Ins and Outs of IRS Levies

December 19, 2019

By Kimberly Mumme, EA, ATP

The IRS, through the authority issued to them in IRC Sec.  6331, may levy, where a federal tax lien exists, any property or right to property that belongs to the taxpayer, unless the property is exempt from levy by the IRS. The IRS will issue a levy only after three requirements are met.  The three requirements that must be met to enable the IRS to place a levy are the following:

  • Assessment of a tax obligation is made by the IRS and a Notice and Demand for Payment (tax bill) has been sent to the taxpayer;
  • Taxpayer refuses or neglects to pay the tax; and
  • A Final Notice of Intent to Levy and Your Right to a Hearing is sent by the IRS to the taxpayer at least 30 days before the levy. This notice from the IRS may be delivered in person, left at your usual place of business or your home, or sent to your last known address by registered or certified mail, return receipt requested.

The IRS is able to seize and sell property that you hold (such as your house, car or boat). The IRS may even levy property that is yours but held by someone else, which may include wages, dividends, bank accounts, retirement accounts, licenses, rental income, cash surrender value of your life insurance, accounts receivables or even commissions.  There are cases where the IRS may even issue a Notice of Levy on your state refunds. Codified under IRC Sec. 6334 is a comprehensive list of items that are exempt from tax levies. Some items in this list include: clothes and educational books that are of necessity to the taxpayer and/or the taxpayer’s family, personal items, personal care items, furniture, personal effects limited to $6,250 in value, workers’ compensation, unemployment benefits, and any portion of the taxpayer’s income or salary that is necessary for the taxpayer to comply with a court order or judgement granting support for children under the age of 18.

Once the IRS levies the property or rights to the property, they may seize and sell such property or rights in an attempt to satisfy the debt. The IRS may continue, as often as necessary, to proceed to levy until the amount due, together with all expenses, is paid in full, in the case where the property or right to the property is not sufficient to satisfy the claim.

Contact with the IRS should be made immediately to resolve your tax liability and request a release of the levy. The IRS is required to release a levy if they determine that the tax has been paid, the collection period ended prior to the levy being issued, releasing the levy will enable you to pay your tax due, an installment agreement is entered into which terms don’t allow for the continuance of the levy, the levy creates an economic hardship preventing you from meeting basic and reasonable living expenses or the value of the property subject to levy is more than the amount owed and by releasing the levy the IRS collection ability will not be hindered. The IRS may deny a request to release a levy; however, an appeal may be made of this decision.

Timely filing of tax returns and payment of tax is very important to prevent notices, liens and possible levy of property or rights to property. It is very important to make sure the IRS has your current address on file to enable all correspondence from the IRS to be timely received. Care should be taken to promptly address any notice received to prevent potential hardship.

About Kimberly Mumme

Kimberly Mumme is a Tax Department Senior Manager working with small to midsized companies in a variety of industries, providing accounting, consulting and tax services.