What Is a Tax Levy and How to Address It Effectively

Key Takeaways

• A tax levy allows the IRS to legally seize a taxpayer's assets to satisfy unpaid taxes, differing from a tax lien, which is a claim against property.
• The IRS follows a formal process, including sending a Final Notice of Intent to Levy, before seizing wages, bank accounts, or other assets.
• Tax levies can result in wage garnishment, bank levies, and property seizure, leading to financial hardship and affecting credit scores.
• Addressing tax debts through payment plans or Offers in Compromise can stop levies, while prompt tax payments help prevent them.

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A tax levy is a legal seizure of your property to pay off a tax debt, authorized by the Internal Revenue Code (IRC) under IRC 6331. The Internal Revenue Service (IRS) can seize your wages, money from your bank account, real estate, vehicle, personal property, or other assets to pay off your tax bill.

Unlike a tax lien, which is a legal claim against property to secure payment of the tax debt, a tax levy involves the actual taking of property. The IRS typically issues tax levies as a last resort, but it will enforce a levy if necessary to collect unpaid taxes.

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IRS Levy Process in Dallas, TX

The IRS tax levy process usually begins after sending advance notification of Third Party Contact and a Final Notice of Intent to Levy (CP504). The IRS will typically issue a levy only after the taxpayer has failed to pay their tax debt, a tax lien has been placed, and the taxpayer has not made arrangements to pay the debt.

It’s important to note that the IRS will not levy without proper notification and procedures. The entire collection process can take as little as three months, but it can also take much longer, depending on the taxpayer's response and cooperation.

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Types of Tax Levies

Wage Garnishment

The IRS will contact your employer to withhold a certain percentage of your wages for taxes owed. This can lead to financial hardship as it reduces your take-home pay.

Bank Levy

The IRS will contact your bank in Dallas, TX to put a hold on your bank account and seize funds to pay off your tax debt. This can freeze your bank accounts, making it difficult to access money.

Reduced Tax Refunds

The IRS may keep your federal and state tax refunds to pay off your tax debt. This means reduced tax refunds or even no refund at all until the debt is settled.

Property Seizure

The IRS can seize and sell your property, such as your home or car, to pay off your tax debt. This is a severe action that can disrupt your life significantly.

Passport Seizure

For taxpayers with significant tax debt, the IRS can request the State Department to revoke or deny a passport. This restricts international travel until the tax debt is addressed. Resolving your tax liability through payment plans or other means can help avoid this issue.

Other Asset Seizure

The IRS can levy other assets, such as retirement accounts, stock dividends, licenses, life insurance policies, and accounts receivables. These actions can impact your financial stability and future planning.

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Consequences of an IRS Levy

A tax levy can lead to financial hardship, including wage garnishment, frozen bank accounts, and seizure of personal property. The IRS can also seize assets, such as a home or car, to pay back taxes. Some items, such as unemployment and certain annuity and pension benefits, are exempt from seizure. An IRS tax levy can also affect your credit score and ability to obtain loans or credit.

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Addressing an IRS Levy

The best way to address an IRS tax levy is to pay your tax debt in full. You can also set up an installment agreement or request an Offer in Compromise to settle your tax debt. It’s possible to appeal the levy or file for bankruptcy to stop the levy process, but these actions should be considered carefully. Seeking professional help from a Dallas tax attorney or enrolled agent is crucial to navigate the process effectively.

Tax Debt Relief Options

Installment Agreement

An Installment Agreement allows you to pay off your tax debt over time through a structured payment plan. This option makes managing your tax liability more feasible by breaking down the total amount owed into smaller, more manageable monthly payments.

The IRS offers various types of installment agreements, including streamlined and partial payment options, depending on your financial situation and the amount of tax debt you owe. Setting up an installment agreement can prevent further collection actions, such as wage garnishment or bank levies, as long as you adhere to the agreed payment schedule.

