Last updated February 29, 2008
If you cannot afford to pay the taxes you owe the U.S. government (or your state), the government will issue a tax lien, which can lead to tax levies. In the case of credit, tax liens can put a devastating to your credit score. Unlike judgments, tax liens stay on your credit report for 7 years from the time they were paid, not issued.
What is a Levy?
An IRS levy is a seizure of property such as real estate or a bank account in order to satisfy an outstanding tax debt. If the IRS has levied on your property, there are a number of different steps that you can take to defend your interests even if the underlying tax debt is legitimate. Normally an IRS tax levy will not take place until the IRS has sent you a "Notice and Demand for Payment;" you fail to pay, and the IRS sends you a "Final Notice of Intent to Levy and Notice of Your Right to a Hearing." Here is how to handle it.
Challenging the IRS - Is the Tax Levy Valid?
You have nothing to lose and every thing to gain by questioning the levy. First, determine if the IRS complied with its own deadlines by referring to the two IRS notices you should have received. The IRS must release the levy if it levied on your property before sending you the two required notices, if it did not allow ten days for you to respond to the first notice, or if it levied earlier than 30 days after sending you the second notice.
Take Action
If the IRS failed to comply with its own deadlines, you may contact them and demand immediate release of the tax levy. Although a release will simply start the whole process over again, it will buy you some time.
Regardless of whether the IRS releases the levy at this point, you should refer to the Collection Due Process page on the IRS website and download IRS Form 12153, "Request for a Collection Due Process or Equivalent Hearing". Fill out this form and return it to the address listed on your IRS notices within 30 days of the date that appears on the most recent notice. If you miss the 30-day deadline, you will still be eligible for a hearing but you will lose your right to appeal an adverse decision to a court.
Your Hearing Request
Once the IRS indicates that it has received your hearing request, prepare documentary evidence for your hearing. Possible grounds for contesting an IRS tax levy include an administrative error by the IRS, expiration of the statute of limitations (generally ten years from the date of your first IRS tax bill), the underlying tax debt is owed by your spouse instead of you, you are in bankruptcy and thereby entitled to postponement of the levy, or the levy will make it more difficult for you to pay your taxes (a levy against employment-related property, for example). Your hearing will be held at the address specified by the IRS in its response to Form 12153. You have the right to be represented by an attorney at this hearing (with or without your presence) if you file IRS Form 2848. If your income is low enough, you may qualify to be represented by a Low Income Tax Clinic (not affiliated with the IRS).
If you are unsatisfied with the results of the hearing, decide if you wish to appeal it. If so, you will need to determine which court has jurisdiction over your appeal. Refer to the IRS website to determine whether the Tax Court has jurisdiction. If not, then you should file your appeal with the federal District Court with jurisdiction over the property that is the subject of the IRS tax levy. Keep in mind that if your appeal is heard at a federal District Court instead of the Tax Court, you will probably be entitled to challenge the levy rather than the underlying tax debt (certain exceptions apply). Read IRS Publication 1660 to determine if you would be better off challenging the levy in the Tax Court.
If you lose your hearing and/or appeal, the IRS has several methods of collecting the money you owe them:
- Wage garnishment.
- Bank Levy
- Asset Seizure
- Trust Fund Seizure
Tax Levies | Types of Tax Levies | Offer in Compromise
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