How to Release an IRS Levy: Remove Federal Tax Levy
Once the IRS starts to levy your assets, the agency will continue to take assets until the tax debt is paid in full. However, there are other ways to release an IRS levy. The method you choose depends on your personal tax and financial situation. Here are your main options.
Pay the IRS in Full
This is the fastest way to get the IRS to release a tax levy. If you pay your tax debt in full, the IRS will stop all collection activity immediately. However, most people only get into this situation because they can’t afford to pay their tax debt in full. If you’re in that boat, you may want to consider a payment plan or a tax settlement if you qualify.
An offer in compromise is when you settle your tax debt for pennies on the dollar. The exact settlement amount varies based on your personal finances, and the IRS wants the highest settlement it can possibly get. This option requires a lot of paperwork, and to be successful, you should work with a professional. This is not an immediate option to lifting a tax levy once it is in place as it takes time to prepare the paperwork and for the IRS to review it.
Setting up an Installment Agreement is also a fast way to have your IRS tax levy released. You agree to make regular monthly payments to the IRS. You can set up a payment agreement after the IRS has started to take your assets, but it’s best to try to set one up before that happens.
Generally, the IRS only has 10 years to collect tax debt. After that time period, the tax debt expires. If you can make it to the collection statute expiration date (CSED), the IRS cannot legally collect on the debt anymore and must remove the levy. However, waiting until the debt expires usually is not an easy option. The IRS also has an eye on the expiration date, and the agency will collect aggressively before that date hits.
If you can prove that the tax levy is causing extreme financial hardship, you may be able to get the agency to release the levy and pause collection activity. The IRS has a strict definition of financial hardship. Essentially, you have to prove that if the IRS takes your assets you won’t be able to meet basic living expenses. Basic living expenses are set at the national level for food, clothing, and other items whereas local standards determine mortgage/rent, property taxes, insurance, gas, electric, phone service, and so forth. At that point, the IRS marks your account as “uncollectible.” The agency temporarily pauses collection activity and revisits the situation in the future.
When you file for bankruptcy, the courts issue a “stay”. That requires all creditors including the IRS to stop collection activity. Bankruptcy may wipe out some tax debt, but it depends on the age of the tax debt, the types of taxes, and the bankruptcy chapter. You should only take this step in severe situations because it has a lasting impact on your credit score.
A tax levy is the IRS’s harshest collection mechanism. If the IRS is levying your assets, a tax professional can help you get back on track. They know how to deal with the IRS, and they can point you toward the best solution for your situation.