In an effort to secure its interests, the Internal Revenue Service may, without the court's approval, exact a federal tax levy upon taxpayers. This particularly aggressive method of IRS collection can inflict considerable hardship on its subjects. Therefore, it is essential that taxpayers facing such a penalty seek expert advice and be well-informed of their rights and of the consequences resulting from non-compliance. What follows is a brief overview of the IRS' enforcement mechanism known as the tax levy.
A tax levy differs from a tax lien: The former is an actual legal seizure of a taxpayer's property or assets for purposes of satisfying a tax debt, whereas the latter is simply a claim on the same property as security for the tax debt. The IRS is authorized to attach a tax levy on- that is, to seize and sell- any form of personal or real property that the taxpayer has an interest in or owns, such as a home, vehicle, and boat. However, an IRS tax levy is most oftentimes attached to the following types of intangible property:
Before imposing a tax levy, the IRS must satisfy three elements:
- Upon assessing the tax, it must send the taxpayer a Notice and Demand for payment;
- If the taxpayer fails or refuses to pay the tax, the IRS will probably file a tax lien and must subsequently issue a Notice of Intent to Levy to the subject.
- It is then required to send, at least 30 days prior to the federal tax levy, a Notice of a Right to A Hearing to the taxpayer.
Upon issuance of the IRS tax levy, taxpayers are barred from access to the property in question. Pending outright seizure, ownership is transferred to the IRS. An IRS tax levy on a taxpayer's salary, federal payments or income ceases when one of the following conditions is met:
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Release of the federal tax levy
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Expiration of the time period provided for legal collection of the tax
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Full payment of the tax liability
Numerous avenues exist for taxpayers to obtain from the IRS a release of the tax levy. Usually, the taxpayer seeking the release of a federal tax levy must enter into some type of repayment arrangement with the IRS. Individuals may find a resolution to their back tax debt through 1) an Offer in Compromise, 2) an Installment Agreement, 3) a Currently Not Collectible status, or 4) proof of hardship.
An Offer in Compromise:
A taxpayer who is unable to afford to pay in full the taxes owed can submit an Offer in Compromise request, whereby the IRS will put on hold its collection effort and allow the taxpayer to settle his or her back tax liability for a lesser amount. This mechanism can reduce the taxpayer's debt.
An Installment Agreement:
Taxpayers who are unable to satisfy their tax liabilities may enter into an installment agreement, which will enable them to pay the amount due through monthly payments. Before forming such an agreement, however, taxpayers must have complied with all previous tax filings. They should strive to have the installment agreement set up properly, so as to ensure that their payments are affordable, and that they can meet the amount due each month.
A Currently Not Collectible (CNC) Status:
Some taxpayers may opt to resolve their tax issue by requesting that the IRS place their account on a Currently Not Collectible status. Typically, such individuals have equity in assets upon which they are dependent and register a negative cash balance.
Proof of Hardship:
The last option that is available to delinquent taxpayers is a partial release of the IRS tax levy by a showing of hardship. In this case, they would have to demonstrate that the federal tax levy prevents them from meeting basic living expenses, such as transportation, housing and medical costs.
In view of the gravity and complications associated with the issuance of a federal tax levy, it is highly-recommended that targeted taxpayers seek out tax levy help. Experienced tax attorneys can offer their clients professional representation before and negotiation with the IRS as well as helping them avoid a tax levy or a garnishment of wages. By obtaining a release of their federal tax levy, taxpayers will reclaim a little financial security and peace of mind until a long-term solution is reached and implemented.