Federal Tax Levy

Federal Tax LevyEMPOWERED TAX SERVICES, LLC

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The Problem● The IRS has broad power to levy on the taxpayer’s property administratively

and without seeking the advance approval of a court. ● This allows the IRS to take the taxpayer’s money, wages, and property without

many of the protections that apply to other creditors.● The IRS can even take property and only has to provide the taxpayer notice

after the property is taken.● This can result in extreme hardships, such as leaving the taxpayer without the

necessary income and assets to pay their basic living expenses or meet their other obligations.

● The IRS may even levy on property that is owned by third parties.


The Cause● IRS collection actions may unfold over several years, leading the taxpayer to

believe that the IRS will not try to take their property.● Taxpayers may not receive IRS notices, including notices indicating that the

IRS intends to levy on property, given the transient and mobile nature of our society these days or simply because they did not receive the notice in the mail.

● Given its broad administrative collections powers, the IRS may be less willing to work with the taxpayer to satisfy the unpaid tax debt as other creditors would for their debts.


About the Federal Tax Levy● The term “levy” refers to a process to take or seize property to satisfy a

liability. ● Once the property is taken, it is typically sold to obtain money to satisfy the

underlying liability.● A tax levy is the process the IRS uses to take a taxpayer’s property to satisfy

an unpaid tax debt.● The IRS levies on property for unpaid income, employment, and other taxes.


Notice of Intent to Levy● The IRS is required to send the taxpayer a Notice of Intent to Levy before initiating

the levy process (unless it deems collection to be in jeopardy).● The Notice of Intent to Levy affords the taxpayer to request a collection due

process or CDP hearing.● The IRS suspends its collections activities during the course of the CDP

hearing.


The CDP Hearing● The CDP hearing:

○ Is conducted by the IRS Office of Appeals.○ May be in person or over the phone.○ The appeals officer will verify the validity of the tax assessment.○ The appeals officer will also consider non-frivolous issues raised by the

taxpayer.


The CDP Hearing● The taxpayer may ask that the following issues be considered during the CDP

hearing:○ Challenges to the existence or amount of the underlying tax liability if the

taxpayer did not did not otherwise have an opportunity to dispute the tax liability,

○ Appropriate spousal defenses, ○ Challenges to the appropriateness of collection actions, and○ Offers of collection alternatives, which may include the posting of a bond,

the substitution of other assets, an installment agreement, or an offer-in-compromise.


The CDP Hearing● The CDP hearing concludes when the IRS lifts the lien or issues a Notice of

Determination sustaining the lien filing.● The taxpayer is entitled to have the courts review the Notice of Determination.


Notice of Tax Levy● The notice of tax levy is an administrative process by which the IRS actually takes

the taxpayer’s property.● The IRS can issue the levy to third parties, such as banks, or to the taxpayer.● The IRS makes the levy by issuing a notice of levy to the person or entity that in

possession of the taxpayer’s property.


Surrender of Property● The recipient of the levy notice is obligated to surrender the taxpayer’s property or

rights to the IRS. ● If the recipient does not surrender the taxpayer’s property or rights to the IRS, they

can be liable for:○ The lesser of the value of the property or rights not surrendered or the

amount of the underlying tax and interest thereon and ○ A penalty of 50% of the amount recoverable described above, absent

reasonable cause. ● The IRS can ask the courts to enforce the tax levy (or they can bring suit

independent of the levy, as a separate collection remedy).


Property Subject to a Tax Levy● The tax levy only reaches the property the person holds on the day the levy is

made. ● The following property is not subject to a tax levy:


★ Wearing apparel and school books★ Fuel, provisions, and personal effects★ Books and tools used for work★ Unemployment benefits★ Undelivered mail★ Certain annuity & pension payments★ Workmans compensation

★ Judgments for support for minor children ★ Certain disability payments★ Assistance under the Jobs Training

Partnership Act★ Residences and business property (see

below)★ A limited amount of wages (see below)

Tax Levy on Bank Accounts● The IRS typically levies on bank account deposits first as they are easy for the

IRS to locate and, since the bank holds cash, the IRS does not have to bother with selling the property.

● A bank cannot surrender the taxpayer’s deposits before 21 days after it receives the levy notice.

