The Legalities And Issues With An IRS Levy
Below is a MRR and PLR article in category Finance -> subcategory Taxes.
Understanding the Legalities and Challenges of an IRS Levy
Overview
An IRS levy is a legal order allowing the Internal Revenue Service (IRS) to seize a person's assets, such as wages or property, to satisfy unpaid tax debts. This process involves directing entities like the Tennessee Valley Authority (TVA) to withhold a specified portion of an employee’s pay. The purpose is to ensure that back taxes are settled. In some cases, individuals may need to sign a consent agreement permitting these deductions. Exceptions to withholding can be made based on the employee’s tax situation and claimed exemptions.
What is an IRS Levy?
An IRS levy allows the IRS to confiscate and sell an individual's property if they owe taxes. Unlike a lien, which simply claims property as security for a debt, a levy involves the actual taking of property. If tax debts are not arranged for or settled, the IRS can seize personal and real property, including boats, houses, and cars. They can also target assets held by others, such as wages, bank accounts, licenses, and rental income.
Conditions for Issuing an IRS Levy
An IRS levy is issued only after specific requirements are fulfilled:
1. Notification: The IRS must first issue a notice demanding tax payment.
2. Non-payment: If the individual neglects or refuses to pay, further action is taken.
3. Final Notice: A final notice, "Notice of Intent to Levy," is sent at least 30 days prior to the levy, along with "Notice of Your Rights to a Hearing."
These notices can be delivered in person, at home, or via registered mail.
Responding to an IRS Levy
Individuals have the option to request a review or appeal the IRS’s decision by filing a request with the IRS officer mentioned in the notice. This must be done within 30 days of receiving the levy notice.
Duration and Resolution
An IRS levy on wages and bank accounts continues until the levy is released, the debt is paid, or the statute of limitations for tax collection expires. For bank account levies, the bank holds funds for 21 days, offering a window to address the issue. Post this period, funds, potentially with interest, are sent to the IRS.
Addressing Mistakes
If the IRS mistakenly levies a bank account, any charges incurred can be claimed back by the debtor. A claim for reimbursement should be filed with the IRS within one year of the erroneous charges by the bank.
IRS Levy Programs
Federal Payment Levy Program (FPLP)
The FPLP allows the IRS to levy federal payments, such as Social Security benefits and federal employee salaries. Payments processed through the Department of Treasury and Financial Management Services can be electronically levied, with 15% taken from each payment until debts are resolved. Those affected can seek assistance from an IRS representative.State Income Tax Levy Program (SITLP)
The SITLP applies to individual state tax refunds, with potential future inclusion of business tax refunds. When a state tax refund is levied, an advisory notice is issued. If individuals receive a rights notice, no additional IRS advising notice is sent.In summary, navigating an IRS levy requires prompt attention to notices, exploring available appeals, and understanding the rules governing wage garnishments and asset seizures. If faced with a levy, seeking professional advice can be crucial to resolving the issue favorably.
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