A tax levy is the confiscation of a taxpayer’s property for the purpose of covering a tax debt. It is one of the final steps taken by the IRS in the enforced collection of back taxes and is usually carried out only after all previous attempts to collect a tax debt have failed. Before the IRS seizes a taxpayer’s property, it must follow a set legal procedure outlined in the Internal Revenue Manual. This procedure begins with the issuing of two formal written notices, the official Notice of Tax Due and Demand for Payment and the Final Notice of Intent to Levy. The second notice also informs the taxpayer of their right to a hearing. Once this communication process has been completed, the IRS can seize the levied assets without further notification.
With certain specific exceptions, the IRS can seize one or more of a taxpayer’s physical assets. The physical assets that are exempt from an IRS levy include the taxpayer’s principal residence or any property other than a rental property that is used as a residence by another person. This exception can be overruled with written approval of the federal district court judge to cover a tax debt in excess of $5000. Other categories of physical property exempt from an IRS levy include furniture and personal effects up to a fixed dollar amount and any property used in a taxpayer’s trade or business unless the levy is approved by an IRS Director. The IRS also has the authority to levy such non-physical assets as wages, insurance policies, retirement accounts, dividends and bank accounts although, again, there are certain specific exemptions. The list of exemptions in this category includes workers’ compensation, unemployment benefits, some annuity and pension payments, certain types of Social Security benefits, disability and welfare payments, judgments in support of minor children and certain wages and other income.
Although the levy process is specifically outlined in the Internal Revenue Manual, a recent review of a random sample of property seizures conducted by the Treasury General for Tax Administration revealed that, in some instances, the IRS did not comply with the stated process. A review of 50 out of 747 property seizures conducted in the twelve month period from June 30, 2010 to July 1, 2011 uncovered fourteen instances where the IRS did not comply with the Tax Code. The infractions included not properly advertising the seized property, not correctly stating the amount of the liability on the seizure notice, incorrectly applying the proceeds from the seizure to the taxpayer’s account and incorrectly reporting information related to the seizure of the property to the taxpayer. In response to these findings, The Internal Revenue agreed to revise their Internal Revenue Manual to prevent further errors.
If you have received an IRS Notice of Tax Due and Demand for Payment or an IRS Notice of Intent to Levy, you should realize that confiscation of your property is imminent. Often the most effective response at this point is to enlist the help of a qualified tax settlement professional. Such an individual will understand tax law and will have experience negotiating with the IRS. If you are the target of a tax levy or any other type of aggressive collection activity by the IRS, our experienced tax professionals can help you stop the impending collection activity and resolve the tax debt issue that caused it.
For more information about our tax debt resolution services, visit us today at www.professionaltaxresolution.com. Contact us by phone at (877)-889-6527 to receive a free, no obligation consultation.