A levy is a legal seizure of your property to satisfy a tax debt. Levies are different from tax liens. A lien is a claim used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt [IRC Sec. 6331].
If you do not pay your taxes (or make arrangements to settle your debt), the IRS may seize and sell any type of real or personal property that you own or have an interest in. For instance,
the IRS can seize and sell property that you hold (such as your car, boat, or house), or can levy property that is yours but is held by someone else (such as your wages or commissions, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, cash loan value of your life insurance).
What Are the Types of IRS Levies?
There are generally two types of IRS levies; a levy on assets or a levy on income.
A levy on bank account or any other assets that can be taken is generally a one-time levy. In other words, the IRS will generally levy your assets a single time and not revisit levying your account once a levy has been done.
Levies on income are more serious matters because this type of levy will remain continuous. For most individuals this type of levy would be on wages, commissions or income producing assets. In the case of a business taxpayer, the levy would be on the receivables of a business. Where the IRS issues a levy on wages, your employer will be notified and required to remit amounts to the IRS in satisfaction of your tax debt. Similarly, where the IRS levies receivables, your customers will be notified and similarly be required to remit amounts due to the business in satisfaction of your tax debt.
When Will The IRS levy?
Taxpayers can usually expect to receive various "warning" notices advising them that taxes are due and penalties and interest have, or will be, assessed prompting many taxpayers to make arrangements to settle their tax debt thereby allowing additional time to get your finances in order.
After several warning notices, taxpayers can expect to receive a final notice of levy. You will know when you've received this final notice when you're advised of your rights to appeal the levy, an you can anticipate the IRS will take the most serious collection actions fairly soon thereafter. Therefore, it is most important that you do not ignore the IRS notices as you will need to monitor exactly when the IRS will intend to levy.
How to Stop an IRS Levy?
The most obvious way to stop an IRS levy is to pay your taxes. Where this is not immediately possible, you can propose various alternatives to collection actions. The two most common alternatives to collection action are the Offer in Compromise and Installment Agreement.
An Offer In Compromise is a settlement of tax debt for less than the full amount owed. An Installment Agreement is an arrangement to satisfy tax debt over a period of time thereafter.
The IRS is also empowered to stop a levy where a levy would cause you economic hardship [IRC Sec. 6343]. In other words, where the damages caused by a levy would be greater than advantages of collection received by the levy itself, it would be in the interests of public policy for the the IRS to stop such levy actions.
The problem here is that the IRS often ignores your pleas as to why the levy should be stopped.
Economic hardship can be shown through a variety of reasons. Some of the most common reasons for showing economic hardship is where the levy would stop you from receiving medical care, paying medical insurance premiums, inability to pay court ordered payments such as child support or alimony.
What Can You Do?
Stopping a levy is not easy. Stopping a levy is usually beyond the scope of what you, the taxpayer, are equipped to do. It will require immediate action. It most often requires a considerable amount of work and time to correct.
You will most likely need to hire a professional. It is important that you hire a licensed, experienced firm or individual with the expertise to resolve your tax problems favorably. Your tax representative must be either a tax attorney, certified public accountant or enrolled agent. Hiring a debt relief service agency will just not do.
Once the final notice of levy is issued, immediate action will be required. Procedures to levy your assets have already been put into place and your rights of appeal are limited.