The prospect of an IRS levy can be both frightening and stressful, but before you let a sense of paralysis take over, know that options do exist for getting your life back to normal. You simply need the right information, and a qualified team of resolution experts, to bring your case to a favorable close.
How Does the IRS Levy Property?
Before we answer this question, let’s first discuss the meaning of an IRS levy (tax collection). It is the legal seizure of property to satisfy a tax debt. Unlike traditional creditors that must first take you to court, win a judgment, and satisfy other requirements, the IRS can take action much more swiftly. And because the money is owed to a government body, tax debts take precedence over all others, including those owed to a credit card and/or mortgage lender.
Different Collection Methods
Tax levies can be implemented in several different ways. Each can be equally devastating, including bank levies that freeze your checking and savings accounts for 21 days. You are not permitted during this period to withdraw funds, and once the 21 days are complete, the bank is legally obligated to send those frozen funds to the IRS.
Your wages can also be garnished, in which your employer must take a portion of your pay, such as 25%, and remit it to the IRS. This continues until the debt owed is fully satisfied. Property, such as a home or automobile, can be similarly seized and sold. In these instances, monies from the sale are applied to your tax debt. Your municipal, state, and federal tax refunds can likewise be withheld and turned over to the IRS. Additional collection measures include:
- Seizing your business assets
- Taking your Social Security benefits
- Garnishing your 401(k) or other retirement accounts
How You’ll Be Notified
Despite the ominous tone of our message up to this point, the good news is the IRS provides plenty of warnings before proceeding with tax collections. You’ll first receive multiple notices and demands for payments, including forms CP14, CP501, and CP503.
The IRS Sends Multiple Letters
Notice CP14 is the first letter the IRS sends when a taxpayer owes a debt. It contains basic information about your account, including the amount of interest and penalties owed on top of the tax balance. You’ll also see a deadline for submitting payment.
The CP501 comes next and is a reminder of the balance owed on your account. Again, this notice will explain your payment options, when payment is due, and how much you owe. Ignoring this letter will prompt receipt of the CP503, another reminder of your unpaid taxes.
Understanding the CP504
The second-to-last letter in this series is the CP504, officially titled the Notice of Intent to Levy. Failure to respond prompts the IRS to send its final communication along with the Notice of Your Right to a Hearing. These pieces may be delivered in-person to your home or place of employment, or they may simply arrive via mail.
The CP504 provides you with time to stop property seizure before it’s put into full motion. It also describes your rights to an appeal process. After 30 days have passed without further communication from you, the IRS can begin seizing your property at any time. This makes it impossible to know the day or date you might expect garnishments and other collections measures.
What You Should Know About Federal Tax Liens
By the time you receive notice CP504, a federal tax lien has already been created as a claim against your property. The IRS simply files a Notice of Federal Tax Lien (NFTL) to publicly establish priority among your list of creditors. The lien then attaches to all property and assets you own at the time of filing and acquire thereafter. The NFTL will impact your credit and can make it difficult to sell or borrow against your property.
You have the right to appeal a lien both before and after it’s filed. You can also terminate a federal tax lien by:
- Paying your tax balance in full
- Applying for a certificate of discharge to release specific property
- Applying for a certificate of subordination to make obtaining a loan or mortgage easier
- Applying for a withdrawal that removes the lien’s public notice
Liens vs. Levies
It’s easy to confuse liens and levies but important to know they do differ. A lien allows creditors to potentially take and sell your property or assets at a future point in time. Creditors file liens to secure their interests. An unpaid roofing bill, for instance, may lead to a lien against your home. Then, when you sell your home, the roofer is guaranteed their money. Levies, on the other hand, are the actual processes creditors use to seize your property.
Ways to Release Levies
An IRS levy can be released even after it’s in place. As mentioned earlier, you are entitled to appeal this act or, after assets have been seized, request the IRS return them to you.
An appeal can be completed by contacting the IRS and arranging to pay your tax bill. Once arrangements are in place, you can request a release. This is coordinated by the Office Appeals rather than the Collections Office, and if you need additional help, an independent tax resolution specialist should be contacted.
The Easiest Method
Of course, the easiest way to stop property seizures is to pay off your tax debt. The IRS is fairly accommodating in this respect and allows payment arrangements to be made. Levies must also be released if:
- You have already paid your balance in full
- You will have the ability to pay your tax debt once levies are removed
- The allowable collections period ended prior to levies being issued
- You establish an installment agreement that doesn’t allow for continued levies
It’s important to know the IRS may delay collections efforts if property seizure would create undue financial hardship for you. Additionally, if the value of your property exceeds what you owe and the IRS can collect the debt without seizing it, you may avoid seizure. This is not to say, however, that the debt will disappear. The IRS will continue to pursue collections efforts until the balance is resolved.
Preventing Tax Levies
Methods do exist to help limit your chances of experiencing tax levies. Again, payment in full is the best bet, but this isn’t always an option. Contacting the IRS allows you to identify alternative resolution methods. A payment plan, for instance, can be implemented so you pay the balance over an extended period. Interest and penalties may continue to accure, but a formal plan can prevent levies without forcing you into an impossible financial situation.
An Offer in Compromise
Likewise, you may be able to negotiate your balance owed by making an offer in compromise. You must prove you cannot pay what you owe by verifying your income, expenses, and assets. But if you can successfully do this, the IRS will reduce your tax bill.
If you’ve received a notice from the IRS, time is of the essence. The right strategy is also critical, whether you plan to offer a settlement or arrange a payment plan. Negotiating with the IRS, however, is rarely clear cut. You need knowledge of tax laws and the skill to speak with IRS agents in a resonating way. That’s why we’re here – to provide peace of mind and ease your burden. Learn more by contacting Geaux Tax Resolution, LLC, today.