Taxation & Estate Planning

What is a tax levy? and can the IRS Really do that?

By Darrin Mish

A tax levy is when the IRS literally seizes your money to pay an outstanding tax liability you owe them. They can seize your money in bank or brokerages accounts, in retirement plans, from your credit card processor (if you have a business), from your commissions (if you get paid 1099 income), from your inheritance and from your paycheck, social security income and/or pension. Any account you have an ownership interest in can be seized to pay your tax bill. Before the IRS levies anything they will send you a "Final Notice of Intent to Levy," giving you 30 days to deal with the problem. If you don't take action within those 30 days you'll be waking up at some time in the future to an empty bank account or a reduced paycheck. You might even be the proud winner of a visit from you local Revenue Officer at your home or business.

If the IRS is going to seize your bank account they will send a notice straight to your bank (they don't even need your account number, just your social security number). Your bank will "freeze" the funds in your bank account on the date of the levy notice. This will inevitably result in "reversed" transactions wreaking havoc to your bank account. Any funds arriving after the date of the levy notice should not be frozen by your bank and be made available to you to withdraw. Of course all those "reversed" transactions must be settled first. Usually leaving you with nothing in the bank. The funds that were seized on the levy date are held for 21 days before being sent to the IRS. This short window gives you time to protest and appeal the action by the IRS. Very few people succeed in challenging a bank levy, but in some cases it's worth the effort.

Seizing your paycheck, social security or pension check, or commissions can be even worse. YES! If you are an independent contractor they can and will levy your commissions, similar to how they levy a bank account with one exception, it's ongoing. A wage levy can really hurt and cause serious financial problems because they can take  up to three quarters of your paycheck, what they don't take is your social security, medicare and withholding taxes - they get the last laugh in other words. Wage levies are intended to get your attention, and they do, real quick. Ignoring your tax problem for this long really ticks the government off and they go after your livelihood in an attempt to get you to make your tax debt a priority payment.

A wage levy will only be released when three things happen: 1. You get current on your tax return filings 2. You maintain a proper amount of federal withholding from your paycheck and make timely estimated deposits if required and 3. You establish some alternative method of paying your tax debt with the IRS. Avoid this type of action if possible at all costs by seeking competent professional representation before the IRS levies your wages or financial accounts. An IRS debt is one debt that won't go away on its own.

If you are looking for IRS Help, look no further, we're here to help! Give us a call tollfree at (888) 438-6474.

Full post as published by IRS Problem Solver Blog on September 08, 2008 (boomark / email).