Levies By the Internal Revenue Service

Many people consider the IRS to be the largest and most powerful creditor in the world and they may be right.  That being said, many people are unaware as to how and when the IRS goes about collecting from a taxpayer when taxes are due.  This article has been prepared by a tax attorney at The McGuire Law Firm in Denver, CO to provide additional information regarding how and when the IRS can levy monies from taxpayers to collect on past due tax bills. If you are concerned about an IRS tax debt, contact the McGuire Law Firm for a free consultation. 

What is a Levy?

A levy is a legal taking of property or assets from a creditor to satisfy a debt.  In our specific situation here, we are discussing levies issued by the Internal Revenue Service such as a bank levy or wage garnishment (levy).

When Can the IRS Legally Levy?

When a tax debt is due, the IRS must provide the taxpayer proper notice before they can levy an asset as opposed to immediately seizing a bank account or other asset.  When a taxpayer files a return with tax owed, the taxpayer will initially receive a balance due notice from the IRS.  When the balance due is not paid or a formal agreement entered into, the IRS continues to issue notices and the notices get more serious.  Eventually, the IRS can and will issue a “Final Notice of Intent to Levy” (‘Final Notice’).  This Final Notice gives the taxpayer 30 days to either request what is called a Collection Due Process Hearing or establish an agreement with the IRS to resolve the tax debt.  If the taxpayer does not request a Collection Due Process Hearing, finalize an agreement or take other action that would act as a hold on enforcement, the taxpayer is then open to levies.  

What Are Common Levies Issued by the IRS?

The IRS is most likely to issue a bank levy or a wage levy (garnishment).

How Does The IRS Issue a Bank Levy?

The IRS may have information as to where a taxpayer holds bank accounts based upon financial statements provided by the taxpayer or the IRS is likely to know where a taxpayer banks or holds financial accounts because interest and dividends are reported to the IRS on 1099 forms.  When the IRS issues a levy to a bank, they send the bank a Form 668-A.  The Form 668-A is a Notice of Levy and provides the taxpayer’s information, the tax periods and amounts due and demands payment from the bank up and to the tax amount due on the form.  

How is a Bank Levy by the IRS Processed?

Different banks may process an IRS bank levy differently, but as a whole, the bank is supposed to hold the funds in the taxpayer’s account(s) with the bank as of the day the bank receives the levy notice up and to the amount stated in the levy notice for 21 days.  After the 21 day period the bank is to release the funds to the IRS.

Can the Bank Release Funds from the Levy?

Yes.  The bank can release the funds being held from the levy in whole or in part, but only after receiving a formal notice of release from the IRS.  Thus, a bank levy can be released in full or partially released.

How Does the IRS Levy Wages?

Just as the IRS is likely to know where you bank, the IRS is likely to know where you work from either prior W-2s or financial information provided by the taxpayer.  The IRS levies wages by issuing a Form 668-W, which is a Notice of Levy on Wages, Salary and Other Income.  A wage levy is a continuous levy whereby your employer is to withhold a certain amount of the wages with each pay check and pay the funds over to the IRS.  The amount of funds the IRS can collect is dictated by certain exemptions but the levy on wages can be a very large portion of each paycheck.

Can a Wage Levy be Released?

Yes.  A wage levy can be released in whole or in part by working with the IRS to establish a formal agreement or reducing the amount of the wage levy for each pay period.  To release the wage levy, a taxpayer generally must provide financial information to the IRS or establish an agreement.

What Other Assets Can the IRS Levy?

In short, the IRS has the power and authority to levy or seize almost any asset from a delinquent taxpayer although, a levy of a bank account or wages are the most common.

How Do I Prevent a Bank Levy or Wage Levy?

Once tax is owed, the best means by which to avoid a levy is to establish a formal agreement for the IRS.  A formal installment agreement or submitting an offer in compromise with the IRS will act as a hold on enforcement and the IRS should not levy under these circumstances.

You can speak with a Denver tax attorney by contacting The McGuire Law Firm.  A tax attorney at The McGuire Law Firm can assist you with your tax matters to prevent a levy or work to have a levy released.