What Is IRS Tax Levy System?

An IRS Tax Levy allows the Service to legally take your assets to pay off your past due federal tax liability. A levy can also be imposed by state government entities in which you owe tax liability to. Methods in which an IRS Tax Levy will occur can be garnishing your wages, levying money directly out of your bank or investment accounts and taking your property such as real estate, vehicles or other personal property to sell and fulfill your tax liability. An IRS Tax levy will mostly occur after a Federal Tax Lien has been filed.
IRS Levy

The Federal Tax lien secures the interest of the IRS on your property and other assets when you have a delinquent tax liability.  The IRS Tax Levy allows the actions of using that right and securing any funds through the sale of those assets with a lien. Prior to the levy being imposed you must be advised with an IRS notice, CP 504, which is a final notice of intent to levy.

When this notice is produced it will be sent by certified mail, directly to your address. The notice will make you aware that you have an unpaid balance and that you must respond immediately. Usually if 21 days passes by and you do not contact the IRS, they will move forward with the Tax Levy. The IRS is looking to withhold your state income tax refund or use other methods listed above to secure the funds. By sending out the Final notice of levy directly to you, they are making you aware that if no type of communication is made, they will take drastic measures to ensure the unpaid tax liability gets satisfied.

IRS Levy

An IRS Tax Levy Can Affect Your Income

An IRS Tax Levy can affect your life in many ways. The most common way that a Tax Levy is imposed would be through wage garnishment. This means that a request is sent to your employer to withhold a fraction of your hard-earned money each pay period. Another method would be to freeze your bank accounts. When this happens, the IRS will contact your bank directly and send out a 21-day hold of all the funds in your account. Within the 21-day time period you have the chance to resolve your account with the IRS and have the funds released.

 If there is no type of resolution made within that time period, the bank will be forced to send some, or all of your bank account funds directly to the IRS. The most severe method of an IRS Tax Levy would be to seize your property.  Although this is one of the most extreme methods, it is not exempt from a way for the IRS to secure their funds.  There are some items that are excused from being seized. Some of these items are disability payments, public assistance or child support, unemployment benefits, specific pension and annuity benefits, furniture or other personal property items. This is not a full list of the exempt items but rather the more common items that are excluded.

What Are Your Options?

There are numerous options for you if you have been faced with an IRS Tax Levy. The most important factor in avoiding such extreme collection action is to make sure you have proper withholdings out of your paycheck. Most common reason that a taxpayer owes a balance at the end of the year is because they did not withhold enough from their paychecks during the year. If you are self-employed you are required to make monthly tax deposits to equal the amount of taxes due, based on your income, when it is time to file. In most cases, it is hard to be able to pay your taxes at the time of filing because of the high amount of funds needed. If you are faced with this problem and it results in a tax bill, you must keep in mind that additional penalties and interest will be added.

IRS Levy

Your Tax Liability Limit

The penalties and interest tagged onto a tax liability will continue to accrue daily until the entire tax liability is paid in full. Setting your account up on a payment plan, also known as an Installment Agreement, is the most common method to have a levy released. There is an option that if your tax liability is below $25,000.00 and your payment plan is set up to come directly out of your bank, you can request that the IRS remove your federal tax liens in addition to releasing the tax levy. This action can occur after three payments are made through the direct debit method. The tax liability will remain on your account, however, your options in obtaining funds or being able to sell your property can be broadened.

Your Final Settlement Payment

If a payment plan is not within your budget, you may want to look into the option of filing an Offer in compromise. This request will allow you to settle your tax liability for less than the full amount that is owed. Once an Offer in Compromise is filed and paid in full, your tax liens will be removed. If you are unable to resolve your tax bill within the timeframe set before you, there is always an option to file an Appeal. Along with the CP504 notice, you can request that a collection due process hearing with the IRS Office of Appeals take place. This will give you the chance to review the lien or levy notice that was sent to you. You have the ability to voice that you disagree with the filing of this collection action and can present your case in from of the Office of Appeals directly.

IRS Levy

It is very important to stay in contact with the IRS and cooperate with the requests set before you. As simple as it may sound, paying your tax bill, whether in full or through payments is the best way to avoid an IRS Tax Levy. Most of the severe effects of IRS collection can be avoided if you communicate with the IRS.

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