Tax Levy: What is a Tax Levy and How to Stop One

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If you receive a Notice of Intent to Levy from the IRS, you may feel like you have nowhere to turn. You may have images of your home, car, and assets being ripped out from under you. Fortunately, you have time after receiving notice to protect your belongings. A tax levy can be stopped. 

What is a Tax Levy? 

A levy is a legal process through which the IRS can seize your assets in order to offset outstanding tax debts. If IRS tax debt goes unpaid for an extended period of time, the IRS will take matters of collection into their own hands. They’ll begin to seize your property, including wages, assets, financial accounts, and more, and use their value to pay off your tax debt. 

Tax Levy vs Tax Lien 

The term “tax levy” is often referenced in tandem with “tax lien”, but the two are not the same. A tax lien is the legal process that typically precedes a tax levy. Through a tax lien, the IRS legally states that they have the right to claim your property due to unpaid tax debt. A tax levy is the collection method through which they actually claim that property. 

Types of Tax Levy 

The IRS can use a tax levy to seize a variety of different funds and assets. These generally fall into the following categories.

  • Property Seizure 

When most taxpayers hear the term tax levy, they typically think of property seizure. The IRS can seize your property, sell it, and then use the money from the sale to pay off your debt. They may seize any asset that is of value, from your home or car, to expensive designer goods or other property. 

  • Bank Levy 

The IRS can also take your savings accounts, retirement accounts, and more to offset your debt. When this happens, they will notify your bank to block any withdrawals from your accounts. Instead, the bank must take that money and give it to the IRS. 

  • Wage Garnishment 

This levy allows the IRS to intercept a portion of your paycheck to offset your debt. Your employer must send the determined portion to the IRS. 

  • Tax Refund Garnishment

Similarly to wage garnishment, this allows the IRS to intercept either a portion or the entirety of your tax refund until your debt is paid off. 

How Does a Tax Levy Work?  

The IRS enacts a tax levy if tax debt has gone unpaid for an extended period of time and a taxpayer has not indicated that they have any plans to repay the debt. Prior to assessing a tax levy, the IRS will send 4 warnings known as collections notices. Those include: 

  • Notice CP14, Balance Due: The Balance Due Notice is like a bill from the IRS. This is sent after an IRS Notice of Deficiency. It notifies you that you owe additional funds on your tax return and gives the date by which it must be paid. It also provides information on how to set up an IRS installment agreement if you cannot afford the total amount due. 
  • Notice CP-501, Important: If you don’t respond to the Balance Due notice, the IRS will follow up with an Important notice. This reminds you of your outstanding payment and informs you of any additional penalties and interest you’ve incurred for the unpaid tax amount. You have 30 days to respond once you receive the Important notice. 
  • Notice CP-503, Urgent: If the Important notice is ignored, the IRS follows up with the Urgent notice. Again, you’ll be informed of the due amount and revised interest and penalties. You have 10 days to respond to an Urgent notice. 
  • Notice CP-504, Refund Levy: If the Urgent notice is ignored, the IRS will send the Refund Levy notice. This states that the IRS has begun assessing which assets to levy. Often, a tax lien is enacted along with the Refund Levy notice. 

Final Notice of Intent to Levy

The Final Notice of Intent to Levy, also known as Letter 1058 or LT11, is the last notice that the IRS will send in regards to impending levy of assets. In this notice, the IRS informs you of your right to appeal the tax levy, and gives them 30 days to do so. If you do not submit an appeal or pay the outstanding debt, interest, and penalties, the IRS will begin to levy your assets after the 30 day period has passed. 

How to Appeal a Tax Levy 

If you believe that the IRS has assessed a tax levy against you in error, you have the opportunity to appeal your tax levy through the Collection Appeals Program. As long as you are pursuing an appeal, the IRS cannot levy any of your assets. 

You may qualify for tax levy appeal if: 

  • The debt is in error and your taxes are already paid in full
  • You’re currently in the midst of paying back your debt through an IRS installment agreement
  • You’re currently in the process of negotiating repayment through a partial payment agreement or an IRS offer in compromise 
  • You are being charge with your spouse’s debt and qualify for spouse relief
  • The IRS did not follow proper levy procedure and missed a step in the levy notice process
  • The 10-year time to collect on your debt has expired 

IRS Form 12153 

In order to request an appeal, you can use IRS Form 12153, the Request for a Collection Due Process or Equivalent Hearing. This gives you the opportunity to state your case for qualifying for an appeal. Once this form is submitted, the IRS will halt your levy and determine whether you qualify for your appeal. If they deny your request for appeal, you have an additional 30 days to submit another appeal request. 

How to Stop a Tax Levy

While the IRS suggests that you pay your outstanding balance in full in order to stop tax levy, they also know that payment in full is often not possible for many indebted taxpayers. That’s why they’ve created a number of different options for taxpayers who cannot afford to pay their debt in a lump sum. 

IRS Installment Agreement 

As outlined in your initial collection notice, IRS Installment Agreement is the first line of defense for taxpayers who are facing a levy. This is an IRS payment plan that allows you to pay off your tax debt in monthly payments over either three or six years, depending on your debt and financial situation. As long as you are actively paying down your debt through an installment agreement, the IRS will not levy your property. 

If you opt for an installment agreement, you’ll continue to accrue interest and penalties until your total debt amount is paid, so it’s advisable that you pay off your debt as quickly as possible to keep the total amount to a minimum. 

Guaranteed Installment Agreement 

If you owe less than $10,000, it’s likely that you’ll automatically qualify for what’s known as a guaranteed installment agreement. Through a guaranteed installment agreement, you’ll have 36 months to pay off your tax debt, along with interest and penalties that you’ve accrued. 

