What the IRS Can Levy and How to Stop or Reverse a Levy
What is a levy?
A levy is a legal seizure of property to satisfy a tax liability. Levies are different from liens. A lien is a legal claim against property to secure payment of the tax liability, while a levy actually takes the property to satisfy the tax liability. A Lien is supposed to proceed a Levy and usually does. We do see, however, mistakes where procedures were not followed and a Levy was issued without a Lien in place. This scenario is grounds for an immediate release of Levy.
When is a levy issued?
If taxes remain unpaid or arrangements for repayment are not agreed upon and also the IRS determines that a levy is the next appropriate action, the IRS may levy any property or right to property of the taxpayer, be it an individual or a business. The IRS may seize and sell physical property, like a car, boat, house or land. The IRS may levy property that is yours but is held by someone else, like as your wages (a wage garnishment), retirement accounts including a 401(k), dividends, bank accounts, rental income, accounts receivables, the cash loan value of your life insurance, or commissions.
Before a levy is issued, the following happen:
- The IRS assessed the tax and sent you a Notice and Demand for Payment (a tax bill);
- You neglected or refused to pay the tax; and
- The IRS sent you a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy. The IRS may give you this notice in person, leave it at your home or your usual place of business, or send it to your last known address by certified or registered mail, return receipt requested. Please note: if the IRS levies your state tax refund, you may receive a Notice of Levy on Your State Tax Refund, Notice of Your Right to Hearing after the levy.
If I get levied, can I get the money back?
Yes, but this is where professional help is a good idea. If the IRS denies your request to release the levy, you may appeal this decision. But the clock is ticking and if you make a mistake the clock with the IRS can expire.
You may appeal before or after the IRS places a levy on your wages, bank account, or other property. After the levy proceeds (monies) have been sent by the third party to the IRS you may file a claim to have them returned to you. You may also appeal the denial by the IRS of your request to have levied property returned to you.
The IRS is required to release a levy if:
- You paid the amount you owe,
- The period for collection ended prior to the levy being issued,
- Releasing the levy will help you pay your taxes,
- You enter into an Installment Agreement and the terms of the agreement don’t allow for the levy to continue,
- The levy creates an economic hardship, meaning the IRS has determined the levy prevents you 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 our ability to collect the amount owed.
Note: The release of a levy does not mean you don’t have to pay the balance due. You must still make arrangements with the IRS to resolve your tax liability or a levy may be reissued.