With a tax levy, the IRS can legally seize personal property and assets to satisfy an outstanding tax debt. These property and assets can include homes and other real estate, vehicles, bank accounts, wages, and other items. If you are in danger of receiving a tax levy, you will receive an official IRS notice titled Final Notice of Intent to Levy and Notice of Your Right to a Hearing.
A levy is sometimes confused with a lien, which is the legal claim to assets to satisfy a debt. The levy process is the actual seizure of the assets in questions. You can take steps to prevent the levy by making arrangements to pay a portion of the debt owed to the IRS. Keep in mind that if you are unable to afford your basic living expenses and pay your taxes, you can seek relief.
Taxpayers are subject to a levy only after three requirements are met:
While receiving a Final Notice of Intent to Levy is scary, you still have time to take action to avoid a tax levy before your property is seized.
The IRS can levy property you hold, such as a home, boat, or vehicle. It can also levy your assets held by someone else, including retirement funds, wages, bank accounts, dividends, rental income, licenses, cash value life insurance policies, accounts receivables, and commissions.
If you owe more than $50,000 in back taxes, the IRS can place a levy on your passport which means it can be revoked or denied by the U.S. Department of State and you will be unable to leave the country.
If your bank account is levied, you have 21 days to make arrangements to pay your tax debt before the past-due amount is withdrawn from your bank account. You will receive notice of the levy through the mail. The funds in your account will be frozen when the levy takes effect.
If you are a signatory on another person’s bank account, that individual’s funds may be levied. You will have to appeal this action by having the individual or his or her power of attorney call the number listed on IRS Form 668-A(C)DO.
If you have repaid your tax debt and your bank account is levied in error, you may be eligible for reimbursement of resulting fees if the error was caused by the IRS, was not compounded by your actions, and involved timely responses to IRS notices. Submit IRS Form 8546, Claim for Reimbursement of Bank Charges (PDF), to the address on your levy notice.
With a wage levy, the IRS will receive a portion of your paycheck until the tax debt is paid, you make other arrangements to pay such as an installment agreement, or the levy is released. Your employer is legally required to comply with the terms of the levy.
The part of your wages that will be taken through a levy depends on an exempt amount known as the standard deduction, which depends on the number of dependents you have. Your employer will receive IRS Publication 1494, which tells your company’s payroll department how to determine the exempt amount of pay.
You must complete a Statement of Dependents and Filing Status within three days, which is used to make this determination. Failure to do so means that your exempt amount will be calculated as if you are married but filing separately and have no dependents. If you have more than one source of income, the IRS may declare one source exempt and levy the entire income from the other source.
If your wages are levied and you receive a bonus, the IRS will seize the entire bonus since it is above the exempt amount of your pay. If you pay court-ordered child support independently from your employer, you must request to have the monthly support amount released from the levy.
If you are a contractor or freelancer, the IRS may be able to levy 1099 payments from your clients. However, although they can levy payments for work you have already done, the IRS cannot do so for work you will perform in the future.
If you receive Social Security benefit payments, these payments can also be levied. The IRS will garnish up to 15 percent of each payment through the Federal Payment Levy Program until your tax debt is paid in full.
When a home or vehicle is seized by the IRS because of federal tax debt, the item is sold, and the proceeds are applied to your tax debt. Before taking this step, the IRS will calculate a minimum bid price for the sale depending on the fair market value of the home. The minimum bid price is usually at least 80 percent of the fair market value minus any outstanding liens. You will receive this information and have a right to appeal the fair market value determination. This right to appeal involves a reappraisal by the IRS or a private appraiser.
A notice of the sale of property will be posted in public places and in local newspapers. The sale will take place at least 10 days after this notice. You can request a refund from the IRS if money is left over after the debt is paid off and the costs of the sale covered. However, other creditors that have a lien against your property will be paid before you receive a refund.
If the proceeds of the property sale minus the cost of the sale do not satisfy the amount of your tax debt, you will still be responsible for the outstanding balance.
Keep in mind that the seizure of a home that serves as your primary residence is a last resort for the IRS. To seize a taxpayer’s primary residence, the agency must issue a court order in U.S. District Court and prove several conditions:
If you are prepared to make arrangements to resolve your tax debt, contact the IRS immediately when your property is seized and request a release. You should also take this step if the seizure is creating an immediate economic hardship.
You have the right to appeal the levy before or after the property is taken or sold. This request must be made within two years after the levy date. If the IRS denies the request, you can appeal this decision. Learn more through IRS Publication 1660, Collection Appeal Rights.
Legally, the levied property must be returned if:
When real estate is levied and sold, anyone with interest in the property has redemption rights that can be exercised within 180 days of the sale.
Individuals with interest may include:
Those with interest can attempt to reclaim the property by paying an amount established by the IRS.
To redeem the sale, you must repay the bidder his or her winning purchase price plus 20 percent per year of interest compounded daily. After you make this payment, he or she will give you the certificate of sale, which acts as a receipt.
