federal Tax Levy

It’s important to act quickly once you receive a Final Notice of Intent to Levy. There are many actions you can take to stop an IRS tax levy.

  • Request a collection due process hearing within 30 days of receiving the notice
  • Enter into an installment agreement to repay your tax debt. You’ll need to make several payments toward this agreement before the levy will be released.
  • Request an offer in compromise (OIC), in which the IRS agrees to settle your tax debt for less than you owe. Make sure you qualify for an OIC before going this route, as you will be required to pay nonrefundable application fees.
  • Repay the full balance of your tax debt. If you do not have the funds to do so, you may consider refinancing your home or taking a home equity loan, applying for a personal loan, or using credit to pay off your debt. For the latter option, make sure you choose a card that has a lower interest rate than is charged with an IRS installment agreement.
  • Seek currently not collectible (CNC) status. This means that the IRS’ attempts to collect your tax debt would result in an undue hardship, as you would be unable to meet basic living expenses. To qualify for CNC, you must submit detailed financial information to the IRS. Keep in mind that this status will be reviewed every year or two. If your financial situation changes, you will once again be liable for the tax debt.

Types of Installment Agreements

For many taxpayers, entering into an installment agreement with the IRS is the most effective way to avoid a levy. This means that you’ll make monthly payments toward your debt until the full balance is repaid, including penalties and interest. Depending on your specific situation, you may qualify for one of three types of installment agreements.

Guaranteed Installment Agreement

A guaranteed installment agreement is available for taxpayers who owe less than $10,000 and have filed all outstanding tax returns. You must be able to pay off the entire balance in no more than 36 months, and you are not eligible if you have had an installment agreement with the past five years. If you meet these criteria, the IRS must enroll you in a monthly payment agreement and will not pursue additional collections actions if you comply with the terms of the agreement. In addition, you will not be subject to a federal tax lien. This public record can make it difficult to be approved for mortgages and other types of loans.

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Streamlined Installment Agreement

Streamlined installment agreements are available for taxpayers who owe up to $50,000. You must be able to repay your balance within 72 months, file all past-due returns, and agree to pay any future assessed tax on time. The availability of this program was expanded by the IRS Fresh Start Initiative.

Partial Payment Installment Agreement

If you are unable to qualify for either the guaranteed or streamlined installment agreement, you may be a candidate for a partial payment installment agreement. With this type of plan, you can take longer than 72 months to repay your tax debt. However, you will still be subject to a federal tax lien, which can damage your credit. To get started, you need to submit financial information to the IRS. It will use this data to determine the size of monthly payment you are able to make.

Let Solvable Help You Stop an IRS Tax Levy

If you need help making payment arrangements with the IRS or establishing non-collectible hardship status, contact the team at Solvable today. We’ll match you with a highly reviewed company with experience in helping taxpayers like you. Avoid seizure of your property and move toward a brighter financial future.

 

Andrea Miller
Author:
Andrea Miller

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