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What Are the Different Types of Tax Levies?

Written by: Kristy Welsh

Last Updated: August 17, 2017

If you fail to pay your tax debts, the IRS can legally seize your property in order to pay off this debt. This seizure of property is called a tax levy. Property the IRS can seize and sell to pay off the debt can include wages, bank accounts, retirement accounts, life insurance cash value, commissions owed to you, accounts receivable, rental income, home, boat, or even your car. The IRS has three main methods of collecting the money you owe them:

  • Wage garnishment
  • Bank account levy
  • Asset seizure

Wage Garnishment

Wage garnishment has become an effective and punitive method for the IRS to collect on overdue taxes. Because people need money to pay for their living expenses, they must continue working, which guarantees payment to the IRS. Although helpful for the IRS, this situation is not helpful to employers, now saddled with extra paperwork and accounting tasks. Many people are humiliated by disclosing their financial troubles to their employers or to payroll staff. In addition, the stress of losing a portion of one's salary can result in tension and problems at home. Wage garnishment brings with it a whole host of negative consequences that can be avoided with the right knowledge and help.

Process of Filing a Wage Garnishment

The process of a wage garnishment begins with the IRS serving an employer with a court order. The court order demands that the employer send the IRS an allotted sum from an employee's paycheck until the individual's tax obligations are fulfilled. The amount withdrawn from most garnished paychecks is often considerable, which often leaves people unable to make ends meet. Although it is impossible to anticipate how much of a person's paycheck will be levied to the IRS until it happens, one fact is certain — wage garnishment is one of the most taxing and difficult situations that people can face.

Bank Account Levy

A bank levy is when the IRS seizes funds directly from one of your bank accounts. The IRS will not give you notification prior to seizing funds. Most people find out that the IRS intends to levy their bank account when they go to withdrawal funds and notice that their account has been frozen. The bank that is holding your funds will freeze the account for 21 days prior to transferring the funds to the IRS. This is one of the most common forms of levy because it is the easiest for the IRS to do. All the IRS needs to do is look on your tax return and see if there were any banks that you reported earning interest from and they will check those banks to see if you have any cash.

Asset Seizure

This is typically the least common form of levy used by the IRS because it is typically the most difficult. If you do not have an employer or have a bank account that the IRS can find with funds in it, it is likely they will attempt to seize hard assets. The IRS may seize cars, boats, homes, or any other asset that they feel has monetary value and will be able to satisfy some or all of the taxes that you owe.

After the IRS has seized this property, it becomes the property of the United States Government. They will attempt to sell it at public auction. The IRS will advertise in local newspapers that they have seized your property for nonpayment of taxes and that such property is available at public auction.

IRS Lien

After these three events have taken place, you'll receive a notice in the mail informing you that the IRS has put a lien on your property. If you sell your home, the IRS tax lien must be paid out of any equity in the property.

Benefits of Receiving Professional Help

When people are saddled with a massive amount of tax debt, one way to address it, while avoiding the dread of wage garnishment, is through knowledge. By learning about current tax laws, the recent changes to these laws and the best ways to apply them, people can approach the IRS with the confidence needed to seek a solution. If there is no time to learn about taxes or the internal procedures of the IRS, then the best step to take is to find an experienced tax specialist.

Tax relief professionals have the essential knowledge to deal with the IRS and possess experience navigating through the maze of the tax settlement process. With a clear understanding of the system, they know best how to approach the IRS and skillfully negotiate a solution for their clients. In addition, tax relief specialists understand the options and their potential outcomes. Most importantly, professionals can help people avoid suffering through the unsettling and degrading experience of wage garnishment.

When Does a Levy End?

A tax levy will remain in place and the IRS will continue collection actions against you up until one of these conditions is met:

  • IRS seizes enough funds/property from you to cover the entire amount you owe.
  • Taxes are paid off in full then the IRS will halt all collection action against you.
  • Statute of limitations has expired. If the IRS cannot collect taxes in a period of 10 years from the date they were assessed, then they can no longer enforce collection of the taxes owed.
  • Taxes are settled by some type of agreement with the IRS. You can settle them with an installment agreement, an offer in compromise, or a partial payment installment agreement.
  • If you can prove financial hardship, the IRS will give you more time to settle your debt without seizing all of your money and property.