Tax Levy Information

Federal Tax Levy

For taxpayers in serious debt to the IRS, the most feared weapon in the IRS arsenal is the tax levy.   Using the powers granted to it in the Internal Revenue Code, the IRS can levy upon wages, bank accounts, social security payments, accounts receivables, insurance proceeds, real property, and, in some cases, a personal residence.  Under Title 26, Section 6331 of the Internal Revenue Code the Internal Revenue Service can “levy upon all property and rights to property” of a taxpayer who owes taxes to the Federal government.   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.

Procedural Requirements of a Tax Levy

The Fifth Amendment of the Constitution forbids the government (whether state or federal) from taking an individual’s property without due process of law.  This applies to an IRS levy as well.  To comply with the US Constitution, the IRS must provide the taxpayer notice of the coming levy and an opportunity to be heard.  (Section 6330)  Under §6330(a)(2) the IRS must send to the taxpayer a notice via either personal hand delivery, through certified mail or left at his or her usual place of business.  The notice must arrive at least thirty days prior to the levy taking place.  The “Notice of Intent to Levy” must include “in simple and nontechnical terms the right of a person to request a hearing during the 30 day period” before the levy will be effective.  This hearing is referred to in IRS correspondence as the “Collection Due Process” or CDP hearing.  The notice will include the IRS Form 12153 which the taxpayer can fill out and mail in to request a hearing.   A taxpayer is entitled to one CDP hearing for each tax period (tax year) to which the levy applies.   The hearing must be before a neutral, impartial hearing officer “who has had no prior experience with the respect to the unpaid tax…” §6330(b)(3). 

At the hearing the taxpayer may raise challenges to the collection actions, may seek innocent spouse relief, and may present alternative collection actions such as installment agreements or an offer in compromise.   Under certain circumstances the tax debtor may challenge the underlying tax liability.

If the taxpayer is unhappy with the decision at the CDP hearing she may appeal the decision to the US Tax Court or federal district court. 

Post procedural matters

If none of the above procedures effectively stops the levy then the IRS can proceed to take the property of the taxpayer.    While the IRS can take just about any of his property, there are limits.  Section 6334 imposes limits on what the IRS can and cannot levy.  Unfortunately for the tax debtor, the list of property exempt from levy is short and will probably not apply to the average taxpayer.  Once the IRS has the “green light” to levy, it can then demand that employers send a portion of the wages to the IRS.  It can order the bank to send the proceeds in bank accounts to the IRS.  Social security proceeds and state and federal tax refunds can be levied easily. 

Levy upon a personal residence

Under §6334(e) a levy is allowed on principal residences under certain circumstances.  In order to take a principal residence the IRS must go to court and seek the permission of a federal magistrate to levy a house in which the taxpayer lives.  However, under no circumstances can the IRS levy on a personal residence if the total amount owed is equal to or less than $5000. §6334(a)(13). 

Garnishment of Wages

The IRS can demand of an employer that a portion of the wages of a tax debtor be sent directly to the IRS.  Section 6334 does allow for an exempt amount that must remain outside of the levy, however that amount is very small, leaving the taxpayer with hardly enough to satisfy her regular living expenses.  A levy or garnishment upon wages is considered to be a continuous levy, i.e. it needs to be enacted only once and will be applicable to future wages until either released by the IRS under §6343 or the debt is fully paid.  So as future wages are earned, no additional levy action is necessary by the IRS to take a large portion from them.   Distinguish this from a bank account levy.  Once the money in the bank account has been sent by the bank to the IRS, any future deposits can only be reached with additional levy action by the IRS. 

Effect of an offer in compromise on an IRS levy

Under federal tax regulation §301-7122-1(g)(1) - “The IRS will not levy against the property or rights to property of a taxpayer who submits an offer to compromise… during the period the offer is pending, for 30 days immediately following the rejection of the offer and for any period when a timely filed appeal from the rejection is being considered by Appeals.”

Once the IRS decides that your offer is processable, that it includes all the paperwork and forms properly filled out, then it must stop levy actions under §6331.  However, if the offer is missing documents or forms, the IRS can return it to the debtor as un-processable and can then levy or garnish her property.