When you reclaim the property, contact the Revenue Officer who seized your property or the Property Appraisal and Liquidation Specialist responsible for the sale. You’ll need to provide:
The terms lien and levy are often confused. A lien is the legal claim a creditor has on your personal property, while the levy is the action of seizing the property in question to satisfy the debt. The lien does not necessarily result in a levy if you enter an installment agreement or make other arrangements with the IRS. However, it is reported to the three credit bureaus and may prevent you from qualifying for a mortgage or loan.
Filing your tax returns on time and paying your taxes as soon as you can is the best way to avoid a levy. You can request more time to file and pay your taxes with an extension if you are unable to file on time. If you owe more than you can pay, you can opt to enter a payment arrangement with the IRS.
Working with the IRS to settle outstanding tax debt can help prevent a levy. You may be able to establish a payment plan, negotiate an offer in compromise to pay off the debt for less than the full amount you owe, or request currently not collectible status if paying the debt would constitute a hardship.
If you recently received a levy notice, it’s not too late to act.
Contact the IRS as soon as possible either at 800-829-1040 or at the number on your billing notice to discuss your options with an IRS agent. You may wish to enlist the help of a tax professional to negotiate on your behalf.
You can request a levy release once you’ve made arrangements to pay your tax debt or if the levy is causing undue economic hardship as determined by the IRS. If the IRS does not agree to release your levy in these situations, you have the right to request an appeal either before or after your property is levied.
You can also file a claim to have levied property returned as part of the appeal process. To learn more, consult Publication 1660, Collection Appeal Rights.
The IRS is legally required to release your levy if:
Even if your levy is released, however, you are still responsible for your tax debt unless the statute of limitations has expired. If you don’t pay as agreed after the release of the levy, it may be reissued.
If you are unable to pay for basic living expenses because the IRS has levied your wages or bank account, you can request release of the levy for reasons of economic hardship. You will need to provide information about your income and expenses.
If your past-due taxes are causing financial hardship, you can also seek help through the Taxpayer Advocate Service. This system is designed for those who have attempted to resolve their tax issues with the IRS but have been unable to do so. If you believe the tax system is not working as it should for you and you are struggling to repay tax debt, visit irs.gov/taxpayer-advocate or call 877-777-4778.
You have the right to appeal a levy procedure or any other IRS collections actions by following the procedures outlined in IRS Publication 1660. Depending on the status of your case, you can pursue either the Collections Due Process (CDP) or Collections Appeal Program (CAP).
In both types of proceedings, you may choose to represent yourself or you can hire an attorney, certified public accountant (CPA), or enrolled agent who is registered to practice before the IRS to advocate on your behalf. You can also choose to be represented by a family member or by full-time employees or partners if you have a business.
Some taxpayers qualify for free legal representation through a Low-Income Taxpayer Clinic. This designation applies to those who earn no more than 250% of the federal poverty threshold for their state and household size. Review IRS Publication 4134, Low Income Taxpayer Clinic List, to learn more about eligibility and to find locations in your area.
CDP is an option when you have received one of the following notices from the IRS:
When a lien is placed on your property, you must be notified within five business days and will then have 30 days to request a hearing through the CDP process.
When you receive a levy notice, which can be delivered either before or after your property is seized, you have 30 days to request a hearing. You may not request a hearing if you are a federal contractor, if you meet the criteria for disqualified unemployment tax level, if the collection of the tax is in jeopardy, or if your state tax refund is the levy in question.
Complete Form 12153, Request for a Collection Due Process or Equivalent Hearing, and send it to the address on your lien or levy notice. If you received both a lien and a levy notice, you may appeal both actions by checking the boxes on line 6 of Form 12153.
You must list your reasons for disagreeing with the IRS decision. Some possible reasons for appealing the lien or levy include:
After you submit this form, the appeals department will contact you to attempt to work out a solution. The representative will schedule a conference either over the phone or at your local appeals office. Depending on the reason for your hearing request, you may be asked to provide additional financial information.
If you do not agree with the CDP decision for either a lien or a levy, you can appeal in U.S. Tax Court.
CAP offers a quicker decision but cannot be further appealed in court if you disagree with the final decision. You can seek relief through CAP at the following times:
Call the IRS at the number on your notice and request to appeal your tax decision. You may wish to enlist the help of a tax professional before entering into negotiations with the IRS.
Whether you call or have a legal expert call on your behalf, a manager should return the call within 24 hours. He or she will listen to a description of the situation and make a decision based on the facts provided. If you do not agree with this decision, it will be sent to Appeals for review.
You should also complete Form 9423, Collection Appeal Request. If you are requesting the return of seized property, you must submit this form within 10 days of the date on the Notice of Seizure.
After your initial conference with the collections manager, you will have two business days to decide whether you want to continue CAP proceedings. If you opt not to do so, you should have a plan in place to repay the assessed tax or collection actions will resume.
If you are struggling to pay your tax debt, Solvable can help. Answer a few simple questions about your tax debt and we’ll help connect you with a vetted tax debt relief company. When you are faced with a tax levy, you need a team who can advocate on your behalf.