What do the Mob, a bookie, an in-law, and the IRS have in common? Well, these are folks you don’t want to owe money to. Kidding aside, the problem with owing the IRS is that you will pay it, one way or another. The most effective tool employed by the IRS to get back taxes is called a levy. And believe me, getting slapped with this bad boy can make for a rough day.
Every year the IRS levies everything from homes to motorcycles. Eventually, the property is sold and the proceeds go toward a taxpayer’s liability. The scary thing is the IRS doesn’t need permission to take and sell your stuff. So it’s important to know the ins and outs of the IRS levy process, just in case you’re ever faced with it. God forbid.
A levy is defined as a legal seizure of your property to pay your tax. It can include your wages, house, car, boat, or anything else you own that has value. Generally, you know you’re getting close to an enforced collection when the IRS sends you a Demand for Payment. If you don’t pay, you will then get a Final Notice of Intent to Levy. Once you get that bad boy, you have thirty days to figure out how to pay before you lose your bling.
The Most Common Levy
Once you’re issued a levy on your salary, that levy will continue until your tax is paid. The levy could also end if the time period for collection expires (generally around 10 years), or if you’ve made other arrangements to pay your debt. Sadly, it will not stop for any other reason. Think of it as child support, only the levy won’t play catch with you.
If your bank account gets levied, all cleared funds in that account are fair game. Now the bank does have to wait 21 days before sending the IRS money, which acts sort of like a grace period for you to smooth things over. But after that time, the bank has to take the cash out of your account and send it on its merry way.
You have the right to appeal a levy and request a Collection Due Process hearing. Just know you have thirty days from the date you receive your notice to schedule said hearing. When your day in court is done, the office of appeals will lay down the law. You then have 30 days from that verdict to appeal again in the United States Tax Court. At this point it’s going to start getting real expensive.
Let my Stuff Go!
The IRS will release a levy (that is set your stuff free) if one of the following applies: You either pay your tax or the time period for collection ends. Expect release if the IRS botches your account and your stuff gets levied before you received all your notices. If the IRS hits you with a levy on stuff that is on the exempt list, expect to keep it. You’re also due an automatic stay during a bankruptcy process.
The IRS will cancel the levy if it feels it’s creating a serious economic hardship for you. It will also give you a pass if the fair market value of the property levied exceeds the amount you owe. Lastly, if selling your stuff is more aggravation that it’s worth, that is, the costs associated with selling your property will be greater than what you owe, you could catch a break.
You can ask to get your property back within 9 months of the date it was levied. If the IRS didn’t follow proper procedures you’ll have a good shot to get it back. If the IRS forgot that you agreed to some other form of payment arrangement the levy will be void.
You could also reclaim your property if it will help you pay back what you owe. This includes things like a work-truck, tools, or a computer. If the Taxpayer Advocate Service (a nifty organization) determines it’s in the best interest of everybody to give you back your property, you will get it back. And lastly, if somewhere down the line the IRS decides to give you back your valuables, but they have already been sold, it will give you the an amount equal to what it received from the sale.
There are certain things that absolutely, positively, cannot be levied. For starters, household furniture (totaling $7,720) and certain types of clothing (like your underpants) are safe. Tools, school materials, or books you’ll need for your profession (maxing out at $3,860) are also exempt.
The IRS can’t take your unemployment benefits as well as certain annuity and pension benefits. It can’t take your workers comp checks or money for child support. If you’re receiving public assistance, that too is off limits. Also a small portion of your weekly salary is untouchable. You gotta eat right?
As you can see levies are ugly. And while it may seem like there’s something unconstitutional about a government agency being able to take your stuff, it happens all the time. So please, please, please pay your taxes and pay them on time. The last thing you want is an Intent to Levy letter finding its way to your mailbox.