What is a Tax Levy?

In its most simplified definition, the IRS says a tax levy is a legal seizure of your personal property to satisfy a tax debt. To understand what a tax levy is you first need to understand what a tax lien is.

What’s the difference between a tax lien and a tax levy?

Why would you have a tax levy? When will the Internal Revenue Service issue a levy? A tax levy results from an unresolved tax lien. A tax lien is a legal claim on your property and other assets. The claim is “security” for the debt that you owe.

Before the lien officially starts, you will receive an official letter from the IRS asking you to pay taxes owed. If you fail to comply, the claim will begin. Failing to pay the tax lien results in the IRS initiating a tax levy. So, in simple terms, a tax lien is like a warning that if you don’t pay, a tax levy is coming. A tax levy is when the government starts seizing your property and assets to pay the tax lien.

How Does a Tax Levy Affect You?

Like all IRS procedures, a tax levy comes with plenty of warnings. If you owe taxes to the IRS, you will first get a notification in the form of a tax lien. You should receive multiple notices and demands for payments including IRS notices CP14, CP501, and CP503. If you ignore the notices you can expect IRS notice CP504 – intent to levy state tax refund or other property.

If you ignore CP504, expect a Final Notice of Intent to Levy and a Notice of Your Right to a Hearing about 30 days before the official levy is delivered via mail, in person, or at your place of employment. This levy notice describes your rights to appeal the process and gives you time to stop the levy before it goes into full motion.

After the 30 days have passed with no action on your part, the IRS can begin the levy at any time of their choosing. If you owe money to multiple sources like credit card companies, the IRS takes precedent in collecting debts owed.

How does a tax levy affect my credit score?

Getting your paycheck and finding out the IRS has beat you to it is a gut punch. However, a levy does not directly impact your credit score. If the IRS collects on a levy through wage garnishment you won’t see it on your credit report.

However, there is a long-term impact a levy can pose on your credit. For example, if the IRS garnishes your entire paycheck, it will likely affect your ability to pay other bills paid on time. Those unpaid bills will eventually show up on your credit report and can stay for up to seven years.

Understanding The Tax Levy: A 15 Minute Guide @2020TaxResInc
Click To Tweet

How Does a Tax Levy Work?

After the IRS notifies you and begins their effort of enforcing collection, the IRS has several options to choose from to collect your debt. They typically choose between, or a combination of a wage garnishment, bank levy, property seizure, and/or state tax refund offset (meaning they apply your future tax refunds to the taxes owed).

Tax Levy Wage Garnishment
Wage garnishment is a common form of a tax levy. When your wages are levied, your employer is required to hold a specified percentage of your pay and send it to the IRS to pay your tax debt. Your employer will typically have one full pay period after receiving notice of the levy before they must start complying with the IRS. The wage garnishment levy will remain in place until the debt is paid off, or another resolution has been negotiated. If it’s your first time your wages are being garnished, you are protected by the Consumer Credit Protection Act. The act prohibits employers from firing employees over first-time wage garnishments.

Bank Levies
In a bank levy scenario, the IRS will contact your bank and tell them to put a hold on your available funds. As a result, your bank account will freeze. Your bank may or may not tell you about this depending on their policies. After 21 days, the determined funds will be sent to the IRS. Some types of funds are protected from bank levies, like social security benefits and child support payments. Your bank will determine which funds can be released to the IRS.

Property Seizure
Physical property levies can include seizing assets such as your house, car, or boat. The IRS will legally seize property in order to sell it and apply the proceeds towards your debt. The sale of a property is typically posted to the public for at least 10 days before it’s sold. A notice of the sale will be provided to you. Any remaining funds after the proceeds have been applied to your debt will be refunded. A property seizure levy is the least used, and usually withheld for only the most serious situations like tax fraud.

Reduced Tax Refund
In the case that you’re due a tax refund, the IRS will deny paying you. Instead, they’ll apply the refund towards your debt. This also can apply to state refunds.

How Do I Stop or Prevent a Tax Levy?

Once an IRS levy goes into motion a harsh reality sets in. However, this does not mean your options for stopping it are over. In many cases, a tax levy in motion is when the real negotiations start. For example, if the tax levy puts your financial situation in a place of severe hardship it’s possible to stop the levy. The Internal Revenue Service defines severe hardship as preventing you from meeting basic and reasonable living expenses.

In addition, you always have the right to appeal a levy, which prevents it from moving forward. In these cases working with a tax resolution professional is the best strategy.

What if I Can’t Pay My Tax Debt in Full?