● Banks typically use this time to notify their customer that they intend to surrender the deposits to the IRS after the 21 day period.

● The levy only reaches the deposits on account on the date of the levy. The levy does not impact deposits made after this date.


Wage Garnishments● The IRS also garnishes wages or salaries received for personal services as it

is relatively easy for the IRS to determine where a taxpayer works and, as with bank deposits, the IRS does not have to bother with selling the property.

● The IRS also garnishes other recurring non-wage non-salary income.


Wage Garnishments● The IRS cannot garnish amounts in excess of the exempt amount, which is:

○ The standard deduction for the current year for a taxpayer who files married filing separate,

○ Plus the personal exemption for one person, ○ Divided by the pay or income period.

● For example, if the taxpayer is paid weekly, the exempt amount would be divided by 52, for 52 weeks in the year.

● The taxpayer can submit a statement to the IRS to change to a more favorable standard deduction and personal exemption, if applicable.


Tax Levy on Residences● It is less common for the IRS to levy on a residence, particularly when the

taxpayer does not agree to the levy.● The IRS cannot levy on a residence if the tax debt is less than $5,000.● To levy on a residence, the IRS obtain written approval of a judge or

magistrate in the U.S. District Court.


Tax Levy on Business Assets● It is not common for the IRS to levy on business assets.● The IRS cannot levy on business assets if the tax debt is less than $5,000.● The IRS cannot levy on business assets unless:

○ The IRS district or assistant district director personally approves the levy in writing or

○ The IRS determines that the collection of tax is in jeopardy and that the taxpayer’s other assets are not sufficient to pay the tax debt (and expenses of the proceedings).


Notice of Property Levy● The IRS has to send the taxpayer a notice that the property was taken as

“soon as practicable” after the levy.● The notice is typically left at the taxpayer’s home or business. If the taxpayer

cannot be located, the notice is mailed to the taxpayer’s last known address.● The notice must include the amount of the tax liability and a description of the

property that was taken.


Notice of Property Sale● The IRS has to provide notice that the property was taken as “soon as

practicable” after the taxpayer is notified of the levy.● The notice is to be:

○ Published in a local newspaper generally circulated within the county wherein such seizure is made, or if there be no newspaper, shall be posted at the post office nearest the place where the seizure is made and

○ In not less than two other public places. ● The notice must specify the property to be sold, and the time, place, manner,

and conditions of the sale.


The Sale of the Property● The property:

○ Has to be sold in the county in which it was seized.○ Must be sold by public auction or public sale under sealed bids.○ Cannot be sold until 10 days after the notice of sale and not more than 40

days after the notice.● There are rules for determining the minimum price, sales to the highest

bidder, and for situations where the property is not sold for the minimum price.


Right to Redeem● The IRS is required to return the levied property to the taxpayer if he pays the

tax debt and the cost of the proceedings to the IRS prior to the sale.● For real estate that is levied, the taxpayer or others with an interest in the

property can redeem the property within 180 days after the sale, but the taxpayer has to pay the purchase price plus 20% interest thereon to the purchaser.


Wrongful Levy & Unlawful Collections● The IRS’s administrative levy powers are not unlimited.● The law allows the taxpayer to sue the IRS for wrongful levies.

○ This typically comes up when the IRS levy on property that belongs to a third party.

● Congress extended some of the the Fair Debt Collection Act rules to the IRS. The tax code allows the taxpayer to recover damages if the IRS is reckless or intentional in violating these provisions. The damages are capped at $1 million.


Contact Us ● Contact us if you have questions about a Federal tax lien. ● We help taxpayers with IRS audits and other tax problems. ● We can be reached at http://www.irstaxtrouble.com



Disclaimer

These slides are provided for educational purposes only. The laws change frequently and every situation is unique. There is no substitute for hiring a tax advisor to address your particular situation. By accessing these slides, you agree that you have done your own research and reached your own conclusions. Also, be advised that these slides are not and do not provide tax advice. They are not intended to and cannot be used by any taxpayer for (i) the avoidance of penalties that may be imposed by any relevant tax authority, or (ii) for promoting, marketing or recommending the matters discussed herein.

Federal Tax Levy

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