Congress has given the IRS a plethora of tools to collect unpaid taxes. Perhaps the most effective of these is the ability to issue an IRS levy against bank accounts, wages, federal payments like Social Security, and other assets.
IRS Bank Levy
If the IRS issues a Notice of Levy to your bank, whatever funds are in your accounts on that day will be frozen for 21 days. You will not be able to use the account or withdraw funds during the period that the levy is in effect. If the levy is not released within 21 days, your bank will send the funds in your account to the IRS (up to the amount that you owe).
IRS Wage Levy
If you are an employee, the IRS can issue a wage levy to your employer, which results in your wages being seized by the IRS. The IRS is required to exempt a portion of your wages from the levy to allow for minimum reasonable living expenses based on the number of dependents you have. Unlike bank levies, wage levies can be continuous, meaning they will apply to every paycheck you receive until the IRS issues a levy release.
Third Party Levies
The IRS can also levy payments that you are entitles to receive from third parties, such as your vendors. If you are a medical practitioner whose business owes taxes, the IRS can issue a levy to Medicare, Medicaid, and all of the different insurance companies that you receive payments from, which could cripple your practice.
How to Avoid a Levy
Before the IRS can issue a levy, they must first send you a Final Notice of Intent to Levy. This notice gives you 30 days to request a Collections Due Process (CDP) Hearing, where you can try to negotiate a payment arrangement with the IRS Appeals Office before the IRS is able to issue any levies.
The IRS will release a levy if you can demonstrate that it is causing you undue financial hardship, meaning that it is preventing you from even being able to meet your minimum reasonable living expenses. To establish this, you need to provide financial information.
If you enter into an Installment Agreement with the IRS, they will not issue any levies as long as you are in good standing with respect to the agreement. If you submit an Offer in Compromise, the IRS will pause all collection efforts while the Offer is pending.
An IRS levy can be financially crippling. If you are currently subject to one or at-risk of being subject to one in the future, contact Goldin Peiser &Peiser to discuss your levy release.