The efficient and fastest way to unburden your life with a tax levy is to pay it fully. If you have the financial means, it’s best to pay the obligation in full and make sure your account with the IRS has a zero balance. This is not always an option, especially if you owe hundreds or thousands of dollars. Instead of risking a levy on your bank account, house, or vehicle, you may want to use one of the many other available options to get your levy released quickly.

Appeal your tax levy

You will have 30 days from the time the Internal Revenue Service notifies you of its intent to levy an asset to make a formal appeal. The appeal will temporarily stop the levy from being enacted until a decision is made on your tax situation. To file a formal appeal, you must complete and submit IRS form 9423. Appealing a levy is a straightforward process. If you’re able to prove the levy will create extreme financial difficulties, an appeal can work.

Request an installment agreement for your tax levy

After the IRS begins a levy it will not stop the claim until the tax debt is paid off. Rather than wait for months or years before this happens, you can quickly get the levy released by requesting an installment agreement. An installment agreement lets you make regular monthly payments on the debt. The payments are based on your income which ensures you can afford them. This type of agreement will release any type of tax levy you’re facing.

Make an offer in compromise

When you cannot realistically pay off your full tax debt, you may be able to negotiate an offer in compromise. An OIC allows you to settle your debt for less than the full total amount. Your offer should be realistic and reflect the value of your current income and assets. After your offer in compromise is accepted you will have a limited opportunity to pay it and bring your IRS account to a zero balance. After it’s paid, any levy will be released.

Make a Case for Financial Hardship

When an IRS tax levy would create a severe monetary difficulty for you and your household, you can make a case for financial hardship to stop your tax levy. The IRS must leave you with enough money to pay your immediate household expense. If you’re able to show that you’re unable to do so with a levy in place the IRS may release the levy. Proving your claim will require a thorough account of financial documentation including bank statements and pay stubs.

Prove your assets have no equity

The reason the IRS uses levies is to liquidate your property to satisfy your tax debt. When your assets have no monetary value, you may prove to the IRS that they are not worth selling. If you’re able to credibly establish your assets have no equity, you may be able to get a levy against them released. To make this case you’ll need to provide bank statements showing the balances in your checking, savings, and retirement accounts. You may also need to provide appraisal statements for the assets showing their lack of value.

Negotiate a Partial Payment Agreement

If you’re unable to pay off what you owe with an installment agreement, you may be able to settle by asking for a partial payment agreement. A partial payment agreement is reserved for taxpayers who would experience physical or financial challenges with a regular installment agreement. The partial agreement lets you make reduced payments on your tax debt each month. It helps you avoid significant financial strain while satisfying the IRS and releasing any levies.

File for Bankruptcy

As a last resort, you could file for bankruptcy to get a tax levy against your property released. Bankruptcy negatively impacts your credit report for several years. However, while your case is being filed and adjudicated, other creditors and the IRS cannot contact you about your tax debts or take any collection actions against you. Depending on the age and amount of your tax debt, you may have it consolidated into a Chapter 13 bankruptcy, allowing you to pay off your tax debts progressively each month. In rare cases, you can have the tax debt forgiven through Chapter 7 bankruptcy.

What is a State Tax Levy?

Have you recently received a notice from the state about your tax debt? Maybe you are aware of the threat of a possible state tax levy? Let’s examine what a state tax levy is, why you may be issued one, and what you can do to take care of it.

How state tax levies affect you

A state tax levy is very similar to that of an IRS levy. A state tax levy is the state’s way of forcibly seizing your assets. State tax levies can come in the form of a wage garnishment, bank account seizures, and property seizure.

Like the IRS, the state will notify you of your debt and begin a series of notices. State taxing authorities must follow a strict process of notifications before issuing a tax levy against you.

What triggers a state tax levy? What can you do?

State taxing authorities issue a tax levy when you owe back taxes. If you choose to become proactive prior to having a levy assessed you can avoid the headache of getting a tax state levy released.

Whether you’re facing the possibility of a state levy or trying to get one released, you need to have a firm strategy in place. It’s never too late to form a proactive strategy when facing a tax levy. Working with a tax relief expert is the fastest way to resolving a state or federal tax levy issue.

How to get help with a tax levy?

When you owe money to the IRS, it is hard to enjoy life. Being in debt is something nobody plans for, and being in debt to the IRS is especially difficult. The IRS enjoys what feels like unlimited power to collect debts.

Unlike other creditors like your mortgage lender or credit card company, the IRS has the power to take your wages, freeze your bank account, and in the worst cases imprison you. No other creditor has the same type of power and influence. Facing the IRS on your own can be intimidating, and if you’re not prepared and know what you’re doing, can end badly.

