The Essential Guide to Navigating and Responding to a Notice of Levy

Key Takeaways

• A notice of levy is a legal document issued by the IRS indicating that your property, such as state tax refunds or assets, will be seized to settle unpaid taxes.
• The IRS has the authority to levy under the Internal Revenue Code Section 6331, and it follows a specific process that includes sending multiple notices before taking action.
• Tax levies can include wage garnishment, bank levies, and seizure of personal property or federal payments.
• To avoid a levy, it's crucial to address tax debts promptly through payment, installment agreements, or offers in compromise.

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What is a Notice of Levy?

A notice of levy is a critical document issued by the IRS, informing you that your property, such as your state tax refunds or assets in Dallas, TX will be seized to settle your delinquent tax debt. This notice indicates that you owe taxes, and the IRS intends to take action to collect the unpaid taxes.

It's important to understand that a levy is different from a tax lien. While a lien is a legal claim on your property to secure payment of the tax debt, a levy involves the actual seizure of your property to satisfy the debt.

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IRS Authority to Levy and the Levy Process

The IRS derives its authority to levy from the Internal Revenue Code (IRC) Section 6331. The levy process typically begins after the IRS sends multiple notices, including a notice and demand for payment, a notice of intent to levy, and a final notice of intent to levy.

The IRS sends these notices via certified or registered mail, and they must wait at least 30 days before proceeding with the levy. This sequence ensures that you are properly informed before any levy action is taken.

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Types of Tax Levies

• Wage Garnishment: The IRS can instruct your employer to withhold a portion of your wages to pay your tax bill.
• Bank Levies: Allows the IRS to freeze your bank accounts and withdraw funds up to the amount you owe.
• Seizure of Federal Payments: The IRS can take federal payments, such as Social Security benefits, to recover back taxes.
• Personal Property Seizure: Includes the legal seizure of assets like cars, real estate, and other personal property.
• State Income Tax Refunds: The IRS can intercept your state tax refunds to apply them toward your delinquent tax debt.
• Rental Income: The IRS may levy rental income you receive from properties you own.
• Accounts Receivables: Business owners may face levies on outstanding payments owed to them.
• Alaska Permanent Fund Dividend: Residents of Alaska may have their dividends seized if they owe back taxes.

These various types of levies highlight the extensive reach of the IRS in collecting unpaid taxes. It's essential to address tax liabilities promptly to avoid these serious financial repercussions.

Seeking assistance from tax resolution professionals in Dallas, TX can provide guidance and potentially halt the levy process through payment plans or other arrangements.

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Understanding Federal Tax Liens and Levies

A federal tax lien is a legal claim against your property in Dallas, TX, to secure payment of tax debt. If you do not address the tax lien within 30 days, it can escalate into a tax levy, allowing the IRS to seize assets to collect the debt.

A tax levy is a more aggressive measure, reflecting the IRS's intent to collect unpaid taxes directly.

How Many Notices Does the IRS Send Before a Levy?

Before levying your assets, the IRS typically sends several notices. These include a balance due notice, a demand for payment, and one or two reminders before a levy notice. The IRS may take years to initiate collection actions, often waiting until the tax debt is several months overdue. The initial balance due letter is commonly referred to as the CP501 notice.

Resolving Tax Debt and Avoiding a Levy

To prevent asset seizure, the quickest solution is to pay off your tax debt in full. If this is not feasible, consider applying for an installment agreement or an offer in compromise. An installment agreement allows you to make monthly payments, while an offer in compromise lets you settle your taxes for less than the full amount owed.

IRS Intent to Levy and Your Options

Upon receiving a notice of intent to levy, you can pay your tax debt, appeal, or request a hearing. You may reduce your tax liability by seeking penalty abatement or innocent spouse relief. If eligible, request a Collection Due Process hearing using Form 12153, explaining your appeal and proposing a payment plan as an alternative.

Seeking Professional Help with a Notice of Levy

If you face a notice of levy, consulting tax professionals such as experienced tax attorneys in Dallas, TX, CPAs, or enrolled agents (EAs) is advisable. They can assist with addressing bank levies, asset seizures, federal tax liens, and unfiled taxes. A tax professional can guide you in repaying your tax debt efficiently, helping you avoid additional IRS penalties.

Preventing Future Levies

To avoid future levies, ensure timely tax payments and respond promptly to IRS notices. Consider setting up a payment plan or making estimated tax payments to prevent delinquent tax debt. Maintain accurate records of tax payments and IRS correspondence. If experiencing economic hardship, explore options like Currently Not Collectible (CNC) status or Innocent Spouse Relief.

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Secure Your Financial Future with Margolies Law Office

At Margolies Law Office, we understand the stress and uncertainty that accompany IRS levies and tax debt. Our team of experienced tax attorneys is dedicated to providing personalized solutions to help you navigate the complexities of tax levies and secure your financial future.

Don't let tax issues hold you back. Contact us today for a consultation and take the first step towards resolving your tax challenges and achieving peace of mind. Let us be your trusted partner in protecting your assets and ensuring your financial well-being.

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Frequently Asked Questions

1. What is the difference between a tax levy and a tax lien?

A tax lien is a legal claim against your property to secure payment of tax debt, whereas a tax levy involves the actual seizure of your property to satisfy the debt.

2. How long does it take for the IRS to levy after sending a notice?

The IRS typically waits at least 30 days after sending a final notice of intent to levy before proceeding with the levy.

3. Can a tax levy be stopped once it starts?

Yes, a tax levy can be stopped by paying the tax debt in full, setting up an installment agreement, or negotiating an offer in compromise.

4. How do I appeal a notice of levy from the IRS?

You can appeal a notice of levy by requesting a Collection Due Process hearing using Form 12153 and providing a valid reason for the appeal.