The Internal Revenue Code (“IRC”) authorizes the use of levies to collect delinquent taxes. [1] An IRS levy is the actual legal seizure of a taxpayer’s property to satisfy a tax debt. By contrast, an IRS lien is a legal claim against a taxpayer’s property used to secure payment of a tax debt.
There are two primary types of levies. The first kind of IRS levy has a “one-time” effect. In this scenario, the IRS takes the asset all at once. The second kind of IRS levy has a continuous effect. These levies remain in place until the IRS releases the levy or the taxpayer’s debt is satisfied in full.
The IRS may levy any property or right to property the taxpayer owns or has an interest in. This means that the IRS may take property that is the taxpayer’s but that is held by another person or entity, such as the taxpayer’s wages, bank accounts, rental income, or commissions. Or, the IRS may seize and sell property that the taxpayer holds, such as a taxpayer’s home, car, or boat.
Generally, the IRS will levy only after the following four requirements are met:
- The IRS assessed the tax against the taxpayer;
- The IRS sent the taxpayer a Notice and Demand for Payment;
- The taxpayer neglected or refused to pay the outstanding tax; and
- The IRS sent the taxpayer a Final Notice of Intent to Levy and Notice of Your Right to A Hearing at least thirty (30) days before the levy.
Taxpayers can avoid an IRS levy by filing returns on time and paying taxes when due – and if a taxpayer receives an IRS Notice of any kind, the taxpayer should take care to not disregard the Notice, as it may lead to an IRS levy. But in the unfortunate situation that the IRS levies, there are many ways to resolve the issue.
Additionally, there are a number of instances in which the IRS may be required to release a levy. The IRS is required to release a levy if it determines that:
- The taxpayer paid the amount owed;
- The period for collection ended prior to the levy being issued;
- Releasing the levy will help the taxpayer pay the taxes owed;
- The taxpayer enters into an Installment Agreement and the terms of the Installment Agreement do not allow for the levy to continue;
- The levy creates economic hardship, meaning the IRS has determined the levy prevents the taxpayer from meeting basic, reasonable living expenses; or
- The value of the property is more than the amount owed and releasing the levy will not hinder the IRS’s ability to collect the amount owed.
But merely because a levy is released does not mean the taxpayer is relieved of his or her obligation to pay the outstanding tax liability – arrangements must still be made to pay the outstanding tax debt, or a levy may be reissued.
[1] See I.R.C. § 6331.
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