What is an IRS Tax Levy?
Last Updated: August 17, 2017
According to the IRS website, a 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 a security for the tax debt, while a levy actually takes the property to satisfy the tax debt.
What Types of Property Can be Seized?
If you do not pay your taxes (or make arrangements to do so), the IRS may seize and sell any type of real or property that you own or have an interest in. For example:
- The IRS can seize and sell property that you hold such as a car, boat, or house.
- 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 receivable, cash value of your life insurance, or commissions.
What Requirement Must Be Met Before the IRS Can File a Levy Against You?
The IRS can issue a levy against 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
- You were sent a Final Notice of Intent to Levy and Notice of Your Rights to a Hearing at least 30 days before the levy.
How to Challenge 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.
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.
Request a Hearing
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.