What is an IRS tax levy?

The IRS has many collection tools in its toolbox if you do not pay your taxes, including tax levies on wages or bank accounts. If the IRS threatens a tax levy, or you receive a notice of tax levy, it is important to work with an attorney experienced at managing IRS tax collection.

How IRS Tax Levies Work

The two most common tools used by the IRS to collect back taxes are through wage levies and bank account levies:

In the case of wage levies, when you have back tax debt, the IRS can levy (garnish) your wages as well as bonuses, Social Security benefits, and retirement income. Unlike most other creditors, the government does have to sue in order to garnish your paycheck. A wage garnishment is served on your employer, who is required to pay over a large percentage of your paycheck to the IRS until the tax debt is paid or the wage levy released.  If you are self-employed or an independent contractor, the folks that pay you will turn over to the IRS all the money due to you. Though you are left with some income, basically the IRS is the beneficiary of most of your paycheck. Refer to IRS Publication 1494 for the exact amounts.

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Bank Account Tax Levies

The IRS can issue a bank levy to obtain all of your cash in any account under your name. This includes savings, checking, and other bank accounts. The bank pays the IRS whatever money is in that account on the day the levy is received by the bank. For example, if the bank receives the IRS levy on Wednesday to attach your checking account, and you deposit your paycheck on Friday, the IRS does not have any rights to the funds deposited on Friday, unless they obtain another tax levy.  You have 21 days to get the IRS to release the tax levy. If you do nothing during this holding period, the bank sends the frozen funds, up to the amount you owe, to the IRS. The IRS can continue to clean out your bank accounts by issuing new bank levies.

IRS Tax Levies on other Property

The IRS can garnish more than your paycheck and bank account. The agency can also levy other assets such as your home, car, boat, personal property, ATVs, airplane, accounts receivable, insurance policies, antiques, collectables, jewelry, and so forth.

Property Exempt from Tax Levies

Not all property is fair game. Clothing, school books, fuel, furniture, and personal effects, up to a certain amount are exempt. Unemployment benefits, books and tools of a trade, businesses, or professions, up to a certain amount, are also exempt. Railroad Retirement Tax Act pension and annuity payments, certain armed forces service connected disability payments, court ordered child support payments, assistance under the Job Training Partnership Act of minor children, and certain public assistance payments are exempt from IRS tax levies.

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Tax Levy Procedures

Once the IRS gives you a notice of intent to levy due to nonpayment of taxes, you have 30 days to request a hearing and challenge the action by the IRS. The hearing, known as the Collection Due Process (CDP) hearing, is held in the Appeals Division (see more below). The IRS can freeze your assets during the waiting period. The tax levy notice must clearly describe the tax levy procedures, your options for avoiding the tax levy, such as beginning installment payments for overdue tax, and steps for redeeming property if it is seized by the IRS.

IRS Tax Levy Appeals

You can appeal tax levy actions. The two main procedures are Collection Due Process (CDP) and Collection Appeals Program (CAP). Both programs involve expedited conferences with the IRS Appeals Office. The crucial difference between these two programs is that the Collection Appeals Program does not allow further appeal if you lose. The Collection Due Process does, so you have the right to file a lawsuit.

Release of an IRS Tax Levy

The IRS will generally release a tax levy if he tax debt is paid; the time for collection lapsed before the levy was serviced; the release of the tax levy would help collect the tax debt, or an installment payment agreement has been entered into between you and the IRS. The IRS will also release the tax levy if it is creating a financial hardship or if the fair market value of the levied property exceeds the liability.

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Requesting an IRS Tax Hearing

To request a hearing under the CDP process, use Form 12153, Request for a Collection Due Process Hearing, and send to the address shown on your lien or levy notice within 30 days. Check the IRS action(s) you disagree with, and explain why you disagree. If you received both a lien and a levy notice, you may appeal both actions. You will receive a written determination letter at the end of the hearing. If you agree, both you and the IRS must live up to the terms of the letter. If you don’t, you can file a lawsuit.

With the Collection Appeals Program (CAP), use Form 9423. You can appeal the collection action prior to or after the levy on your wages, bank account or other property. Collection action is normally stopped during the appeal process. You can file this only after an IRS employee such as a revenue officer or collections manager, has refused to accept your solutions to the tax problem. For more information on both of these tax levy appeals processes, read Publication 1660.

If facing an IRS tax levy on your wages or your bank account, contact an experienced tax attorney immediately.

Case Studies: Understanding IRS Tax Levies

Case Study 1: Wage Levies 

John, a self-employed individual, found himself facing a substantial tax debt that he couldn’t immediately pay. The IRS issued a wage levy on his income, leaving him with a significantly reduced paycheck to cover basic living expenses. Faced with financial hardship, John sought legal help to challenge the wage levy.

His attorney filed a Request for a Collection Due Process Hearing (CDP) and presented evidence of John’s financial situation and efforts to address the tax debt. As a result, the IRS agreed to release the wage levy and allowed John to enter into an installment payment agreement to resolve the tax debt gradually.

Case Study 2: Bank Account Levy

Jane, a small business owner, received a bank levy notice from the IRS, freezing her business bank account. This unexpected action jeopardized her ability to operate her business and pay employees. To release the bank levy and protect her livelihood, Jane promptly filed a Collection Appeals Program (CAP) appeal.

Through her attorney, she demonstrated the potential adverse impact on her business and presented evidence of a viable payment plan to settle the tax debt. The IRS reviewed the appeal and decided to release the bank levy, allowing Jane to continue her business operations without further disruptions.

Case Study 3: Asset Levies 

Michael, a taxpayer with multiple assets, faced IRS tax levies on various properties, including his home, car, and personal belongings. The IRS claimed that these levies were necessary to recover his outstanding tax debt. Michael sought legal counsel to challenge the levies and protect his assets. His attorney carefully reviewed the tax laws and exemptions related to levies and identified assets that were exempt from seizure.

Through a thorough analysis and negotiation with the IRS, Michael’s attorney successfully prevented the levy on his primary residence, certain personal belongings, and essential tools of his trade. The IRS agreed to release the levies on these protected assets, ensuring Michael’s continued stability and financial well-being.

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