What is a tax levy?
A levy is a legal seizure of a taxpayer’s property to satisfy a tax debt. When a levy is issued against a taxpayer —typically due to failure to collect on unpaid debt— the IRS is legally allowed to seize assets including individual wages, bank accounts, social security benefits, retirement income, and personal property like cars, boats, and real estate. Levies typically represent one of the last steps available to the IRS to collect a debt, and multiple checkpoints must be passed before a levy can be issued.
How long does it take for the IRS to issue a tax levy?
Issuing a levy is a very serious event and never occurs as a first step of the collection process. The IRS will only issue a levy after these three requirements are met in full:
- The IRS assessed the tax and sent the taxpayer a Notice and Demand for Payment (a tax bill)
- The taxpayer neglected or refused to pay the tax
- The IRS sent the taxpayer a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy. The IRS may give this notice in person, leave it at the taxpayer’s home or business, or send it to their last known address by certified or registered mail, return receipt requested. If a taxpayer has moved and neglected to notify the IRS about a change of address, they are considered to have correctly sent the 30 days notice if it is sent to the last address.
In cases where the IRS levies a taxpayer’s state tax refund, they may receive a Notice of Levy on a State Tax Refund (Notice of Your Right to Hearing after the levy.) In addition to property directly owned by the taxpayer, the IRS also has access to property held by others in which the taxpayer may have a partial ownership stake. This potentially includes businesses, life insurance, bank accounts, rental income, and much more.
What does it take for an IRS tax levy to be released?
The quickest and most effective way for an IRS levy to be released (for good) is to pay the amount owed in full. However, most people dealing with an IRS levy are either unable or uninterested in paying the amount in full. Short of full payment options for partial relief exist. However, the release of a levy is not the equivalent of the dismissal of the debt. Even after a levy is released, the taxpayer is still responsible for the total amount owed. If that debt is not paid in full, a new levy may be issued at a future date. The IRS is only required to release a levy if the following requirements are met:
- The total amount owed is paid
- The period for collection ended prior to the levy being issued
- Releasing the levy will help the taxpayer pay their taxes
- An Installment Agreement is accepted and the terms of the agreement don’t allow for the levy to continue
- The levy creates an economic hardship, meaning the IRS has determined the levy prevents the taxpayer from meeting basic, reasonable living expenses
- The value of the property is more than the amount owed and releasing the levy will not hinder the IRS’ ability to collect the amount owed
4 ways to stop an IRS tax levy
The IRS has a 10-year statute of limitations from the date a debt is assessed to collect it. Unless the debt is suspended, extended, or a payment plan is enacted, once the statute of limitations expires the debt can no longer be collected. If the taxpayer is within the statutory period and is unable to pay the debt, other options exist to help manage the unpaid debt and potentially remove the levy. These include the following:
- Appeal the Levy: Appealing the levy stops the process for 30 days while an appeal is considered. This solution is temporary and may not end in the taxpayer’s favor, however, it does provide additional time to get documents and representation in place. To file an appeal, the IRS requires that Form 9423 be completed. Jackson Hewitt Tax Debt Specialists are familiar with this process and ready to assist in filing and potentially winning the appeal.
- Request a Payment Plan: A payment plan is an agreement to pay the debt back over a specific period of time. The IRS has both short-term and long-term payment plans that taxpayers can apply for. The short-term plan is complete in 120 days or less and the long-term plan covers up to 60 months (five years). Each plan has separate requirements and approval is not guaranteed.
- Prove That the Levy is Causing Economic Hardship: The purpose of an IRS Levy is to secure valuable assets that can be sold to cover a taxpayer’s unpaid debt. If a taxpayer can show that their assets have little to no value, such as a home with no equity, the IRS may consider releasing the levy on these items. This is especially true if the levy creates severe economic hardship for a household, as the IRS is legally required to leave taxpayers with enough money to cover immediate household expenses.
- Offer in Compromise (OIC): An OIC allows debt to be settled for less than the amount owed. After assessing a taxpayer’s income, expenses, asset equity, and ability to pay, the IRS may accept or reject an OIC offer. An OIC will be rejected if Form 433-A/B is not filed before the offer is submitted. Additionally, an open bankruptcy proceeding is also an automatic disqualifier. To learn more about the OIC process and its requirements, see IRS Form 656.
If any of these options seems too complicated to execute, or the idea of dealing with the IRS and outstanding debt presents difficulty, Jackson Hewitt’s Tax Debt Resolution Services provides a full suite of options to effectively manage IRS debt.
How Jackson Hewitt can help
Jackson Hewitt’s Tax Debt Specialists have a wide variety of tools to manage tax debt. Whether simple or complex, our Tax Debt Specialists are trained to work directly with the IRS and keep our clients updated throughout the process. Contact us to learn about our debt resolution process and see how committed Jackson Hewitt is to working hard for the hardest working.