IRS tax levy – how to stop wage garnishments and bank levies

An IRS levy permits the legal seizure of your property to satisfy an unpaid tax debt. The IRS can garnish wages, take money from your bank or other financial account, seize and sell your vehicle(s), real estate and other personal property.

If you receive an IRS notice titled Final Notice of Intent to Levy and Notice of Your Right to A Hearing, contact us right away at 1-877-788-2937 to resolve your back taxes and get the levy released.

What is a Levy?

A levy is a legal seizure of your property to satisfy a tax debt. Levies are different from liens. A lien is a legal claim against property to secure payment of the tax debt, while a levy actually takes the property to satisfy the tax debt.

Where does Internal Revenue Service (IRS) authority to levy originate?

The Internal Revenue Code (IRC) authorizes levies to collect delinquent tax. See IRC 6331. Any property or right to property that belongs to the taxpayer or on which there is a Federal tax lien can be levied, unless the IRC exempts the property from levy.

What actions must the Internal Revenue Service take before a levy can be issued?

The IRS will usually levy only after these three requirements are met:

  • 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.

When will the IRS issue a levy?

If you do not pay your taxes (or make arrangements to settle your debt), and the IRS determines that a levy is the next appropriate action, the IRS may levy any property or right to property you own or have an interest in. For instance, the IRS could levy property that is yours, but is held by someone else (such as your wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, or commissions). Or, the IRS could seize and sell property that you hold (such as your car, boat or house).

TIGTA highlights of their recent IRS audit:

Highlights of Reference Number:  2016-30-043 to the Internal Revenue Service Commissioner for the Small Business/Self-Employed Division.

IMPACT ON TAXPAYERS

Social Security benefits are the primary source of income for many older taxpayers.  To satisfy tax debts, the IRS may levy Social Security benefits.  However, by law, levies that cause economic hardship must be released.  In addition, taxpayers have the right to claim an exemption against the levy, which allows them to receive a minimum amount of the Social Security payment and prevent all or part of the levy.

WHY TIGTA DID THE AUDIT

This audit was initiated to determine whether the IRS appropriately applied manual levies to Social Security benefits.

WHAT TIGTA FOUND

Revenue officers make levy determinations of Social Security benefits on a case-by-case basis and exercise judgment in making the determination to levy.  While there are special procedures and thresholds for levying individual retirement accounts and 401(k) retirement accounts, there are no special considerations or procedures for revenue officers when levying Social Security benefits.  In these cases, revenue officers follow procedures for levying assets in general.  In most cases, revenue officers are compliant with these general IRS procedures when levying Social Security benefits.  However, for 15 percent of our sample, revenue officers took levy action on Social Security recipients that likely caused or exacerbated economic hardship.  These levies may be due in part to a change in collection policies that appear to be giving equal weight to nonlegal considerations (such as whether taxpayers return revenue officers’ telephone calls) with the legal requirement to release the levy when the IRS determines that the levy is creating an economic hardship for the taxpayer.

Additionally, while existing procedures allow revenue officers to manually levy up to 100 percent of Social Security benefits, taxpayers have the right to claim an exemption against the levy.  However, in 28 percent of our sampled cases, revenue officers used the wrong form to levy Social Security benefits.  As a result, exemption amounts were not considered prior to establishing the levy.  Of these cases, 6 percent involved taxpayers who suffered greater Social Security levies than allowed by law.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the Small Business/ Self-Employed Division Director, Collection:  1) provide guidance on levying Social Security benefits and give examples to guide revenue officers; 2) revise the Internal Revenue Manual to clarify that levy actions should not be taken if they will likely cause or exacerbate an existing economic hardship based on facts and circumstances of the case; 3) review the levy determinations for the levies that caused financial hardship; 4) remind Field Collection employees of the proper form to use when levying Social Security benefits; and 5) provide the opportunity to claim the proper amount of exemptions allowed for the affected taxpayers in our sample.

The IRS agreed with four recommendations and partially agreed with the fifth.  The IRS plans to:  provide guidance on using discretion before levying Social Security benefits; clarify the Internal Revenue Manual on requirements for a determination of economic hardship; and remind employees to use proper forms.  The IRS stated that it reviewed the levy determinations for the levies that caused financial hardship and did not agree to provide all taxpayers in TIGTA’s sample the opportunity to claim the proper amount of exemptions allowed.  TIGTA believes that all of our recommendations would benefit the IRS and taxpayers.

If you received an IRS levy or an IRS lien notice, you must act right away to avoid further tax problems.

Get IRS Tax Help TODAY call 1-877-788-2937