If the taxpayer does not pay a tax liability in full and fails to find an alternative method to pay the tax, the IRS may levy against the taxpayer’s property § 6330, § 6331. A levy is a legal seizure of the taxpayer’s property to satisfy a tax debt. Levies are different from liens in that a lien is a claim used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt.
The IRS may seize and sell any type of real or personal property that the taxpayer owns or has an interest in. For instance, the IRS may seize and sell property that the taxpayer holds (such as the taxpayer’s car, boat, or house), or it may levy property that is the taxpayer’s but is held by someone else (such as the taxpayer’s wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash value of the taxpayer’s life insurance, or commissions). However, § 6334 lists property that is exempt from levy.
Before the IRS may levy on a taxpayer’s property it must meet the following requirements:
- It assessed the tax and sent the taxpayer a Notice and Demand for Payment;
- The taxpayer neglected or refused to fully pay the debt within 10 days after the IRS notifies the taxpayer about it; and
- It sent the taxpayer a joint Final Notice of Intent to Levy and Notice of the taxpayer’s Right to A Hearing (Collection Due Process Notice) at least 30 days before the levy. If the IRS levies the taxpayer’s state tax refund, the taxpayer may receive a Notice of Levy on the taxpayer’s State Tax Refund, Notice of The taxpayer’s Right to Hearing after the levy.
The taxpayer may ask an IRS manager to review the taxpayer’s case, or the taxpayer may request a Collection Due Process hearing with the Office of Appeals by filing a request for a Collection Due Process hearing with the IRS office listed on the taxpayer’s notice. The taxpayer must file the taxpayer’s request within 30 days of the date on the taxpayer’s notice.
A CDP hearing is conducted by an impartial employee of the IRS Office of Appeals. The appeals officer should have no prior involvement in the issue that resulted in the collection of the unpaid liability. CDP hearings are conducted informally at the appeals office. No transcript is taken of the conference and no oath or affirmation is taken. Some of the issues the taxpayer may discuss include:
- Tax liability was paid before the IRS sent the levy notice;
- The IRS assessed the tax and sent the levy notice when the taxpayer was in bankruptcy and subject to the automatic stay during bankruptcy;
- The IRS made a procedural error in an assessment;
- The statute of limitations expired before the IRS sent the levy notice;
- The taxpayer did not have an opportunity to dispute the assessed liability;
- The taxpayer wishes to discuss the collection options; or
- The taxpayer wish to make a spousal defense.
At the hearing, the taxpayer may also challenge the existence of the liability or the amount of the liability only if he did not receive a Statutory Notice of Deficiency, did not receive it in time to file a tax court petition, or if he did not had any opportunity to dispute the liability. The taxpayer may not raise an issue that was raised and considered at a prior administrative or judicial hearing.
Prior to issuing a determination, the appeals officer is required to obtain verification from the IRS office collecting the tax that the requirements of any applicable law or administrative procedure have been met.
The Office of Appeals will issue its findings in a dated Notice of Determination sent by certified mail or registered mail to the taxpayer. While there is no time limit on when the IRS must issue its findings, the regulations require the appeals officer to conduct the hearing “as expeditiously as possible.” Once the finding is issued the taxpayer has 30 days to request judicial review.
The Notice of Determination is required to:
- State whether the IRS met the requirements of any applicable law or administrative procedure
- Decide any allowable issue raised by the taxpayer at the hearing (for example, challenges to the liability, spousal defenses, the appropriateness of the collection action)
- Decide whether the levy is required for the efficient collection of taxes in light of a taxpayer’s concern that the collection action be no more intrusive than necessary
- Set forth any agreements reached with the taxpayer, any relief given to the taxpayer, and any actions that the taxpayer or IRS are required to take and
- Advise the taxpayer that the judicial review to the Tax Court or a U.S. District Court must be sought within 30 days of the date of the Notice of Determination (Temporary Reg. §301.6330-1T(e)(3), Q&A –E7)
If the IRS levies the taxpayer’s wages or federal payments, the levy will end when:
- The levy is released;
- The taxpayer pays the taxpayer’s tax debt; or
- The statute of limitations expires for legally collecting the tax.
If the IRS levies the taxpayer’s bank account, the taxpayer’s bank must hold funds the taxpayer has on deposit for 21 days (up to the amount the taxpayer owes). This period allows the taxpayer time to solve any problems from the levy or to make other arrangements to pay. After 21 days, the bank must remit to the IRS the money, plus interest if it applies. To discuss the taxpayer’s case, call the IRS employee whose name is shown on the Notice of Levy.
Filing a Claim for Reimbursement When the IRS Made a Mistake in Levying the Taxpayer’s Account
If the taxpayer paid bank charges because of a mistake the IRS made when it levied the taxpayer’s account, the taxpayer may be entitled to a reimbursement. To be reimbursed, the taxpayer must file a claim (Form 8546) with the IRS within 1 year after the taxpayer’s bank charged the taxpayer the fee.
