An IRS levy is a punitive measure taken by the Internal Revenue Service (IRS) to seize property or assets in order to satisfy a tax debt. It is a legally enforced action that follows a series of due process procedures, including notifications and opportunities for the debtor to resolve the arrears. An IRS levy should not be confused with a lien, which is a legal claim against property as security for a debt, but doesn’t involve actual seizure.
How Does an IRS Levy Work?
Notification and Due Process
Before an IRS levy can take place, the IRS must follow several steps to provide due process:
- Notice and Demand for Payment: The IRS sends a notice demanding payment of the owed taxes.
- Final Notice of Intent to Levy: The IRS issues a “Final Notice of Intent to Levy and Notice of Your Right to a Hearing” at least 30 days before the levy. This is usually through IRS Letter 1058 or LT11.
- Collection Due Process Hearing: The taxpayer has the right to request a Collection Due Process hearing, usually within 30 days of receiving the final notice.
Types of Property Subject to Levy
An IRS levy can target various types of property, including:
- Wages and Salary: Garnishment of earnings until the debt is paid.
- Bank Accounts: Seizure of funds from bank accounts.
- Physical Assets: Confiscation of properties such as cars, houses, and other personal properties.
- Social Security Benefits: Withholding of future social security payments.
- Accounts Receivable: For businesses, this can include levies on customer payments, etc.
Examples of IRS Levies
- Wage Garnishment: John owes $15,000 in back taxes. After receiving proper notices and failing to resolve his debt, the IRS issues a levy, garnishing a portion of his wages until the debt is paid.
- Bank Levy: The IRS identifies Jane’s bank account with a balance of $10,000 and freezes the funds to satisfy her $7,000 tax debt. She is notified and given 21 days to resolve the debt before the funds are transferred to the IRS.
Historical Context
The IRS’s authority to levy stems from federal law. The legal basis for levies can be traced to the Internal Revenue Code, which outlines the processes and safeguards associated with tax collection. Originally, the authority was more discretionary until the IRS Restructuring and Reform Act of 1998, which introduced more stringent requirements for notice and due process.
Related Terms
- IRS Lien: A legal claim against property to secure payment of a tax debt.
- Tax Seizure: The process of taking property to satisfy unpaid taxes.
- Wage Garnishment: A method by which the IRS can collect unpaid taxes directly from an individual’s paycheck.
- Offer in Compromise (OIC): An agreement between a taxpayer and the IRS to settle a tax debt for less than the full amount owed.
- Installment Agreement: A plan allowing taxpayers to pay off their tax debt in monthly installments.
Frequently Asked Questions (FAQs)
Q1: Can the IRS levy all of my social security benefits?
A1: No, the IRS can generally levy up to 15% of social security benefits to satisfy a tax debt.
Q2: How can I avoid an IRS levy?
A2: To avoid a levy, promptly respond to IRS notices, set up an installment agreement, or apply for an Offer in Compromise if you qualify.
Q3: What should I do if my property is levied?
A3: Contact the IRS immediately to resolve the issue, pay off the debt, or challenge the levy through the Collection Due Process hearing.
References
- Internal Revenue Service. “IRS Collection Process.” IRS.gov.
- Internal Revenue Code, Sections 6331-6344.
- IRS Restructuring and Reform Act of 1998.
Summary
An IRS levy is a powerful tool used by the IRS to collect unpaid taxes by seizing a taxpayer’s property or assets. Following due process, the IRS may levy wages, bank accounts, and other assets. Understanding your rights and the steps involved can help mitigate or prevent the harsh consequences of an IRS levy. The IRS levy is a last-resort measure and typically follows several opportunities for the taxpayer to address the debt voluntarily.