To qualify, you must: 

  • Owe $10,000 or less in tax debt before any additional penalties or taxes 
  • Have a history of both filing and paying taxes on time over the prior 5 years
  • Not have a history of installment agreements over the prior 5 years 
  • Be unable to currently pay the entire tax amount 
  • Agree to pay the entire tax amount, plus penalties and interest, over the course of the next 3 years 
  • Agree to pay all installment payments on-time 
  • Agree to file and pay all future taxes on time 

Streamlined Installment Agreement 

If you owe more than $10,000 but less than $25,000, you can qualify for a streamlined installment agreement with the IRS. This allows you to pay off your debt, plus interest and penalties, over the course of 72 months. If you are approved for a streamlined installment agreement, the IRS may assess a tax lien against you, but they will not levy your assets as long as you continue to pay your agreed-upon payments on time. 

To qualify, you must:

  • Owe less than $25,000 in combined tax debt, interest, and penalties.
  • Be up to date on all past tax returns; any unfiled returns must be filed before proceeding
  • Not have a history of installment agreements over the past 5 years 
  • Not be filing for bankruptcy 

What if I Can’t Pay?

  • For some indebted taxpayers, their debt amount is so exorbitant that it seems unfeasible that they’ll ever be able to pay it in full, even over the course of three or six years. When you are faced with a tax levy, the possibility of never being to pay off your debt can feel crushing. If this describes you, there are options available. 
  • The first step if you can’t pay the IRS is to pay however much you can. Even if it’s just a sliver of your debt, the IRS favors those who are proactive about repaying their debt. Next, it’s important to decide which option is best for you. 
  • As long as you are pursuing one of the below options, the IRS will halt tax levy. Once a solution has been met and your debt is cleared, the levy will be released. 

Partial Pay Installment Agreement

Similarly to other types of installment agreements, a partial pay installment agreement allows you to pay the IRS over the course of an extended period of time. In the case of a partial pay agreement, however, the total paid amount will be less than the actual debt owed. 

To qualify for a partial payment installment agreement, you must: 

  • Owe at least $10,000 in debt, interest, and penalties 
  • Be unable to offset your debt amount using your assets 
  • Not be in bankruptcy 
  • Not have previously had an offer in compromise 

To calculate a partial pay installment agreement, you’ll need to tally up your basic living expenses and subtract that from your debt amount. The remaining amount is what you’ll be responsible for paying. When you request a partial pay installment agreement from the IRS, you’ll need to provide the IRS with an Installment Agreement Request (Form 9465) and information about your financials in form 433-A. 

Note that, if you do opt for a partial pay installment agreement, the IRS will likely place a tax lien against you to guarantee their repayment. That said, they won’t enact tax levy as long as you pay on time. 

Offer in Compromise

Just like a partial payment installment agreement, an offer in compromise allows you to pay off your debt for less than the actual amount that you owe. Through an offer in compromise, you can negotiate your debt down to a manageable amount. Once this amount is paid, your debt will be cleared. 

There are a few types of offers in compromise to choose from, including: 

  • Doubt as to collectibility: This is the most common offer in compromise. It argues that, considering your current income, assets, and other financials, it’s not only currently impossible to pay off your debt, but it will likely remain impossible until the time to collect (10 years after tax assessment) has passed. 
  • Doubt as to liability: You believe that the IRS has made an error in their calculations or a mistake in their records and you can prove that you are not responsible for the tax debt. 
  • Effective tax administration: Due to an exceptional circumstance, you should not be responsible for paying your debt, as it will cause extreme financial hardship. For instance, you have an ongoing significant payment that takes most of your income, and you would not be able to pay for your basic needs if you paid your debt in full. 

Currently Not Collectible 

  • A final option for those who cannot repay their tax debt in full is to be put into Currently Not Collectible (CNC) status. As long as you remain currently not collectible, the IRS cannot proceed with their tax levy of your property. 
  • In order to qualify, the IRS will look into your financials to determine if you truly cannot afford to pay your debt, even with the help of an installment agreement. The IRS will reassess your status on a regular basis to determine whether your financials have changed and you may now be able to afford your debt. 
  • Another thing to remember is that, while you are declared CNC, the IRS has the option to suspend the 10-year time to collect on your debt. That would make it impossible for you to surpass the 10-year time to collect as long as you are CNC. Once you are taken out of CNC status, the time to collect will pick up right where it left off. 

Get Professional Tax Help to Stop a Tax Levy

  • To stop tax levy actions you need to file all required back tax returns and reach a resolution with the IRS such as an installment agreement, hardship status, or a settlement. Community Tax is not just a tax preparation service. Community Tax has helped thousands of taxpayers file back tax returns and reach resolutions with the IRS. Community Tax will custom tailor a resolution plan for you that can stop or prevent tax levies and put your account into good standing with the IRS.
  • If you need IRS tax levy services, let Community Tax’s experienced tax professionals design a plan to stop tax levy actions on your account today. Our company gives customers a rare opportunity to work directly with our entire tax resolution team, comprised of enrolled agents, CPA’s, tax attorneys, case analysts and case managers. This stems from our company’s dedication to customer satisfaction and quality service. We work diligently to ensure that our customers are kept informed and that their tax problems are handled efficiently. 
  • Unlike other resolution companies, in which customers pay high upfront fees, Community Tax always undergoes a detailed investigation of our client’s finances and ensures that they receive the services required to completely resolve their tax issues. Get a free consultation today and find out how you can get IRS tax levy services and your other tax resolution needs met today.