IRS Tax Levies – What Are They?
Tax Levies – What Are They and How Do They Compare to a Tax Lien
An IRS tax levy is a legal seizure of your property by the IRS to pay down your tax debt. Do not confuse a tax levy with a tax lien. An IRS tax lien is a legal claim against your property to secure payment of your tax debt. The IRS tax lien does not give the IRS the right to take or sell your property, only to be paid when the property is sold (similar to a mortgage on a home residence). An IRS tax levy, however, does take title or ownership of your property to pay your tax debt.
Examples of IRS Tax Levies
IRS tax levies can take many forms and here are just some examples:
- Bank levies – seizing money in your bank account(s), including joint accounts and some custodial accounts
- Wage garnishments – seizing your paychecks (leaving you only with a small amount after payment of taxes and other deductions)
- 3rd party levies – seizing money held by third parties on your behalf or due to you (e.g. customers, clients, and patients – sometimes family)
- Tax refunds – seizing refunds payable from Federal, state or local governments.
- Social security benefits – seizing benefit payments for social security
- Real estate foreclosures – seizing your real estate through foreclosure, including your residence
- Retirement accounts – seizing your employee retirement accounts (401k/403b) or your individual retirement accounts (traditional and Roth)
This is just a sample of what the IRS can reach with a levy. For that reason, you ignore a tax levy at your own peril. Nothing can be more destructive than a bank levy right before you need to pay rent, make payroll (if you are in business) or pay the mortgage. We will talk in the 3rd post in this series about how to potentially recover some or all of any seized assets.
IRS Collection Notice Cycle
A taxpayer does not just get levied. IRS agents do not just break into your house and take your stuff on the mere hint of a tax liability. The IRS is legally required to follow a process before collection. Before the IRS can seize any of your assets, it has to send out a series of notices notifying you of the balance due along with a demand for payment.
Here is the list of notices, each come about 28 days apart:
- CP 14 Balance Due
- CP 501 Reminder Notice
- CP 503 Important Notice
- CP 504 Urgent Notice
- Final Notice – LT 11, LT 1058 or CP 90 (30-day notice letter)
You will notice that you will receive four letters before the final levy notice. Even then, the IRS provides you with 30 days to resolve the issue or request a hearing if you cannot get something set up with the IRS. We will talk in a future episode about this hearing, called a collection due process hearing. One of the great tools in our arsenal.
If you do not pay your taxes (or make arrangements to settle your debt), and the IRS determines that a levy is the next appropriate action, the IRS may levy any property or right to property you own or have an interest in. If the IRS is taking levy action against you then you are facing a serious problem. Do not ignore this situation as it will only get worse. In the next post, we are going to go into some detail on what property the IRS can seize and what it cannot.
I am Maine’s IRS Problem Solver. My firm helps Maine taxpayers in trouble. If you or someone you know in Southern Maine wants more information on how to resolve your unpaid taxes, please feel free to contact me directly at 207-502-7181 or by filing out my contact form. A Maine tax attorney can help you consider your options.
James D. Wade, Esq.
Law Office of James D. Wade
57 Portland Road, Unit 3
Kennebunk, ME 04043