A tax levy is a collective process to legally seize properties and satisfy an outstanding tax debt when an individual fails to pay taxes on time. A tax levy is different from a tax lien, as a lien is a claim the government has against property to secure tax debt payment. A levy is actually seizing the property, and the government can seize and sell them to pay the taxes.
The IRS or a bank may seize the following properties as levies:
What Steps Does the IRS Take Before Issuing a Levy?
They send a tax bill titled ‘Notice and Demand for Payment’ to the receiver;
If the taxpayer neglects the notice, the IRS will send several such bills, which will have the amount of tax to be paid stated and the due date;
If the taxpayer refuses to or fails to pay the due amount even after several notices, an official from the IRS may personally deliver the ‘Final Notice of Intent to Levy’ and ‘Notice to Your Right to a Hearing’ at least thirty days before they carry out the levy;
The taxpayer will have to take the necessary actions to dissolve the levy within the thirty days they receive it.
How Many Types of Tax Levies Exist?
Various types of levies exist depending on the type of action a debtor has committed. However, when it comes to seizing the properties of an individual, tax levy, bank levy, 1099 levy, garnishments, and seizing of the passport can take place. The government can issue levies to encourage environmentally friendly practices as well and to use funding for parks or school districts.
1. Tax Levy
The Internal Revenue Code, or IRC, authorizes levies for the government to collect and pay outstanding taxes. To make it happen, the IRS must first send the taxpayer at fault a final notice about levy and a notice for a court hearing thirty days before the levy takes place.
Both tangible and intangible things can be levied. The IRS will collect physical assets the taxpayer owns and uses, and any property that’s intangible or used by someone can also be seized, such as bank accounts, licenses, rental earnings, retirement plans, etc.
2. Bank Levy
If an individual owes payments to a creditor, the creditor can request that the court issue a bank levy. The bank will then freeze the debtor’s bank accounts and have the debtor pay the outstanding amount fully. A creditor can issue a request for levy as many times as needed, as it’s not a one-time action.
The IRS will contact the employer of the taxpayer at fault to withhold a certain percentage of their employee’s taxes. They’ll do so until they can collect enough to satisfy and pay off the outstanding tax, along with penalties and interests.
4. 1099 Levy
This levy applies to contractors who have certain amounts owed to them. The IRS will seize all bank accounts and properties until they can satisfy the tax amount.
5. Seizing Passports
If a debtor has over $50,000 in outstanding tax, the IRS can request that the state department seize passports until the debtor pays off the outstanding amount. They also have the right to deny the passport during this period.
When Does the IRS Issue It?
If the taxpayer doesn’t pay the due taxes or make arrangements to settle the debt within the thirty days after getting the final notice and the notice for the hearing, the IRS decides to do the levy. They will then seize all the properties the taxpayer owns that have an interest in or are used as a guarantee against debts.
The IRS can directly seize physical properties, such as vehicles, houses, rental houses, and other real estate properties. They can levy assets and have third parties collect them, such as dividends, bank accounts, investment accounts, retirement plans, insurances, etc.
How Can You Get Rid of a Levy?
The only way to avoid facing a levy or even getting a levy notice from the IRS is to be responsible with your taxes and payments:
The first thing you must do is, of course, pay your taxes on time and in full amounts, and you must cooperate with collections.
You can get a payment plan from the IRS if you’ve already received a notice. This will allow them to take off the required payments consecutively from your bank account as a guarantee.
You can appeal for a review of the levy notice and calculations.
In case nothing else works, you can file for bankruptcy, which works in some cases.
Can You Reverse a Levy?
Although the most responsible thing to do to stop getting a levy is to pay off the tax debts on time, you can still reverse a levy within the time period you get if you have already received a notice. There are also certain conditions that will help you keep off the levy.
You can request a collection due process (CDP) hearing within the thirty days that you get, during which the IRS can’t seize anything;
You can negotiate into approving an installment agreement;
If the assets the IRS wants to seize are also the only assets that will bring you income for the payoff, they can’t go forward with the levy;
You can get your assets back if the process of the levy was immature or they seized your assets before the thirty days were up.