Tax levy may be described as one of the powerful tools that the Internal Revenue Service can employ to collect the tax debt owed by taxpayers. This tool allows the IRS to take administrative action against the taxpayer in case of serious tax debt without going to court. The IRS could in the case of tax levy, seize the property of the defaulter or may also levy upon the taxpayers wages, bank accounts, social security payments, proceeds from insurance and also accounts receivables. The Internal Revenue Service Code grants the IRS the right to levy upon assets in possession of the taxpayer or in the possession of a third party like a bank, a brokerage firm etc. The assets that might be levied upon by the IRS would be all property or right to property of the taxpayer.

It may be noted that a tax levy would not be levied without a notification, as under the United States Constitution, the taxpayer would have to be notified well in advance before being levied. The minimum notification period would need to be 30 days prior to the levy. The notification would need to be delivered to the taxpayer through certified mail or hand delivered or left at the taxpayer’s usual place of work. The notification would need to state in simple and non-technical terms that the taxpayer may be able to request a personal hearing during the 30 day period before the levy becomes effective. At the hearing, the taxpayer may seek relief or may challenge the tax levy. The taxpayer may also present alternative ways of collections of tax debt in the form of offer in compromise or installment payments. There may be certain circumstances under which the tax liability may be challenged by the taxpayer. In case the taxpayer remains unsatisfied with the decision at the hearing, also called the Collection Due Process (CDP) hearing, then the taxpayer may approach the United States Tax Court or any other federal court to contest the decision.

In case the taxpayer might be unsuccessful in stopping the levy and the IRS tax levy becomes imminent, then the IRS would proceed to take over the taxpayer’s property. The IRS would be able to seize most items of property but some of the property would be exempt according to the limits and rules imposed. The IRS may direct the taxpayer’s employers to send a portion of the taxpayer’s salary to the IRS. This would mean a garnishment of the taxpayer’s wages, where the wages would be garnished by the employer and sent to the creditor, in this case, the IRS. Similarly, the IRS can direct the bank in which the taxpayer holds accounts to send the proceeds from those accounts to the IRS. In the same way, state and federal tax refunds and also social security proceeds may be levied up on.

Since the IRS levy might mean that the taxpayer might lose personal residence, the law does not permit the IRS to levy on a personal residence in case the total amount of tax debt owed by the taxpayer would be less than or equal to $5000. Otherwise, the IRS can levy on a personal residence as well. Two ways out of a tax levy might be to negotiate with the IRS so that instead of a tax levy, you may opt for an installment payment or an offer in compromise. The IRS might accept the repayment of the tax debt in installments over a long period of time not exceeding five years in all or might approve an offer in compromise where the dollar paid would be much less than that owed. In either case, once the plan of action gets approved, the IRS would not be able to levy on the property of the taxpayer.

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Category: Finances
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