What is a Levy? How the IRS Can Seize Your Property to Pay Your Tax Debt
by Richard Fonfrias,
J.D. Chicago’s Financial Rescue &
Fonfrias Law Group, LLC
What is a Levy?
If, for whatever reason, you fail to pay your federal taxes, there are several ways the Internal Revenue Service (IRS) can still ensure it gets paid. They will first ask you to pay your taxes in a politely worded letter. If that doesn’t work, or you don’t respond, you’ll receive a much more strongly worded letter advising you pay what you owe or face specified consequences.
If they don’t get the response they want or reach a payment agreement with you, they may then move on to garnish your wages or place a lien on your property. Neither of those is pleasant. However, nothing quite ranks as personally devastating as an IRS levy. A levy means the IRS can legally seize any or all property or assets you own and sell them at auction to pay your taxes.
What is a levy?
A levy is simply a legal seizure of your property in order to satisfy your unpaid tax debt. Levies aren’t liens. A lien is a legal claim against property to secure payment of the tax debt. A levy actually takes or seizes a taxpayer’s property to satisfy their tax debt.
Depending on the amount of taxes you owe, you could lose not only your bank accounts, investments, 401K, retirement accounts, and other financial assets, but you could also lose your house, car, boat, and anything of value that you own. An IRS levy can leave you with nothing of value in your name and the threat of any future assets you obtain being seized as well until the taxes (plus compounded interest) are paid off.
Once the levy procedure begins, it’s very hard to stop it. The wheels of the IRS grind slowly, but they grind hard — especially when it comes to seizing taxpayer’s property.
Where did the Internal Revenue Service (IRS) get the authority to take my property?
The IRS can seize your property because it’s the law. Internal Revenue Code (IRC) 6331 legally authorizes the levy of personal property to collect delinquent taxes. Any property or right to property that belongs to the taxpayer or on which there is a Federal tax lien can be levied unless the IRC exempts the property from a levy.
Exactly what can the IRS seize in a levy?
Pretty much anything you own that has value can be seized in a levy. That includes any real or personal, tangible or intangible property such as:
- Bank accounts (checking or savings)
- Certificates of Deposit (CDs)
- Art and antiques
- Real property, like land, a home, a trailer
- Jewelry, including SuperBowl Rings, Olympic Gold medals
- Rental Income
- Passive income from sales of a good or product
- Accounts receivables
- Some tools
- Livestock, barns, sheds, and other structures
The IRS isn’t picky about what they seize. Everything they take from you is sold at auction to raise money to pay your taxes—and it’s rarely sold for what it’s truly worth. If it has value, can be sold, then it’s most likely going to be seized.
They may be accountants and number crunchers, but you can’t say the IRS isn’t creative. Some of the things the IRS has seized from people are musical instruments and albums, hair care products (from a Hair and Nail salon), autographed (by celebrities and athletes) clothing and sports items, wedding dresses (from a wedding shop), and even, according to The Boston Globe, two parking places in Boston that sold for $280,000 each.
What things are exempt from a levy?
Even if you lose everything you own, at least you won’t go naked. Clothing and wearing apparel (with some exemptions) are exempt from an IRS levy. You can also hang onto:
- Undelivered mail addressed to any person, which has not been delivered to the addressee.
- Certain annuity and pension payments — Annuity or pension payments under the Railroad Retirement Act, benefits under the Railroad Unemployment Insurance Act
- Furniture and personal effects for a household
- Assistance under the Job Training Partnership Act
- Certain amounts of fuel
- Special pension payments received by a person whose name has been entered on the Army, Navy, Air Force, and Coast Guard Medal of Honor roll (38 U.S.C. 1562), and annuities based on retired or retainer pay under chapter 73 of title 10 of the United States Code.
- Workers compensation payments
- Some public assistance funds or payments
- Judgments for support of minor children
- And preppers, rest easy. Certain amounts of provisions and your guns are exempt as well
There are other assets you may be able to hold onto, but you need an attorney to help you figure out which few assets you’re entitled to keep.
What actions must the Internal Revenue Service take before a levy can be issued?
Fortunately, the IRS seizure of your property doesn’t happen without notice or warning. The IRS will usually levy only after four requirements are met:
- The IRS assessed the tax and sent you a Notice and Demand for Payment (a tax bill);
- You neglected or refused to pay the tax; and
- The IRS sent you a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy. The IRS may give you this notice in person, leave it at your home or your usual place of business, or send it to your last known address by certified or registered mail, return receipt requested. Please note: if the IRS levies your state tax refund, you may receive a Notice of Levy on Your State Tax Refund, Notice of Your Right to Hearing after the levy.
- The IRS sent you advance notification of Third Party Contact notifying you that IRS may contact third parties regarding the determination or collection of your tax liability.
When will the IRS issue a levy?
If you don’t pay your taxes, make arrangements to settle your debt, or reach some kind of agreement with them, the IRS may decide that a levy is the next appropriate action after failing at other options, like garnishment. At that point, they’ll contact you with a letter to tell you they intend to have a court hearing within 30 days to get a levy.
It’s never a good idea to ignore or forget about a letter from the IRS regarding your taxes. Their reputation for being bulldogs re: payment of taxes is well known and well deserved. They will continue to pursue you for the rest of your life to collect any taxes you owe, whether you cooperate with them or not.
The IRS may levy any property or right to property you own or have an interest in. You don’t have to be the only owner of that property for them to seize it. For instance, the IRS can levy property held by someone else, such as your wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, or commissions. Or, the IRS could seize and sell property that you do hold in your name, such as your car, trailers or RVs, boats, motorcycles, surfboards, bicycles, condo, or house. In some instances (based on value), they can even seize the tools you use to run your business.
How do I stop the IRS from levying my property?
The best time to stop an IRS levy is before it gets to that point. Talk to them, come up with a payment arrangement, and keep communications with them open. If you still have questions, please contact me to discuss your options.
If You Have Questions About a Levy Notice, Don’t Hesitate To Call 1 (312) 969-0730