If you have received a notice from the IRS, time is not on your side. You need the right strategy to be successful and get your life back. Negotiating with the IRS requires a specific set of skills and expertise. Working with a tax resolution expert is the best way to ensure all of your options and rights are fully exercised.

Why work with a tax resolution expert?

You get peace of mind.
The IRS is a specialized agency, and you need expert advice and guidance to know you’re making the best decisions. Just being contacted by the IRS can raise your heart rate. Working with a tax resolution expert puts an experienced advocate in your corner every step of the way. After you hire a tax resolution expert you no longer need to meet or speak with the IRS, they will speak on your behalf.

You can potentially save you a lot of money.
Tax resolution agents are experts at settlements, and working with one could save you a ton of money. Taking action fast can save your home and property. When you wait too long, you could put your home, business, bank accounts, and other assets at risk. Timely professional assistance can make a world of difference.

You will feel like you’re not alone.
Fighting the IRS on your own can make you feel lonely and desperate. When you work with a tax resolution professional, you don’t have to go at it alone. They step into your shoes and take over. You can be as involved with the process as you like.

You get a chance to make things right without any shame.
Fighting the IRS on your own can make you feel lonely and desperate. When you work with a tax resolution professional, you don’t have to go at it alone. They step into your shoes and take over. You can be as involved with the process as you like.

The post Understanding The Tax Levy: A 15 Minute Guide appeared first on 20/20 Tax Resolution.

Whether you are dealing with the Automated Collection Division of the IRS or local revenue officers, they are for the most part issuing the proper notices before taking any type of action.  However, there is one specific area where notices aren’t always being properly issued.  According to the Treasury Inspector General for Tax Administration (TIGTA) this is happening when there is an additional tax assessment.

When it comes to an additional tax assessment, a completely new notice should go out, giving the taxpayer an additional 30 days before any type of levy action can occur for that particular period. Even if the taxpayer had received the final notice previously and 30 days had run by, once the additional assessment takes place the new notice trumps the old one and the 30 days would start over again. It’s important to point out that the new notice would only be for the particular period in which the additional tax assessment took place. If you owed for multiple periods, the IRS could still levy on the periods that did not receive the additional assessment.

Should the IRS ever issue a levy against you or your business on a period with an additional tax assessment and it either didn’t give you the proper additional notice or didn’t wait the statutory required 30 days, there are steps you can take to fight back and get that levy released. The good news is that the IRS is aware that it isn’t always following procedure when it comes to additional assessments and it is taking the necessary steps to correct the problem. Nevertheless, at the end of the day, it’s always important to know and understand your rights as a taxpayer. We can help.

If you own a business and are facing tax troubles, learn more about IRS levies here. Or, if you are an individual with a tax liability, you can learn more about IRS levies here.

The post Are You Receiving the Proper Notices? appeared first on 20/20 Tax Resolution.

In this piece I want to highlight what I believe to be the most important letter in the IRS collection process, Letter 1058. This letter is titled very specifically Final Notice, Notice of Intent to levy and Notice of Your Right to a Hearing. The exact same message and rights can be presented as an LT 11, CP 297 and CP 90.

I refer to the Letter 1058 (as well as the above-referenced notices) as the Final Notice. The Final Notice is a critical step in the collection process because it presents for the first the IRS’ right to take enforcement action such as the levying or accounts.

The Final Notice offers a taxpayer 30 days to file a Request for Collection Due Process or Equivalent Hearing (CDP), Form 12153. That appeal gives the opportunity to discuss collection alternatives with the Appeals Division of the IRS. If a taxpayer or its representative fails to file an appeal the IRS will have the right to take enforcement 45 days from the date of the letter. The 45 days allows additional time for the mailing of an appeal executed timely on the 30^th day.

Despite the upside that may come from filing the appeal mentioned above it may not necessarily be the most appropriate action. The filing of an appeal in response to a 1058 will stay certain statutes of limitation relating to bankruptcy and collection. Furthermore, it could create a situation in which a business taxpayer is even more vulnerable to enforcement like in the case of a Disqualified Employment Tax Levy. And finally, the filing of an appeal may simply delay a case that could be resolved another way as it winds it way through the appeals process.

Above all Letter 1058 or the like cannot be ignored. If a taxpayer or its representative receives this letter it is important to immediately consider where the case stands. Thought should be given to the pros and cons of filing an appeal and contact should be made with the collection representative that issued the letter.

The post Final Notice, Notice of Intent to Levy appeared first on 20/20 Tax Resolution.

