A tax levy, under United States Federal law, is an administrative action by the Internal Revenue Service (IRS) under statutory authority, generally without going to court, to seize property to satisfy a tax liability. The levy "includes the power of distraint and seizure by any means".
The general rule is that no court permission is required for the IRS to execute a tax levy. While the government relies mainly on voluntary payment of tax, it retains the power of levy to collect involuntarily from those who persistently refuse to pay.
The IRS can levy on wages, bank accounts, social security payments, accounts receivables, insurance proceeds, real property, and, in some cases, a personal residence. Under Internal Revenue Code section 6331, the Internal Revenue Service can - "levy upon all property and rights to property" of a taxpayer who owes Federal tax. The IRS can levy upon assets that are in the possession of the taxpayer, called a seizure, or it can levy upon assets in the possession of a third party, a bank, a brokerage house, etc. All future statutory references will be to the Internal Revenue Code unless noted otherwise.
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There are three requirements before a levy can be issued:
Notice and demand for payment
Notice of intent to levy
Notice of a right to a Collection Due Process (CDP) hearing
The IRS can levy up to the amount of tax owed for the tax period(s) subject to levy.
Types of levies
The IRS can issue several types of levies targeting different assets or sources of income. Depending on the type of levy, the IRS can seize 100% of the funds or a partial amount. Levies can also be continuous until the tax is paid or an agreement is set up with the IRS. Wage, social security and state income tax refunds are continuous, they stay in place until released or the amount of the levy is paid in full.
Levies can also be a one-time seizure. Bank, financial institution and accounts receivable levies are one-time levies. The IRS will take the amount in the account or owed to the taxpayer (up to the amount of the levy), subsequent deposits/payments are not taken unless another levy is issued.
To get relief from a levy, you must obtain a levy release.
The IRS can release a levy when any of the following conditions exist:
The balance due is paid in full.
You demonstrate financial hardship.
Releasing the levy will facilitate the collection of the tax.
The IRS wrongly or erroneously issued a levy.
The collection statute expiration date has passed.
You file for bankruptcy.
You apply for an offer in compromise.
You enter into a collection agreement with the IRS.
For most, the solution is to get into one of the following arrangements as quickly as possible:
Extension to pay
Installment agreement (i.e. payment plan)
Currently not collectible status
File for an offer in compromise
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