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What is a Tax Levy?

tax levy

Tax debts may be some of the most challenging debts to get rid of. Taxing authorities have more power to seize your assets than all other types of creditors. Because of this, the government may use a tax levy to take your money, property, and assets. They can do this without taking you to court–much less needing to win a judgment against you. As hard as it may be to imagine that anyone, even the government, can legally take money from you without your permission, it happens more often than you might think. 

If you worry that you will receive a tax levy or if you have already received one, you need to act fast. Experienced tax attorneys like those at O’Bryan Law Offices can help stop the IRS from taking money from your bank account, in certain situations. Contact our Kentucky debt relief attorneys today to schedule a free consultation and see how we can help protect your account from tax levies.

What is Tax Levy?

A tax levy is a collection process used by local governments to collect money. It refers to the legal seizure of properties or assets to satisfy a tax debt. Tax levies work to collect funds in many different ways. This can include penalties such as seizing assets and bank accounts or even garnishing wages.

Because the government has more power than other creditors, they may jump to the front of the line when it comes to collecting your debt. If you owe debt to several different creditors, the IRS will more than likely be able to collect your taxes before any other entities. 

Who Levies Taxes?

The Internal Revenue Service, or IRS, is responsible for levying taxes. Though it may seem a bit underhanded, the process of levying taxes is, in fact, legal. The IRS gets its authority from the Internal Revenue Code (IRC). Section 6331 of the code states that the IRS can issue a levy on any property or right to property belonging to the taxpayer on which there is a Federal tax.

Before the IRS issues a tax levy, they must meet certain requirements. After they’ve assessed the tax, they will send a tax bill called a Notice and Demand for Payment. If you do not pay the tax after this notice, they will send another notice. This is the Final Notice of Intent to Levy and Notice of your Right to A Hearing.

Following this notice, they will send you a notification of Third Party Contact, which is to notify you that they may contact third parties regarding the collection of your tax liability. Once they issue this, you have 30 days to resolve your debt before the IRS seizes your bank accounts.

There are a few exceptions as to when the IRS might not issue a 30-day Final Notice of Intent. For example, if they feel collection of the money you owe is in jeopardy, they may not give a warning. The IRS also doesn’t need to provide a notice if they are collecting from a state tax refund or if they served a Disqualified employment tax levy. Even if they do not give you a notice beforehand, the IRS should still send you a notice of your appeal rights afterwards.

What does Levied Taxes Mean?

Levied taxes generally occur after an individual receives a tax lien. A tax lien is a claim that the government makes on your assets and property when your income taxes are overdue. A tax levy is simply the means of exercising that claim. 

Receiving a tax levy could mean a few things. In extreme circumstances, it could mean that the government plans on seizing some of your assets to pay back your debt. This could include any of your personal property, including things like cars, homes, boats, or more. A tax levy can also include the seizure of property belonging to the individual, but held by another person or entity.

For example, the IRS may take any of the following:

  • Bank accounts
  • Wages
  • Social security
  • Dividends
  • Pensions
  • Insurance policies
  • Rental income
  • Investment accounts
  • Account receivables

Although it is possible for the IRS to seize assets like these, it is more likely that they will levy bank accounts or garnish wages. The seizing of property is generally used as a last resort because it isn’t as cost-effective as the other options. 

How Do Tax Levies Affect You?

There are a few things that will likely happen after you receive a tax levy, none of which are good. For one, your payment will shrink. You may hear this referred to as wage garnishment. Your employer will have to supply a portion of your earnings to the IRS for each pay period.

Another negative effect that comes with a tax levy is the freezing of your bank accounts. Targeting your bank account directly is another common tactic that the IRS will use to recoup back taxes. When this happens, the IRS will contact your bank and request a hold on your account for 21 days. Your bank must comply with this request.

This temporary hold won’t remove any money from your account, but will freeze it from use instead. This means, while the money may still be in your account, you will not be able to access it. This 21-day holding period grants you one last chance to resolve the issue before the IRS withdraws some or all of the money in your account. 

In addition to garnished wages and frozen accounts, your house and personal property might also be in jeopardy after a tax levy. This is often a last resort, but it is not completely off the table. In this case, there are some items that the government cannot seize.

This includes the following:

  • Unemployment benefits
  • Workers’ compensation
  • Certain disability payments
  • Certain annuity and pension benefits
  • Child support payments
  • Some public assistance payments

Who Do I Call About a Tax Levy?

If you receive an IRS notice of levy, your best bet is to take immediate action to revolve your tax debt. If you are stuck and worry that a levy might place you in a financial crisis, seek the help of an experienced tax attorney. At O’Bryan Law Offices, we know what it takes to handle legal financial problems and can walk you through the process. Our attorneys will work to prove that a tax levy would cause you serious financial hardship and seek to have it released. If your account was already levied, we may also help you get your claim reimbursed.

How Many Times Can The IRS Issue a Tax Levy?

There is a statute of limitations placed on the IRS for when they are able to issue a levy to collect debts. This statute of limitations grants them 10 years to collect any overdue taxes. After 10 years, the IRS will wipe the debt clean from its books and write it off entirely. 

Unfortunately, while in that 10 year period, there is no limit for the number of times they can legally levy your account. Most likely, they will continue to levy funds until you make some kind of arrangement to pay back your debt.

It is important to remember that when the IRS issues a levy on your account, it is not a standing levy. This means that you can deposit money as soon as the very next day without fear that the bank will freeze those funds. The levy will attach to whatever funds are available at the time the bank processes it. This means that if the IRS tries to issue another levy, it will not be immediate. It will take some time for the bank to process the levy and actually initiate it. 

For More Questions, Contact O’Bryan Law Offices Today

If you feel overwhelmed by the stress of increasing debt pressure, you’re not alone. At O’Bryan Law Offices, we offer individualized, compassionate client service. Our attorneys possess an in-depth understanding of tax and bankruptcy law and strategy to help clients like you get back on their feet.

In addition to helping you stop the IRS from issuing tax levies, we can also assist you with problems like mortgage foreclosure, tax obligations or small business restructuring. If you need any legal financial help, contact O’Bryan Law Offices today. Fill out our online form or give us a call at 502-339-0222 to see how we can help you.

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