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What
if the IRS has Levied Your Assets, Bank Account, and/or Sources
of Income?
An IRS levy is a legal
seizure of your property to satisfy a tax debt. Levies are
different from liens. A lien is a claim used as security for the
tax debt, while a levy actually takes the property to satisfy
the tax debt.
If
you do not pay your taxes (or make arrangements to settle your
debt), the IRS may seize and sell any type of real or personal
property that you own or have an interest in. For instance:
·
The IRS could
seize and sell property that you hold (such as your car, boat,
or house); or
·
The IRS could
levy property that is yours but is 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).
The
IRS usually levies only after these three requirements are met:
·
The IRS
assessed the tax and sent you a Notice and Demand for Payment;
·
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.
What
can be done if IRS attempts to Levy against your Property?
Suits
against IRS or its employees over IRS levy actions are available
only in limited situations. But, there are three less
restrictive ways to contest levies by administrative appeals
within IRS.
Collection Appeals
Program
One way to appeal an IRS
tax levy is by using the Collection Appeals Program (CAP). Under
the CAP, a taxpayer may appeal liens, levies, seizures, and
proposed denials or terminations of Installment Agreements. When
the taxpayer appeals his case the IRS will normally stop
collection action until the appeal is settled, unless it has
reason to believe the collection of the tax is in jeopardy. Once
a decision is made in the case, the decision is binding on both
the taxpayer and IRS.
Collection Due Process
A second method of
administrative appeal is by use of the Collection Due Process (CDP)
Program. A CDP hearing before levy is available in levy cases
where the taxpayer has received a Notice of Intent to Levy. A
Notice of Intent to Levy is accompanied by a notification in
writing of the taxpayer's right to a hearing before levy. If the
taxpayer requests a hearing, the hearing will be conducted by an
officer or employee in the IRS's Office of Appeals who was not
previously involved as to the unpaid tax at issue. IRS doesn't
have to send a Notice of Intent to Levy if it finds that
collection of tax is in jeopardy or before levying on a state to
collect a federal tax liability from a state tax refund.
However, in such cases a post-levy CDP hearing is available.
Like CAP hearings, CDP hearings are informal. They do not
require a face-to-face meeting, although the taxpayer can get
one if he insists on it.
Filing Application
with Taxpayer Advocate
Filing an application with
the office of the Taxpayer Advocate is a third method of
administrative appeal of a proposed levy. The Taxpayer Advocate
or his designee can issue a Taxpayer Assistance Order (TAO)
based on a determination that the taxpayer is suffering or is
about to suffer a significant hardship as a result of the way in
which the tax laws are being administered by IRS. Relief can
include suspension of collection actions and release of the tax
levy from IRS.
There
are many differences to be considered in determining which of
these methods of administrative appeal to use. One of the most
important differences concerns the right of review. A
determination in a CDP hearing may be appealed to the Tax Court
or a district court, depending on which court has jurisdiction
over the underlying tax liability, but there is no right to
judicial review in the CAP or TAO process.
An
important disadvantage of the CDP is that the taxpayer must
request a hearing within the 30-day period beginning on the day
after the date he receives notice of his right to a hearing.
This time limit cannot be waived and a taxpayer who fails to
meet it cannot get a CDP hearing. He can get an “equivalent
hearing” but this procedure does not suspend any collection
action against him and no judicial review of the hearing
determination is available. In contrast, both the TAO and CAP
are not subject to a time limit tied to the Notice of Levy and
are available both before and after a levy is imposed on
property. Both the TAO and CAP are also generally quicker
procedures than the CDP.
There
are also significant differences in the types of problems that
can be considered under each process. Under the CDP process, a
taxpayer may contest the underlying tax liability if certain
conditions are met, while such a contest is not possible in the
CAP or the TAO. On the other hand, the CDP process is not
available to nominees of, persons holding property of, or
persons holding property with respect to, the taxpayer, but such
persons may use the TAO or CAP. Another distinction is that IRS
will not consider Trust Fund Recovery Penalties, Offers in
Compromise, or Penalty Abatement Appeals under CAP procedures.
