Levies

Darby Smith Law Office

IRS and State Tax Attorney

Understanding IRS Levies

An IRS levy is a serious action where the IRS legally seizes a taxpayer’s property or assets to settle a tax debt. This drastic measure is typically used when taxpayers neglect or refuse to pay their tax debts and fail to make arrangements to settle them.

The IRS Levy Process Explained:

1. Tax Assessment & Billing

The process begins when the IRS assesses a tax liability and sends the taxpayer a Notice and Demand for Payment—the official tax bill.

2. Neglect or Refusal to Pay

If the taxpayer does not pay or make arrangements to pay, the IRS may move towards a levy.

3. Preliminary Notices

CP501: A reminder notice about the balance due.
CP503: A second reminder.
CP504: Notifies the taxpayer of the IRS’s intent to levy if the amount isn’t settled.

4. Final Notice & Right to a Hearing

The IRS will issue Letter 1058 (LT11) or CP90: This is the “Final Notice of Intent to Levy and Notice of Your Right to a Hearing.” The taxpayer has 30 days from the date of this notice to respond before the levy begins. This notice can be delivered in person, left at the taxpayer’s home or business, or sent by certified or registered mail.

5. Opportunity to Request a Hearing

If the taxpayer disagrees with the levy, they can request a Collection Due Process (CDP) Hearing with the Office of Appeals within 30 days of the Final Notice.

6. CDP Hearing

At the hearing, the taxpayer can challenge the levy and propose alternative solutions, such as a payment plan. Failing to attend the hearing results in the loss of the right to the CDP hearing.

7. Determination from the Hearing

After the hearing, the Office of Appeals will issue a determination. If the taxpayer disagrees, they can appeal the decision in court.

8. Levy Action

If the taxpayer doesn’t request a hearing, or if the hearing does not result in a favorable outcome, the IRS can proceed with the levy. Common forms of levies include:

Wage Garnishment: A portion of the taxpayer’s wages is taken each pay period until the debt, interest, and penalties are fully paid.
Bank Levy: The IRS seizes funds from the taxpayer’s bank account. The bank holds the funds for 21 days before sending the money to the IRS, giving the taxpayer time to resolve the issue.
Seizure of Physical Assets: The IRS can seize and sell property such as cars, boats, houses, or other valuable assets.

9. Release of Levy

The IRS will release a levy if:

The tax debt is paid in full.
The taxpayer enters into an installment agreement.
The statute of limitations for collection expires.
The levy causes immediate economic hardship.
The value of the seized property exceeds the tax owed and releasing the levy doesn’t impair the IRS’s ability to collect.

Final Thoughts

While an IRS levy is a powerful tool, it’s often seen as a last resort. The IRS prefers that taxpayers settle their debts voluntarily. If you are facing a potential levy, it’s critical to consult with a tax professional or attorney to explore your options and protect your assets.