This post dives into levy avoidance. If you don’t want the IRS seizing your property, this post is for you. Actually, this post is for people who have property levied by the IRS and anyone else who wonders what happens when you don’t pay your taxes.
The IRS has several weapons in its arsenal of monetary misery. The levy could be the most inconvenient, to put it mildly.
What Is a Levy?
A levy is the seizure of property to pay taxes owed. A levy can include wage garnishment, taking real or personal property, or seizing your bank accounts or other financial assets. Before the IRS levies your property, you receive notice of a lien, warning you that your assets could be levied if you don't do something quick.
When Does the IRS Issue a Levy?
The IRS calculates any outstanding taxes and sends you a Notice and Demand for Payment if you didn’t pay on Tax Day or file for an exemption. If you refuse or fail to pay the outstanding tax, the IRS sends two more letters (only in person or through the US Postal Service, never email) titled "Final Notice of Intent to Levy" and "Notice of Your Right to a Hearing." These are sent at least 30 days before the IRS issues a levy.
The letters are sent to your last known address, your place of business, or your home. If you haven’t kept the IRS updated with your address, you either receive the letters late or not at all, and you will have a big surprise when the IRS suddenly seizes your stuff.
Were you expecting a state tax refund? The IRS could get there before you, sending the levy letter after the fact.
In a last-ditch effort to get you to pay your taxes or throw yourself at the mercy of the IRS, the agency sends advance notice that it might start contacting third parties to collect information about your liability — like your bank, employer, friends, and neighbors. That could get awkward.
The Impact of a Levy
What can a levy do to you? Well…
- It can shrink your paycheck through wage garnishment.
- It can freeze your bank accounts.
- It could seize your home, although the IRS hates the optics and uses it as a last resort.
But, hey! There are things the IRS can’t seize:
- Your unemployment benefits
- Certain public assistance payments or child support payments
- Certain annuity and pension benefits
- Some disability payments
- Workers’ compensation
- Some items required for school or work
- Undelivered mail
- Certain furniture and household items
…so there is that.
You can avoid a tax levy by filing your taxes on time and paying the taxes when they are due. You can make sure your withholding is correct. You can file an extension by Tax Day if you need more time to file or pay your taxes.
If you can’t pay everything, pay what you can and work with the IRS to resolve the balance with a payment plan, offer in compromise, or other deal.
Contact the IRS immediately if you receive an IRS bill titled Final Notice of Intent to Levy and a letter called Your Right to a Hearing. Ignoring these documents only drags the conflict out.
How to Avoid an IRS Levy
Beyond the simple act of paying your taxes, you have several ways to keep the IRS from pinching your assets.
Keep in contact with the IRS. The agency doesn’t stop just because it lost contact with you. They just keep charging penalties and interest on your tax liability and continue down the track of liens and levies.
Know your rights. You might feel like David to the IRS Goliath, but you have rights, too. The agency can’t just stomp all over you.
On the other hand, know what powers the IRS has. Understand what the agency can do to convince you to pay your taxes or, failing that, find other ways to get the money you owe.
Know what to do if the IRS issues a levy. Don’t ignore those letters or the letters that came before warning you what was on the way.
If you just don’t have the money, demonstrate economic hardship and ask for a currently not collectible (CNC) status. The IRS will give you a grace period to get back on your feet or make other arrangements.
Always be courteous and polite and ask for help when you need it. (We’re available.)
Removing a Levy
You don’t need a pry bar to remove a levy. Removing a levy requires you to pay your tax bill or make other arrangements with the IRS, such as an installment or payment plan. Installment plans halt some IRS activities, such as levies. As long as you pay on time, the IRS holds off on seizing your property.
Just remember, defaulting on the installment or payment agreement means the IRS proceeds with seizing your assets.
An offer in compromise might be an option if you can show that you just can’t pay the entire amount ever. Work with a tax expert (like us) to see if the IRS will accept a smaller amount to pay off your taxes.
Another option for removing a levy is to file an appeal in a collection due process hearing at the IRS Office of Appeals. Let the agency and legal eagles review your lien or levy notice. Maybe there's a loophole.
You can file for bankruptcy to remove a levy, but it’s a long process with lots of rules. Also, it doesn’t always work.
Currently not collectible status can keep the IRS off your back for a time, but this status is temporary. The IRS can revoke it anytime it feels you can make a payment.
You’re better off without liens and levies, but if you don’t pay your taxes, you are headed in that direction. The minute you realize you can’t pay your taxes in full, get in touch with the IRS or seek help from tax resolution experts.
The earlier you address your payment problem, the easier it is to avoid a levy. The IRS has options for almost anyone to work out a tax problem, and we can help.