What is an IRS Tax Levy?

What Is an IRS Tax Levy? A levy executes the legal rationale for seizing property to retire a tax debt owed to the federal government, with enforcement action prosecuted by the IRS.  Tax levies are not tax liens.  The lien forms and executes the legal claim to secure the debt.  The levy is the actual legal seizure of property in order to retire the debt.

Classes of Property Subject to Seizure under IRS Levy.  The Internal Revenue Service has broad powers of “distraint and seizure by any means” granted to it under the Internal Revenue Code of the United States Government.  The IRS is not required to use the courts to grant powers to levy on a case by case basis.  Section 6331 of the tax code grants such powers. By such regulations the IRS is empowered to levy-

Wages
Bank accounts
Social security payments
Accounts receivables
Insurance proceeds
Real property
Personal residence

Section 6331 of the Internal Revenue Code grants the power to levy against “all property and rights to property” belonging to a taxpayer who owes a tax debt to the US Government.  These powers include levy on assets held by a third party, such as a bank or investment firm.

Procedural requirements for enacting a tax levy. The US Constitution forbids government seizure of property without due process under the law.  IRS levy powers comply with the 5th Amendment of the Constitution by providing notice of the intention to levy with the opportunity to be heard.  The IRS is bound legally to send notice to the taxpayer through at least basic communication channels- hand delivered to the taxpayer, certified mail, or deposited at the place of business of the taxpayer in question.

 

Further, the levy notice must include a simple explanation of the rights of the taxpayer to seek redress, a hearing, within a 30 day period before the levy will be enacted against the taxpayer.  The hearing is referred to as due process for collection or a CDP.  The notice must include a Form 12153 which the taxpayer may use to request the hearing using the official document of the IRS to formalize such a request.  One hearing per tax year for which the levy is being enacted.

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The hearing officer is to conduct an unbiased meeting with the taxpayer, and have no prior experience with the facts of the case relating to the unpaid tax.

The hearing presents an opportunity for the taxpayer to-

Make a case to refute the basis for levy
Pursue relief on the basis of an innocent spouse
Present alternative collection action (payment agreements or offers in compromise)
Refute the overall tax liability

The taxpayer is entitled to an appeal in tax court or federal district court.

Procedural Matters following Redress Hearing with IRS. Property seizure ensues should the hearing fail to stop the levy.  Certain limits are prescribed by the section of the IRS code numbered 6334.  It is a short list of property exempt from seizure by levy.  Not all exemptions apply to most taxpayers.   Once enforced, the IRS has levy power over wages and other income streams, directing disbursement agents of those funds to transmit them directly to the Internal Revenue Service.  This includes private bank accounts, any state and federal aid proceeds such as disability or social security, and tax refunds.

Personal Residence as Subject to Levy by the IRS.  A section of the IRS code numbered 6334 stipulates the specific circumstances under which a principal residence (person’s home) may be seized.  Here is one of the circumstantial situations where the Internal Revenue Service must appear before a federal judge to petition for permission to seize the home.  Absolute prohibition is made upon the IRS from ever seizing a primary residence of a tax debtor for a debt valued at 00 or less.

Wage Garnishment.  The same section of the IRS code numbered 6334 does authorize the agency to levy wages by having the debtor’s employer transmit a set percentage of such wages, the remainder of which is left for the debtor to apply toward basic living costs.  Under the law, the IRS is not under any obligation to leave a percentage of wages that totals enough to meet the debtor’s basic living costs.

A levy against wages, referred to as “garnishment”, is enacted a single time and is left enforced until either the debt is paid or the levy is released as authorized by the agency.  The levy does not have to be re-enacted each time a wage period concludes and the employer disburses the wage to the would-be employee recipient.  The levy is a continuous order for the set percentage of wages to be transmitted to the agency without re-orders.  The wage garnishment is different from a bank account levy in that, the agency must initiate new levy action with each additional deposit of revenue to said account.

Specific provisions in the IRS code, Treasury laws, and federal law make clear that a taxpayer has the right to petition a wage garnishment if it will cause unfair economic hardship, and that the taxpayer cannot be terminated by an employer who is ordered to handle a wage levy on their behalf.  Terminating an employee on such grounds is a criminal offense.

Offers in Compromise and the IRS Levy.  Under federal law, the IRS is barred from enacting levy against property, rights thereto, of a debtor who files an offer, while said offer is pending, for 30 days immediately following a would-be rejection of an offer, and while an appeal of any rejected offer is being considered.  A favorable conclusion on behalf of the debtor will end levy action.  A finding against the debtor, with the offer rejected, can be made on the basis of documentation being incomplete or the paperwork being “unprocessable.”  In the event of said finding, the levy action will be completed by seizure.

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