What is an IRS Tax Levy? Why Federal Tax Levies are Used

what is a tax levyWhat is a Tax Levy?

A tax levy the legal seizure of of your property done by the IRS. If you have not paid your taxes or setup some sort of agreement to settle your tax debt, the IRS may seize assets to satisfy the debt. Unlike the tax lien which is the IRS’s claim to your assets, a levy is when the IRS takes actual possession of the assets. The IRS is legally allowed to seize and sell any type of real or personal property that you own or have an interest in. A tax levy should not be taken lightly as this is the most powerful and feared collection mechanism of the IRS. Collection mechanisms of other creditors do not compare to an IRS tax levy, which should be no surprise since the IRS is the most powerful debt collector in the US. This is the next step taken after the IRS places a lien.

When the IRS will Impose a Levy

It shouldn’t be a surprise on you if the IRS imposes a levy. By the time the IRS starts to levy it is likely that you would have received many notices and demands from them. The IRS states that it will only levy after the following three requirements are met.

  • The IRS assessed a tax liability and sent you a notice and demand for payment
  • You neglected or refused to pay the tax amount that was assessed
  • The IRS sent you a final notice of intent to levy and notice of your right to a hearing at least 30 days before the levy.

The IRS will either send these notices to your last known address or give you the notice in person at home or at work. Once the final of intent to levy has been received you can expect the IRS to begin to levy assets no sooner than 30 days from the date you received it. The IRS hopes that in these 30 days you will contact them and make some sort of arrangement to pay the taxes owed.

Effects of the Tax Levy and Property Subject to the Levy

Once the final notice of intent to levy has been received the IRS will begin to levy thirty days later. To begin the levy process the IRS will start sending out notices to third parties with whom they believe may be paying you. In these notices they will state that they must pay the IRS instead of you. These third parties will likely honor the request of the IRS because if they don’t, the IRS will hold that third party responsible for the amount that they should have sent to the IRS instead of you. Below are three forms of levies the IRS uses to collect taxes.

  • IRS Wage Garnishment
    This is the most common form of IRS levy. Under this collection mechanism the IRS will contact your current employer and demand that they withhold a certain percentage of your pay in order to pay that amount towards the tax debt owed. This garnishment mechanism will remain in place until they have garnished enough wages to satisfy the tax amount owed, statute of limitations has expired, or the tax amount owed has been paid off or settled.
  • Bank Levy
    With this form of levy the IRS will contact your bank and require them to hold the funds and send them over to the IRS in order to satisfy the tax debt amount owed. The IRS will continue to seize amounts in this bank account until they have taken enough money to fully cover the taxes owed.
  • Property Seizure
    This is the last resort method used by the IRS. They typically use this method with uncooperative taxpayers. With this form of levy the IRS will seize personal assets such as a house,car, boat and any other item that may hold monetary value that the IRS thinks they can sell to satisfy the tax debt owed.

A tax levy is always the last resort of the IRS. In fact, the IRS does not like enforcing levies because they are costly and they typically don’t recover all taxes plus the cost of them to enforce the levy. The IRS makes the collection mechanism so harsh so it scares other taxpayers to pay their taxes and not fall out of compliance with the IRS. If you are in the situation of a tax levy it is highly suggested you take quick action with the IRS or talk with an experienced tax professional that can help you.