How
to Help Yourself
You
may ask an IRS manager to review your case, or you may request a
Collection Due Process hearing with the Office of Appeals by
filing a request for a Collection Due Process hearing with the
IRS office listed on your notice. You must file your request
within 30 days of the date on your notice. Some of the issues
you may discuss include:
·
You paid all
you owed before the IRS sent the levy notice;
·
The IRS
assessed the tax and sent the levy notice when you were in
bankruptcy and subject to the automatic stay during bankruptcy;
·
The IRS made a
procedural error in an assessment;
·
The time to
collect the tax (called the Statute of Limitations) expired
before the IRS sent the levy notice;
·
You did not
have an opportunity to dispute the assessed liability;
·
You wish to
discuss the collection options; or
·
You wish to
make a spousal defense.
At
the conclusion of your hearing, the Office of Appeals will issue
a determination. You will have 30 days after the determination
date to bring a suit to contest the determination.
Levying
your Wages, Federal Payments, State Refunds, or your Bank
Account
If
the IRS levies your wages, salary, or federal payments, the IRS
levy will end when:
·
The levy is
released;
·
You pay your
tax debt; or
·
The time
expires for legally collecting the tax.
If
you are subject to an IRS bank levy, your bank must hold funds
you have on deposit, up to the amount you owe, for 21 days. This
period allows you time to solve any problems from the levy.
After 21 days, the bank must send the money plus interest, if it
applies, to the IRS. To discuss your case, call the IRS employee
whose name is shown on the Notice of IRS Levy.
Filing
a claim for reimbursement when the IRS made a mistake in levying
your bank account
If
you paid bank charges because of a mistake the IRS made when the
IRS levied your account, you may be entitled to a reimbursement.
Releasing
Levies and Levied Properties
Releasing
an IRS Levy
The
IRS must release your levy if any of the following occur:
·
You pay the
tax, penalty, and interest you owe;
·
The IRS
discovers that the time for collection (Statute of Limitations)
ended before the levy was served;
·
You provide
documentation proving that releasing the levy will help the IRS
collect the tax;
·
You have an
Installment Agreement, or enter into one, unless the agreement
says the levy does not have to be released;
·
The IRS
determines that the levy is creating a significant economic
hardship for you; or
·
The expense of
selling the property would be greater than the fair market value
of the property.
Releasing
your Property
Before
the sale date, the IRS may release the property if:
·
You pay the
amount of the government's interest in the property;
·
You enter into
an escrow arrangement;
·
You furnish an
acceptable bond;
·
You make an
acceptable agreement for paying the tax; or
·
The expense of
selling your property would be greater than the fair market
value of the property.
Returning
Levied Property
The
IRS may consider returning levied property if:
·
The IRS levies
before they send you the two required notices, or before your
time for responding to them has passed (10 days for the Notice
and Demand; 30 days for the Notice of Intent to Levy and the
Notice of Right to a Hearing);
·
The IRS did not
follow its own procedures;
·
The IRS agrees
to let you pay in installments, but the IRS still levies, and
the agreement does not say that the IRS can do so;
·
Returning the
property will help you pay your taxes; or
·
Returning the
property is in yours and the government's best interest.
Selling
Your Property
The
IRS will post a public notice of a pending sale, usually in
local newspapers or flyers. The IRS will deliver the original
notice of sale to you or send it to you by certified mail.
After
placing the notice, the IRS must wait at least ten days before
conducting the sale, unless the property is perishable, and must
be sold immediately.
Before
the sale, the IRS will compute a minimum bid price. This bid is
usually 80% or more of the forced sale value of the property,
after subtracting any liens.
If
you disagree with this price, you can appeal it and ask that
either an IRS or private appraiser compute the price again.
You
may also ask that the IRS sell the seized property within 60
days. For information about how to do so call the IRS employee
who made the seizure. The IRS will grant your request, unless it
is in the government's best interest to keep the property. The
IRS will send you a letter telling you of its decision about
your request. After the sale, the IRS first uses the proceeds to
pay the expenses of the levy and sale. Then the IRS uses any
remaining amount to pay the tax bill.
·
If
the proceeds of the sale are less than the total of the tax bill
and the expenses of levy and sale,
you will still have to pay the unpaid tax.
·
If
the proceeds of the sale are more than the total of the tax bill
and the expenses of the levy and sale, the IRS will
notify you about the surplus money and will tell you how to ask
for a refund. However, if someone, such as a mortgagee or other
lien holder, makes a claim that is superior to yours, the IRS
will pay that claim before the IRS refunds any money to you.
If
you would like further information on pursuing any of these
options for an IRS tax lien or tax levy, please do not hesitate
to call.
Ralph
Sayers, CPA
(877)
316-4331
ralphs@tampabay.rr.com |