Offer in Compromise

An Offer in Compromise (OIC) is a program that enables taxpayers to settle their tax debt for less than the full amount owed. It's a viable option if you can demonstrate that paying the full amount would cause financial hardship or if you dispute the amount of tax liability.

The IRS reviews your ability to pay, income, expenses, and asset equity to determine your eligibility. While the approval process can be rigorous, a successful OIC can significantly reduce your tax burden and allow you to resolve your tax issues more affordably.

Currently Not Collectible

When you are experiencing severe financial hardship, the IRS may classify your account as Currently Not Collectible (CNC). This status temporarily suspends collection activities, such as levies and garnishments, providing you with much-needed relief.

While in CNC status, the IRS acknowledges that you cannot afford to pay your tax debt due to economic hardship. However, interest and penalties will continue to accrue, and the IRS may review your financial situation periodically to determine if you can resume payments.

Bankruptcy

Filing for bankruptcy is a legal option that can potentially discharge certain tax debts, offering a fresh financial start. However, this should be considered a last resort due to its complexity and long-term impact on your credit score. Not all tax debts are dischargeable in bankruptcy, and specific criteria must be met for eligibility.

Consulting with a bankruptcy attorney can help you understand the implications and determine if this option is suitable for your circumstances. Filing for bankruptcy can halt IRS collection actions, including levies and garnishments, during the bankruptcy process.

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Preventing an Internal Revenue Service (IRS) Levy

The best way to prevent an IRS levy is to file and pay your taxes on time. If you can’t pay your tax debt, entering into a payment plan or requesting an Offer in Compromise can help. Consulting the IRS’s Collection Procedures and Publication 594 for more information is also advisable. Addressing any tax debt issues promptly is essential to avoid a levy.

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Conclusion

A tax levy is a serious consequence of owing back taxes, which can lead to the seizure of property to pay taxes owed. Understanding the IRS levy process, types of tax levies, and consequences of an IRS levy can help you address the issue effectively. Seeking professional help from an experienced tax attorney in Dallas and exploring tax debt relief options can help you resolve your tax debt and prevent a levy. By staying informed and proactive, you can protect your assets and financial future from the impacts of an IRS levy.

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Secure Your Financial Future with Margolies Law Office

Addressing tax levies and resolving tax debt can be overwhelming, but you don't have to face it alone. Margolies Law Office is here to provide expert guidance and personalized solutions tailored to your unique situation. Our Dallas tax attorney is committed to helping you navigate the complexities of IRS levies and protect your assets.

Don't wait until it's too late. Take control of your financial future and prevent further IRS actions by reaching out to us. Contact Margolies Law Office today to schedule a consultation and explore your options for tax debt relief. Let us help you achieve peace of mind and secure your financial well-being.

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Frequently Asked Questions

What is a levy in taxation?

A levy in taxation refers to the legal seizure of property by the Internal Revenue Service (IRS) to satisfy a tax debt. This action allows the IRS to collect taxes owed by taking possession of the taxpayer's assets, such as bank accounts, wages, or other property. The process of levying is typically used as a last resort after other collection attempts have failed.

What is the purpose of a levy?

The primary purpose of a levy is to enforce the collection of unpaid taxes. By legally seizing a taxpayer's assets, the IRS aims to recover the amount of taxes owed. This ensures compliance with tax laws and helps maintain the integrity of the tax system. Additionally, levies serve as a deterrent to prevent taxpayers from neglecting their tax obligations.

How can I stop a tax levy?

To stop an IRS tax levy, you can pay your tax debt in full, set up an installment agreement, or submit an Offer in Compromise to settle your debt for less than the full amount. You may also appeal the levy or request a temporary suspension of collection activities if you’re facing financial hardship. Consulting with a tax professional can help you determine the best course of action.

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

A tax lien is a legal claim against a taxpayer's property to secure payment of a tax debt, while a tax levy involves the actual seizure and sale of the taxpayer's property to satisfy the debt. A lien does not result in the immediate loss of property, whereas a levy results in the IRS taking possession of the taxpayer's assets to pay off the taxes owed.