First of all, it is important to know that the government is not allowed to issue a Levy on Wages without notifying you about the possibility of this action. The document used by the IRS for this purpose is called “Final Notice of Intent to Levy”; your State Department of Revenue may use another name, for example Tax (or Wage) Warrant. It is important not to ignore this letter, because it includes information about your rights as a taxpayer to file an appeal and, therefore, to put a hold on enforced collection activities.

If you already missed your timeframe to file an appeal, but have not received an actual Notice of Levy, contact your employer to take a closer look at your W4 form. You need to make sure that you correctly listed all exemptions for you and your dependents. This will help you to save some money when a Notice of Levy on Wages is issued. By law, a certain amount of your salary has to remain untouched so that you and your dependents can have the necessary minimum to live on. To calculate this amount, the IRS uses the number of exemptions listed on your W4 form and Tables for Figuring Amount Exempt from the Levy on Wages – these are revised every year.

Entering into a Payment Plan (Installment Agreement) with the IRS or State Department of Revenue before a Wage Garnishment is issued is one way to resolve the situation. However, if you were not able to reach this agreement prior to receiving a Notice of Levy on Wages, you can still do so now. All cases are different. Depending on the amount of your debt, you might be able to either set up a Streamline Installment Agreement that does not require any financial disclosure and lengthy negotiations, or you might apply for a Partial Payment plan by completing financial statement (form 433A for the IRS) and supporting it with a detailed proof of your income and expenses. These are just two examples of tax debt settlement, but there are also other ways to take care of your liability. Which resolution option is best depends on the specifics of your situation. The main point is that entering into a repayment agreement with the taxing authorities will automatically release your Wage Garnishment.

What if your financial situation is so bad that you simply cannot wait for the IRS or the State to review your payment plan request, and need to have a garnishment to be released immediately? It may still be possible, but you need to be ready to provide proof of your expenses, and to show that the levy on wages creates economic hardship for you and your dependents. For this purpose, the IRS uses the same financial statement, form 433A. If you have a state tax debt, the best way to find the correct document is to contact the person assigned to your case.

If your wage garnishment is released due to the economic hardship and your difficult financial situation, you might also use this opportunity and ask to put your case on Currently Non Collectible status until your condition improves.

If you would like some additional help and advice on what to do about an existing wage garnishment or Notice of Levy, feel free to call 20/20 Tax Resolution for a free consultation.

The post How to Release Wage Garnishment appeared first on 20/20 Tax Resolution.

The IRS gives you 30 days from the day when the Final Notice was issued to respond to it. If you do not owe any money to the IRS, you still need to call the number listed on this notice and discuss the matter with the IRS representative. If you have a debt, but believe that the amount listed on the Final Notice is incorrect, you can file an appeal request using the enclosed form 12153, Request for a Collection Due Process or Equivalent Hearing. You can also file this request if you wish to resolve your liability with the IRS, but need a little bit more time than 30 days to be able to do that.

If you ignored the Final Notice of Intent to Levy and missed the 30 days period to exercise your appeal rights, the IRS can start enforced collections. This may include bank levies, wage garnishment, levies of Accounts Receivable, and seizure of property. An IRS bank levy is usually a one-day event. In other words, when the Notice of Levy is received by your bank, the bank has to freeze the money you had in your account on that day and send this amount to the IRS. This does not apply to the money you receive any time after the levy. So, if you ignored the Final Notice of Intent to Levy, be aware that you might lose money from your bank accounts.

While it is possible to minimize the damage made to your financial situation by the IRS bank levy, the Levy on Wages, or the IRS Wage Garnishment, is not an easy thing to avoid. If the IRS sends a Levy on Wages notice to your employer, your next paycheck will be significantly lower than you expect. This will continue until your IRS debt is paid in full, or until you set up a repayment option with federal taxing authorities. In some cases it is possible to release a Wage Garnishment, but this is a complex issue and is best done with the help of a tax debt professional.

If you did not respond to the IRS Final Notice of Intent to Levy on time and became a victim of enforced collections, the best thing to do is to arrange an alternative repayment option with the IRS. It can be done by either contacting the department that issued this notice, or by filing form 12153 – Request for a Collection Due Process or Equivalent Hearing mentioned above. Although filing this form after the 30 days period does not stop collection actions, it still gives you the right for an Equivalent Hearing, which you can use to discuss your problem with the IRS Appeals Officer and negotiate a manageable payment plan. If you cannot afford to make any payments to the IRS for your past due taxes, you might be placed on Currently Non Collectible Status.

The post What if you ignore the IRS Final Notice of Intent to Levy? appeared first on 20/20 Tax Resolution.