Are you curious about the IRS levy process? We reveal everything you need to know to protect your property and assets.
When you find out you owe a large sum upon filing your taxes, you might not just have the cash on hand to pay on time. You might feel tempted to ignore the IRS bill rather than pay up. But doing this can bring about some unpleasant financial consequences.
While the IRS is usually willing to work out a payment arrangement, you need to act quickly and request one. If not, you’ll start accruing penalties and interest. Keep avoiding paying for long enough and the IRS can begin the levy process and try to take your money and other assets.
Read on to learn all about the IRS levy process and your options to releasing the levy.
What Is an IRS Levy?
An IRS tax levy happens when the agency seizes one or more of your assets to try to pay off the tax debt you owe. Note that this isn’t something that just happens right away if you fail to pay your taxes.
Rather, the IRS gives you plenty of warnings so that you have time to arrange for payment. Generally, it’s a three-step process.
First, you would have gotten a notice from the IRS that stated you owed taxes. At that point, you would have had many payment options. You could have made a partial payment, requested an extension, signed up for a short- or long-term installment plan, or even submitted an offer in compromise for a smaller amount.
Next, you would have had to not pay the tax at all or made an arrangement with the IRS.
Lastly, the IRS would have sent you a notice that it intended to levy your property. This may come through the mail or be issued in person. You’d get 30 days’ notice before the levy happened, and you could pay your taxes or make an arrangement to halt the process.
If those 30 days pass without satisfactory payment, then the IRS can begin to legally seize a variety of your assets. In fact, it doesn’t even need permission from a court to do so. This makes IRS debt collection different from that of other creditors you deal with.
What Can the IRS Take From You?
IRS levies can come in many forms that range from taking incoming funds to seizing real estate, vehicles, and other items of value.
The IRS could start garnishing your wages so that you don’t get a portion of your earnings until you’ve paid off your tax debt. They can also start withdrawing funds from your bank accounts or take tax refunds you’re due. They may also tap into your retirement funds and life insurance policy.
When it comes to personal property seizure, the IRS has some guidelines that can help protect your primary home and vehicle. But they can sell things like expensive jewelry, vacation homes, and secondary vehicles like cars and boats.
The means the IRS uses for the levy will depend on your tax debt and what you have. Often, you’ll see wage garnishment and bank account withdrawals for smaller tax debts. If you owe a very large amount, though, you could lose your high-value physical assets.
What Are the IRS Levy Release Options?
If you got a notice about an intended levy and wonder how to stop it, the simplest option is to just pay the IRS bill completely. However, this is easier said than done when financial struggles probably caused the levy in the first place.
In a case where you can afford to make regular monthly payments toward the tax debt, you can ask the IRS for an installment agreement. You’ll have to pay interest and other penalties, which will add to your tax debt, for this option. But at least you can prevent seizure of your assets.
An alternative to the installment plan is to submit an offer in compromise. While harder to obtain, this option lets you settle for a smaller amount and release the levy. The IRS will pay close attention to your assets and income to decide if you qualify.
If you have a severe financial hardship, you have options to file an appeal, enroll in the IRS Fresh Start Program, or file for bankruptcy.
When you get your notice of levy, you can contact the IRS within 30 days to show them that you have a financial situation where you couldn’t pay regular living expenses with a levy in place. If the levy already has taken place, you can still contact the IRS and show your financial documents to plead your case.
If your tax debt doesn’t exceed $25,000, the Fresh Start Program can give you six years to get rid of your tax debt and lift the levy. This option requires automatic payment deductions. It also has rules you must follow to file your taxes on time, make any estimated payments, and comply with the installment plan.
When your tax debt is so severe that none of the other options work, you could file for bankruptcy as a last resort. This could help you consolidate all your debt and pay affordable monthly payments, or you might have some debt canceled. Be warned that this option harms your credit profile for many years and can prevent you from getting needed financing.
You Can Avoid the IRS Levy Process
Knowing how the IRS levy process works can help you take some action to avoid going through the ordeal in the first place.
Rather than ignoring due taxes, immediately consider your options to make installments, get an extension, or settle for a smaller amount. You can also call the IRS to discuss your options when you have an extreme financial hardship where you don’t anticipate being able to pay the taxes within the foreseeable future.
If you do get the notice of appeal, use your 30-day waiting period to file an appeal or otherwise arrange payment. A tax attorney can help you explore your options and make the best case with the IRS.
Be sure to check out our other tax posts for more helpful information.