How To Prevent Levy and Seizure of Property by the IRS
The best way to prevent levy and seizure on assets is by filing tax returns on time and making timely payments on your taxes. Tax levies put your property at risk since the government can seize them to recover what you owe in back taxes. Prevention of levies involves working with the IRS to pay past-due taxes. Read on to learn more about tax levies and how to stop a tax levy.
Process of Issuing a Tax Levy
An IRS levy will only be issued after going through a certain process, with some exceptions. The process ensures adequate notification by the IRS and that the law is followed before the seizure. Below are the steps that lead up to a seizure:
- A tax assessment by the IRS, after which they send you a tax bill, or what is referred to as a Notice and Demand for Payment.
- You neglect, ignore, or fail to make arrangements to pay your taxes.
- The IRS issues you a levy notice referred to as a Final Notice of Intent to Levy and Notice of Your Right to A Hearing at least 30 days before the seizure. The IRS may issue this notice in person or send it to your usual place of business, home, or last known address via certified or registered mail.
- You are further notified of Third Party Contact by the IRS, which means that third parties may be contacted regarding the collection of your tax debt.
In some cases, the IRS does not have to give you the 30-day window for a hearing with Appeals before the seizure. Below are some of those IRS levy exemptions:
- The IRS feels that the tax collection is in jeopardy, or what is referred to as jeopardy levy.
- When the IRS can recover what you owe by seizing your state tax refund after issuing an IRS Notice CP504.
- The IRS issues a federal contractor levy.
- The criteria for a Disqualified Employment Tax Levy (DETL) are met.
- However, the IRS still must notify you of your appeal rights after issuance of the levy.
Consequences of an IRS Levy
To better understand how to prevent levy and seizure of assets, it is important to understand the types of seizures and the at-risk property. Below are the forms of levy the IRS can issue:
It is not uncommon for the IRS to issue a tax levy on paycheck of a taxpayer who has a tax debt. The employer sets aside a part of your earnings to satisfy your tax debt.
Frozen Bank Accounts
Bank accounts are common targets for recovering back taxes. Normally, the IRS gets in touch with your bank and puts your account on hold for 21 days. If you haven’t made arrangements to pay your tax debt after that period, the IRS will contact your bank and have them send part or all your money to pay what you owe.
The IRS can issue a levy on most of your possessions, but your home will typically be a last resort. If there is a levy on your principal residence, a U.S. District Court Judge will have to approve the sale.
What Property Cannot Be Seized by the IRS?
Some of the property that can’t be touched by the IRS even after issuing a levy include:
- Unemployment benefits.
- Worker’s compensation.
- Certain pension and annuity benefits.
- Some disability benefits.
- Items necessary for work or school.
- Some public assistance payments and court-ordered child support payments.
- Certain amount of furniture and household items.
- Minimum exemption for incomes such as salaries.
How Does a Property Levy Work?
If the IRS issues a levy on your property, an officer will come to your home or usual place of business. They will take assets on the property, including any vehicles parked in your driveway.
They will also request access to the private areas of your business or house, such as garages. If you allow access, they will take any assets located there. If you don’t consent, the officer will get a Writ of Entry – a legal document that gives the officer legal permission to access the private areas of your business or home to seize assets.
How To Prevent Levy and Seizure of Assets
If you have received a Notice and Demand for Payment from the IRS, here are several steps you can take to prevent levy and seizure of your property.
Settle Your Tax Debt
While this might sound obvious, paying what you owe is usually the most effective way of stopping a tax levy. You should cooperate once you’re aware of the intent to levy. Communicate with the IRS and provide any documents or information they may need.
Join an IRS Payment Plan
Penalties and interest will accrue until you settle your tax debt. However, you can agree to a direct debit installment agreement, which involves at least three payments from your account to the IRS. By doing this, the IRS might agree to remove the tax lien from the public record. Still, you will be required to settle your tax debt.
Request an Offer in Compromise
You can ask the IRS to accept your offer to settle your tax debt for less than the actual amount owed. However, this is a long shot as the IRS usually accepts very few applications out of all those received in a year.
You must have filed all your tax returns and made the required tax payment estimates for the current year to be considered. The IRS won’t consider you if you’re being audited or in bankruptcy.
File an Appeal
The levy notice can be reviewed if you ask the IRS Office of Appeals for a collection due process hearing. If you disagree with the decision of an IRS employee, you can request a conference with their manager. You can further have your case reviewed by the Office of Appeals upon request if you disagree with the manager.
File for Bankruptcy
While it certainly isn’t the best way to prevent levy and seizure of property, bankruptcy can help get rid of back taxes. However, the process can be lengthy and with many rules, and may not work for some people.
How to Get Seized Property Back
If you want your seized property back, get in touch with the IRS to resolve your tax liability and ask for an IRS levy release. It is also possible for the IRS to release the seizure if it establishes that the seizure has resulted in an immediate economic hardship.
You may appeal if the IRS denies your levy release request. This can be done before or after the sale of your property. If the IRS has already received the seizure proceeds, you can file a claim to recover the proceeds.
Tax debt can lead to a levy and property seizure, where the IRS takes possession of your assets to settle your back taxes. While there are several ways to prevent levy and seizure of assets, it is best that you stay current on your returns and tax payment. Most importantly, seek the help of a tax professional and get in touch with the IRS if you get a notice of intent to levy.