IRS Tax Levies – What Can the IRS Seize?
In my last post, I introduced some of the basic issues that arise when the IRS decides to take more aggressive collection action against taxpayers. You can find that post here.
Here is the cliff notes version: IRS does not seize assets willy nilly. If you disregard the IRS’ attempts to work something out with them then you will get a strongly worded notice telling you the IRS may seize your property. Commonly this is done through wage garnishments, bank levies, and seizure of state tax refunds. That is not all – The IRS can seek to foreclose on your home and attempt to seize money due you from customers, clients and patients.
With that introduction out of the way, let’s talk about what the IRS can reach using a tax levy. We will also go over some property that is exempt or protected from the IRS tax levy.
Property Subject to Levy
Before getting into what property the tax levy can reach, let’s talk briefly about the two main types of IRS levies. I think it important to point out how the levies work as it will give you a good idea how the levy will impact the property you own.
IRS tax levies come in two flavors: regular (or one-time) levies and continuous levies. Regular levies are the most common type of levy used. I tell people that a regular levy occur at one point in time. The best way to explain that is through discussing a bank levy. When the IRS issues a levy to your bank, the bank will set aside the funds in your account(s) at the time it processes the levy. Any money that comes in after are not seized. One minute or one hour, does not matter. The IRS can levy your bank account again in the future but it will have to issue another levy to do so.
Continuous levies, once executed, remain on the property or benefits received, until 1) the tax debt is paid, 2) the levy is released, 3) the payments cease, or 4) the tax debt expires (except in certain rare circumstances). The IRS uses this levy for seizing commissions, wages/salaries, social security benefits, and pension payments, to name just some of the property a continuous levy can reach.
Now that you understand the two types of levies, you can get a very good idea on what property the IRS tax levy can reach. Regular levies are used to get at property that is fixed in nature. Bank funds, money in 401k or IRAs, real estate, business equipment, money due from customers, clients and patients for example. Continuous levies are used to reach property that is a stream of payments. So again wages, commissions, social security, and pension payments.
That is not all though. IRS tax levies can reach items of property you may not think of. Intangible assets such as rights of inheritance, book royalties, copyrights, business interests, virtual currency and nonfungible tokens. Even if you put property out of your own name, the IRS can reach it. Some folks have tried to put property in other family members’ names or placed it inside a trust or business entity (LLC, corporation, partnership, etc.) but those dodges don’t work either.
I honestly cannot think of any property that are out of reach of a tax levy. If it has value then the IRS can sell it but there are exceptions. We will discuss that next.
Exemptions – Property Protected from Levy
The reach of the IRS tax levy is very broad but not without limits. IRC Section 6334 provides some limited exemptions to levy (not a complete list):
- Fuel, provisions, furniture, and personal effects ($6,250, indexed for inflation, $10,810 in 2022)
- Books and tools of a trade, business, or profession (up to $3,125, indexed for inflation, $5,400 in 2022)
- Unemployment benefits, worker’s compensation, and certain public assistance payments
- Minimum exemption for wages, salary, and other income (you can see how the exemption is applied here)
As you can see it from the examples, what the law protects are your basic necessities or payments made to those with medical needs or who are low-income. The exemption from wages and salary from levy is very low (not enough to support even bare bones necessities in my opinion) so if I haven’t made it clear before let me be clear now – you do not want to be levied! These exemptions show you why.
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. As discussed above, the IRS tax levy can reach almost every type of property you can own. The best way to avoid having your property seized is to avoid a levy altogether. In a later post, we will discuss what you can do to avoid a future levy. For now, if you have been levied, do not ignore this situation as it will only get worse. In my next post, I will discuss how to possibly recover your property if you have been levied.
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.