An IRS levy is a legal seizure of a taxpayer’s property or assets to satisfy a tax debt. The IRS uses this method when taxpayers neglect or refuse to pay their tax debts and don’t make arrangements to settle.
Here’s a detailed breakdown of the IRS levy process:
Tax Assessment & Bill: Everything starts when the IRS assesses a tax liability and sends the taxpayer a Notice and Demand for Payment, which is the tax bill.
Neglect or Refusal to Pay: If the taxpayer doesn’t pay the bill, refuses to pay, or doesn’t make arrangements to settle the debt, the IRS may consider a levy.
CP501: A reminder notice about the balance due.
CP503: A second reminder.
CP504: Notifies the taxpayer that the IRS intends to levy if the amount isn’t settled.
Final Notice & Right to Hearing:
The IRS will then send the taxpayer a Letter 1058 (LT11) or CP90: This is the “Final Notice of Intent to Levy and Notice of Your Right to a Hearing.” This notice must be sent at least 30 days before the levy begins. It can be delivered in person, left at the taxpayer’s home or business, or sent to the taxpayer’s last known address by certified or registered mail.
Opportunity to Request a Hearing: If the taxpayer disagrees with the proposed action, they have the right to request a hearing with the Office of Appeals. This is called a Collection Due Process (CDP) hearing. The request must be made within 30 days of the date of the Final Notice.
CDP Hearing: At the hearing, the taxpayer can discuss the reasons they disagree with the levy. They can also discuss alternative collection methods, like setting up a payment plan. If the taxpayer or their representative (such as a tax professional) doesn’t attend the scheduled hearing, the right to the CDP hearing is lost.
Determination from the Hearing: After the hearing, the Office of Appeals will make a determination. If the taxpayer disagrees with this determination, they can appeal it in court.
Levy Action: If the taxpayer doesn’t request a hearing (or if the result of the hearing is not in their favor), the IRS can proceed with the levy action. Common forms of levies include:
Wage Garnishment: A portion of the taxpayer’s wages are taken each pay period and sent to the IRS until the debt, interest, and penalties are fully paid.
Bank Levy: The IRS takes money from the taxpayer’s bank account. The bank is required to hold the funds for 21 days before sending the money to the IRS, providing the taxpayer some time to resolve the issue or adjust.
Seizure of Physical Assets: The IRS can seize and sell property like cars, boats, houses, or other assets.
Release of Levy: The IRS will release the levy if:
The tax debt is paid in full.
The taxpayer sets up an installment agreement (and isn’t in default).
The statute of limitations for collection expires.
The taxpayer proves that the levy is causing immediate economic hardship.
The value of the property is more than the tax owed, and releasing the levy won’t hinder the IRS’s ability to collect the tax.
It’s worth noting that the IRS often views levies as a last resort. The agency prefers taxpayers to settle their debts voluntarily. If facing potential levies, it’s often beneficial for taxpayers to engage with a tax professional or attorney to explore their options.