Federal Payment Levy Program
Under the Federal Payment Levy Program, the IRS may levy monies from the following federal payments that the taxpayer may receive: retirement from the Office of Personnel Management, social security benefits, federal vendor payments, federal employee salaries, or federal employee travel advances and reimbursements. This program electronically levies the taxpayer’s federal payments paid through the Department of Treasury, Financial Management Service (FMS). If the IRS electronically levies the taxpayer’s federal payments, the levy will take 15% from each of the payments until the account is resolved. If the taxpayer already is working with an IRS employee, call that employee for assistance. If the taxpayer is not working with an employee, call 1-800-829- 7650 for assistance.
The IRS must release the taxpayer’s levy if any of the following occur:
- The taxpayer pays the tax, penalty, and interest the taxpayer owe;
- The IRS discovers that the statute of limitations ended before the levy was served;
- The taxpayer provides documentation proving that releasing the levy will help the IRS collect the tax;
- The taxpayer has an installment agreement, or enters into one, unless the agreement says the levy does not have to be released;
- The IRS determines that the levy is creating a significant economic hardship for the taxpayer; or
- The expense of selling the property would be greater than the fair market value of the property.
Releasing the Taxpayer’s Property
Before the sale date, the IRS may release the property if:
- The taxpayer pays the amount of the government’s interest in the property;
- The taxpayer enter into an escrow arrangement;
- The taxpayer furnish an acceptable bond;
- The taxpayer makes an acceptable agreement for paying the tax; or
- The expense of selling the taxpayer’s property would be greater than the fair market value of the property.
Returning Levied Property
If the taxpayer requests the return of levied property within nine months from the date of the levy, the IRS can consider returning the property if:
- The IRS levied before it send the taxpayer the two required notices or before the taxpayer’s time for responding to them has passed (ten days for the Notice and Demand; 30 days for the Notice of lntent to Levy and the Notice of Right to Hearing);
- The IRS did not follow its own procedures;
- The IRS agrees to let the taxpayer pay in installments, but it still levies, and the agreement does not say that it can do so;
- Returning the property will help the taxpayer pay the taxpayer’s taxes; or
- Returning the property is in the taxpayer’s and the government’s best interest.
Selling the Taxpayer’s Property
The IRS must post a public notice of a pending sale, usually in local newspapers or flyers. The IRS is to deliver the original notice of sale to the taxpayer or send it to the taxpayer by certified mail. After placing the notice, it must wait at least ten days before conducting the sale, unless the property is perishable and must be sold immediately. Before the sale, the IRS will compute a minimum bid price. This bid is usually 80% or more of the forced sale value of the property, after subtracting any liens. If the taxpayer disagrees with this price, the taxpayer can appeal it and ask that the price be computed again by either an IRS or private appraiser.
The taxpayer may also ask that the IRS sell the seized property within 60 days. For information about how to do so, call the IRS employee who made the seizure. The IRS will grant the taxpayer’s request, unless it is in the government’s best interest to keep the property. The IRS will send the taxpayer a letter telling the taxpayer of its decision about the taxpayer’s request.
After the sale, the IRS first uses the proceeds to pay the expenses of the levy and sale. Then it applies any remaining amount to pay the tax liability. If the proceeds of the sale are less than the total of the tax bill and the expenses of levy and sale, the taxpayer will still have to pay the unpaid tax. If the proceeds of the sale are more than the total of the tax bill and the expenses of the levy and sale, the IRS will notify the taxpayer about the surplus money and will tell the taxpayer how to ask for a refund. However, if someone, such as a mortgagee or other lienholder, makes a claim that is superior to the taxpayer’s, it will pay that claim before it refunds any money to the taxpayer.
Redeeming the Taxpayer’s Real Estate
The taxpayer (or anyone with an interest in the property) may redeem the taxpayer’s real estate within 180 days after the sale. The taxpayer must pay the purchaser the amount paid for the property, plus interest at 20% annually.
By law, some property cannot be levied or seized. § 6334. The IRS may not seize any of the taxpayer’s property when the expense of selling the property would be more than the tax debt. In addition, it may not seize or levy the taxpayer’s property on the day the taxpayer attends a collection interview because of a summons. Other items the IRS may not levy or seize include:
- School books and certain clothing;
- Fuel, provisions, furniture and personal effects
- Effects for a household, totaling $6,780;
- Books and tools the taxpayer use in the taxpayer’s trade, business, or profession, totaling $3,390;
- Unemployment benefits;
- Undelivered mail;
- Certain annuity and pension benefits; certain service-connected disability payments;
- Workmen’s compensation;
- Salary, wages, or income included in a
Judgment for court-ordered child support payments;
- Certain public assistance payments;
- A minimum weekly exemption for wages, salary and other income.
Claim for Reimbursement of Bank Charges Incurred Due to Erroneous Service Levy or Misplaced Payment Check: IRS Form 8546.pdf
IRC §6330: Notice and opportunity for hearing before levy
TD 2002FED ¶ 47,017: Treasury Decision 8979, (Jan. 17, 2002)
Temp. Reg. §301.6330-1: Notice and opportunity for hearing prior to levy