If the IRS has issued a levy on your wages or bank account, this means that your tax balance has become delinquent to the point where it has been turned over for enforced collections.
After a brief audition with third party debt collectors, the IRS has resumed collection of 100 percent of all tax balances that become overdue to the point where enforcement action is required.
The branch of the IRS that governs taxpayer compliance and collection has the ability to reach funds held in your checking, saving, credit union or any other depository account, as well as to issue a tax levy on your wages, self-employment income, pension or Social Security income.
If you have been subjected to a tax levy, what steps can you take to have the levy removed or reduced?
First of all, know that arguing that you did not know about your tax balance is likely not going to be a basis for removal of the levy.
Prior to issuing the levy, the IRS makes strong efforts to contact you. This is in addition to the fact that when you file the return, you have an awareness if your return shows you owe the IRS a sum of money. Unless you were audited after the fact, it is your responsibility to contact the IRS and work out a payment arrangement.
After a number of notices are sent out to your address of record, an unresolved tax balance is then turned over to collection.
The collection department will generally attempt to reach you by telephone. They also will mail out a certified letter that requires your signature at the post office. The notice plainly advises you that failure to contact the IRS immediately will result in loss of property, including wages and funds held in accounts. The letter contains your appeal rights.
This certified notice is sent to your address of record, which is generally the address of the last tax return you filed. If you have not filed, then your address may be outdated.
The IRS will not research and send out certified letters to all potential new addresses. This would be a risk to your privacy. Additionally, the IRS is not tasked with this encumbrance. If you are not current in your legal obligation to file, then the IRS will not be able to provide you with your certified letter. The letter is not forwarded to new addresses either.
Once a levy is issued, you will be copied by either your bank or payer. There is an important distinction between these two types of levies. A levy on income is recurrent, meaning that the IRS will continually garnish a portion of your income and apply those payments to your tax balance. The amount of the levy depends on your Filing Status and family size.
A levy on a bank account is a one-time levy; it attaches to all funds held in your account(s) the day the bank receives the order to levy. All funds in the account, plus any interest earned, are then turned over to the IRS. Additional deposits are not subject to the levy, although the IRS may reissue another levy at their discretion.
If a levy has been issued, contact the IRS immediately. Don’t wait until you have a plan of action or until you have the funds available to pay your balance in full. There may be payment options that you are not aware of, and the IRS will assist you by discussing the various payment options.
Generally, the IRS will ask you about your ability to borrow to pay off what is owed. Since the IRS charges high amounts of interest, it is to your advantage to look into borrowing from a 401, an IRA distribution, equity in your home, or even a credit card.
If you do not have ability to borrow, but can pay the balance off in full, the IRS may be able to grant you up to four months to pay. This is called an extension to pay, and there are no additional fees involved.
If you require a monthly installment agreement, the IRS will discuss with you the best options available. Depending on the size of your balance, you may be required to provide detailed financial information so the IRS can determine how much you can afford to pay.
There is a User Fee to establish an installment agreement, generally $105, and the payments can be made by check, money order, direct debit, through payroll deduction or electronically. Interest continues to accrue on any unpaid balance, even if you have a payment plan in place.
If an agreement is established, the levy on income will generally be released, since it would continue to remit if it was not. However, a bank levy, since it is a one-time attachment, usually will not be released.
If a hardship exists, such as a foreclosure or eviction notice, a utility shut-off notice, or an immediate medical concern, then contact the IRS. If the levy would increase these hardships, or if the levy has caused the adversity, the IRS may be able to release it in full or in part. Be prepared to fax over your proof of the hardship.
More from this Contributor:
What is an IRS Levy? What is a Lien?
What should you do if you owe the IRS?
How does the IRS determine a taxpayer’s ability to pay?