IRS Tax Liens and Levies: Part 2
By Michael Murray, North Carolina Tax Controversy Attorney
In part one of this article, we discussed federal tax liens issued by the IRS as legal claims against your property when you fail to pay valid tax debts. We explained how these tax liens can impact your credit and what you can do to avoid them. In part two of this article we explain tax levies, which are different from tax liens. A lien is a legal claim against your property to secure payment of your tax debt, while a levy actually takes the property to satisfy the tax debt. The IRS makes millions of dollars each year collecting back taxes via levies.
What is a Tax Levy?
A tax levy is the administrative means of collecting outstanding tax liabilities by actually seizing or taking your property. A common example is when the IRS issues a bank levy to seize whatever cash you have in your checking or savings accounts. A levy also includes garnishing your wages, seizing personal property like your boat or your car, and it can also mean taking real property such as your home.
By law, the IRS must first make an assessment of the tax and send a notice and demand for payment. Typically, the IRS sends a series of demanding notices over a period of time. If you neglect or fail to respond, the IRS will then send you a Final Notice of Intent to Levy and Notice of Your Right to a Hearing. They will do this at least 30 days before the levy.
You may receive this notice in person or they may leave it at your home or usual place of business. Generally, IRS levies are delivered via U.S. Mail by certified or registered mail return receipt requested. The date and time of delivery of the levy is the time when the levy is considered to have been made. If it is a bank account levy, funds in the account are frozen as of the date and time the levy was received. If a release of levy from the IRS is not received within 21 days, the funds in the account as of the date and time the letter was received must be sent to the IRS.
Types of Tax Levies:
- Wage Garnishment: An ongoing arrangement where your employer pays a portion of your paycheck to the IRS until your tax debt is settled.
- Bank Account Levy: The IRS provides for a 21-day waiting period before the bank must comply with the levy. This delay allows you to contact the IRS and arrange to pay the tax or to notify them of any errors in the levy. If a release of levy from the IRS is not received by the bank within 21 days, funds in the account must be sent to the IRS.
- Account Levy: This type of levy includes seizure of retirement accounts, dividends, rental income, accounts receivable, and/or the cash loan value of your life insurance.
- Levy on Property: The IRS may gain funds to put towards your tax debt by seizing and selling property you own such as a car, boat or real estate. If the IRS seizes your house or other property, they will sell your interest in the property and apply the proceeds to your tax debts (minus any cost involved in the sale). If funds from the sale are larger than the debt owed, the IRS will allow you to get a refund of the difference.
You can avoid a tax levy by filing your returns on time and paying your taxes when they are due. If you need more time to file, you can request an extension. If you cannot pay what you owe, you should pay as much as possible and work with the IRS through a competent and knowledgeable tax attorney to resolve the remaining balance. Your attorney may be able to help you negotiate a payment plan or settle your tax debt for less than the full amount you owe. It is important to be proactive when dealing with tax debts, you never want to ignore the IRS billing notices.
Release of a Tax Levy
The IRS is required to release the levy if it determines that:
- you paid off your tax debt
- the collection period ended prior to the levy being issued
- releasing the levy will allow you to pay your taxes
- you enter into an installment agreement and the terms of that agreement included releasing the levy.
Keep in mind that the release of a levy does not release you from the obligation to pay the balance due.
In some circumstances, the IRS will release a levy if it can be determined that it is creating an economic hardship. It must be shown that the levy prevents you from meeting basic, reasonable living expenses.
After you receive the Final Notice of Intent to Levy and Notice of Your Right to a Hearing, you have 30 days to file for a Collection Due Process Hearing. This is a formal hearing with a settlement officer in the IRS Appeals Division. At this point, with the assistance of your tax controversy attorney, you have the opportunity to argue for an installment agreement, offer in compromise or some other alternative in lieu of the levy.
If you owe back taxes and are receiving correspondence from the IRS or the North Carolina Department of Revenue regarding tax liens or levies against your property, it is important that you contact an experienced tax controversy attorney immediately. Time is of the essence.
At Murray Moyer, PLLC, we will help you navigate the system and find an acceptable resolution to your tax debt issues. Contact us today to set up a consultation.