If you fail to satisfy your outstanding tax obligations with the IRS, a levy may be applied. According to IRS Publication 594, a tax levy is defined as "a legal seizure that actually takes your property (such as your house or car) or your rights to property (such as your income, bank account, or Social Security payments) to satisfy your tax debt."
Process for Applying a Tax Levy
An outstanding balance due to the IRS does not automatically warrant the issuance of a tax levy. Instead, the IRS will make several attempts to collect the amount owed. "For most taxpayers, the IRS accomplishes these requirements by sending five letters, starting about six weeks after the taxpayer files a return," says the Huffington Post.
Before a tax levy is applied, you will receive a bill in the mail and be afforded the opportunity to set up payment arrangements. If you fail to respond to initial correspondence, another bill will be sent. Next, the IRS will then send you a Final Notice of Intent to Levy and Notice of Your Right to a Hearing. If you don't respond within 30 days, a levy may be implemented if there are no other funds available from subsequent tax refunds to settle your tax bill.
After a Levy Is Applied
Once a tax levy is applied, the IRS will proceed to seize your property or rights to your property to satisfy your tax debts. IRS Publication 594 states the following assets are eligible for seizure:
Any property seized will be sold and the proceeds generated will be applied to the delinquent tax owed. Wages, salaries, commissions, bank accounts and federal payments that are seized will also be used to decrease or eliminate your outstanding tax liability. Any proceeds that remain after the debt obligation is satisfied will be refunded to you.
How to Deal With an IRS Levy
IRS Publication 594 recommends that you contact the IRS immediately via phone at 1-800-829-1040 or using the number issued on the notice has been issued on your property. Request to speak to the representative that has been handling your case if applicable.
The Appeal Process
If you believe a notice has been issued in error or wish to appeal the proposed levy, respond to the notice within 30 days to ask for a Collection Due Process hearing. Instructions on how to move forward with the appeal can be found on your notice. Once the request is received, the Office of Appeals will contact you to schedule a hearing within two business days, per Publication 1660.
A final decision will be issued following your hearing. If you disagree or wish to file another appeal, it must be done in the U.S. Tax Court. Before filing an appeal, you may want to solicit the assistance of a tax attorney to gain clarity on the process and your options.
In the event your wages are being garnished as a result of a tax levy and its causing extreme financial difficulties, you should contact the IRS promptly. You may qualify for a release of the levy on the grounds of a financial hardship and be granted an alternative payment arrangement until the outstanding balance is paid in full. Financial hardship requests are handled on a case-by-case basis.
IRS Tax Levies are released when you have completely satisfied your tax obligations. Unlike tax liens, levies are not recorded on your credit file as collection accounts, so they do not impact your credit score.
If you are faced with a Final Notice of Intent to Levy, contact the IRS immediately to get the issue resolved or make alternative arrangements as quickly as possible. Also, keep in mind that all communication from the IRS will be sent via mail. If you receive a call or email, it is a scam. Hang up the phone or delete the email and immediately contact the IRS to ensure your personal information has not been compromised.