The content of this post is not intended to replace the advice of a licensed tax professional. Consult a qualified tax professional for questions specific to your individual circumstances.
Facing a tax levy can be an intimidating process. Like most tax matters, a tax levy is a complicated process involving the IRS or state tax agency. An unpaid tax bill that remains unpaid eventually progresses to a tax levy.
What is A Tax Levy?
A tax levy refers to collection activity that state and federal government agencies will use to recover delinquent taxes. Agencies such as the IRS and Franchise Tax Board (FTB) will employ any one of the these methods for collecting back taxes:
Bank levy: The IRS can order your bank to freeze your account to prevent any withdrawals for up to 21 days. After that initial period, they will withdraw funds from your account. The bank is required to forward any funds to the IRS in order to pay delinquent taxes you owe.
Reduced tax refunds: As much as you look forward to your annual tax refund, the IRS can withhold it in order to satisfy any past due tax debt you owe.
Property seizure: if you own a home or a car, the IRS can take these assets, sell them, and apply the proceeds toward your delinquent taxes.
Wage garnishment: The IRS or FTB can order your employer to withhold a portion of your paycheck until the tax debt is paid off.
As a government agency, the IRS takes precedence over your other creditors (mortgage, car loans, credit cards and medical debt) so if you owe money to multiple creditors, the IRS can effectively move to the front of the line.
The good news? A tax levy is an action of last resort when all other collection attempts fail. The IRS will make other, less invasive attempts at collecting outstanding taxes, so it would be to your benefit to quickly open any mail from the IRS. You’ll receive written correspondence requesting payment of your outstanding tax debt.
The IRS will issue several letters before resorting to a tax levy, so be sure to respond to any correspondence sent by the IRS. You don’t want an outstanding tax bill to progress to a tax levy.
How Does The Tax Levy Process Work?
If your outstanding tax debt goes unpaid despite notices from the IRS, the next step is a tax levy.
The IRS will notify you of the pending levy in writing. Keep in mind the IRS will never contact you by phone regarding outstanding tax debt; they will always notify you in writing.
If you have received a Final Notice of Intent to Levy and Notice of Your Right to a Hearing, a tax levy could be inevitable. The best course of action would be to contact the IRS immediately.
If by some chance you received these notices before you received your tax bill, contact the IRS promptly to make payment arrangements. Doing so will forestall the levy process and buy you some time.
Releasing a Tax Levy
You do have options. You have the right to appeal the levy. In order to do so, contact the IRS or have your representative contact them on your behalf. Don’t wait. Doing so will allow the levy process to move forward.
If the tax levy will create extreme financial hardship for you, you can petition to have the levy released. At the same time the debt still exists, so it will still need to be paid off. At this point you or your representative will be able to make payment arrangements with the IRS.
Facing a tax levy or other serious tax matter is a tough undertaking for even the most educated taxpayer. For this reason, many taxpayers will enlist a representative to walk them through the levy process and ensure their rights are being upheld.
A licensed tax representative can be a CPA, Enrolled Agent, or tax attorney. They will act on your behalf in dealing with tax agencies. A tax representative will also make sure you understand the process, and will answer any questions you may have.
If you’re facing a tax levy or other serious tax matter, get in touch with us today. Our team of experts will guide you through the process from start to finish. Having someone on your side can make all the difference.