Imagine looking at your paystub and seeing that the IRS has garnished your wages, or perhaps even worse, they’re clawing back funds directly out of your bank account. It might feel inescapable, like falling into a pit of quicksand.
This is not a situation any taxpayer wants, but if it happens to you (or you see it coming), it’s important to understand your rights, how to protect yourself, and what you can do to pull yourself out of the hole.
If your tax troubles have reached the point of wage garnishment or levies from the IRS, speaking with a tax professional is a wise step if you want to take any swift and corrective action.
This blog post will cover the basics of garnishments and levies and walk you through a few scenarios where stopping the withholding, or at least softening the blow, is a possible outcome.
When Does the IRS Use Garnishment or Levies to Recoup Unpaid Taxes?
When taxes are owed and the taxpayer has not taken any steps to pay, settle, or dispute the tax bill, the IRS uses two main tactics: levies and liens.
A lien is a legal claim against your property to secure payment of your tax burden, whereas a levy is the actual seizure of property to satisfy the tax burden. A wage garnishment is technically just one of many ways for the IRS to levy your assets for unpaid taxes.
What can the IRS levy? Not everything, but almost everything. There is a lot of misconception about what the IRS can clawback.
The IRS can levy:
- Bank accounts
- Wages
- Retirement accounts
- State income tax refunds
- Social Security income
- Real and personal property (or rights to such property)
There are few places where your hard-earned money and property are out of the IRS’s grasp. Even Alaska residents who receive cash from the state’s Permanent Fund Dividend could have it levied by the IRS. However, the IRS does not have free rein with levies.
The IRS cannot levy:
- Unemployment benefits
- Certain annuity and pension benefits
- Certain service-connected disability payments
- Worker’s compensation
- Certain public assistance payments
- Minimum weekly exempt income
- Assistance under the Job Training Partnership Act
- Income for court-ordered child support payments
Even though the IRS can levy property taxes, they can’t take you out of your house and home. There are protections on household and business items like school supplies, clothing, and trade tools. Working with a professional can when you’re in a difficult situation like this can ensure that your rights are protected and respected by the IRS.
What to Do if You Receive an IRS Levy Notice
Fortunately, for any taxpayer who has fallen behind in filing a return or making payments, the IRS cannot turn to garnishment or a levy against your assets as a first line of defense. The IRS is required to notify you in writing, and they will reach out—usually many times—before any levy occurs.
Before any of your assets are levied, the IRS is legally required to notify you of the intent to levy. This notification typically comes via certified mail to your last known address. However, there are circumstances where the IRS will deliver it to your place of business or to another location where they can physically give you the notice.
If your last known address to the IRS is not your current address, you expect to be levied, and it’s possible you have not received any correspondence from the IRS, you should consult a professional tax advisor immediately.
If you have received official correspondence from the IRS, such as “L-1058 Notice of Intent to Levy and Notice of Your Right to a Hearing” or “LT11 Final Notice of Intent to Levy and Notice of Your Right to a Hearing” you’ll have to decide whether you’re OK with your assets being levied, or, if you disagree, you can request a Collection Due Process (CDP) hearing.
Collection Due Process (CDP) Hearing
Requesting a CDP hearing is a pivotal moment in the battle against an IRS levy. You are legally entitled to a CDP hearing if the IRS is going to take collection action against you. You have 30 days from the date of notice to request a CDP hearing.
Critically, while waiting for the CDP hearing, the IRS will suspend collection efforts.
When you request a CDP hearing, in addition to filing the paperwork with the IRS, you’ll also need to submit the documentation for your case. Remember that you’re only allowed one CDP hearing per tax collection period for each notice of levy, so you’ll need to make sure you take every relevant tax defense position.
If you don’t understand the system you’re not going to know what’s going on. Without a high level of understanding of the system and where you fit it, it’s often very tough to make a case for yourself, and if you handle it incorrectly, you may forfeit your rights to an appeal of that tax year. In addition to systematic knowledge, it also takes plenty of effort and time to request a CDP hearing and see it through to the end.
Working with a professional tax consultant is a good place to start if you don’t know how to respond or you don’t have the time.
What NOT to Do with an IRS Levy Notice
Whatever you do, don’t ignore or disregard the levy notice. Claiming you never received it or you never saw it is not a viable argument and you’ll likely lose your case. You should plan to act quickly as soon as you learn the IRS intends to take action. If the intent is a wage garnishment, it can happen as fast as your next pay period.
If you don’t take decisive and quick action upon notice of intent to levy, it becomes much harder to resolve the situation in your favor. Working with a tax professional that has an established working relationship with the IRS is prudent—these relationships mean everyone is on the same page, understands what is at stake, and knows time is of the essence.
How to Stop an IRS Levy
Paying your tax bill in full is the simplest and most straightforward way of stopping an IRS levy, but it’s also not the most realistic choice for most taxpayers who find themselves in this position.
Unless you’re fine with your wages being garnished or your assets being levied by the IRS until your bill is paid, your best course of action is to take your case to a professional tax advisor or enrolled agent.
A professional tax representative can help determine if you can make a viable case for financial hardship, which is one way to stop a levy. There are also ways to reach a settlement with the IRS to reduce the amount of taxes you owe, as well as payment plans to pay back your taxes over time instead.
With every taxpayer’s situation being unique, it’s best to take 30 minutes or so for a consultation with a tax professional who can get an understanding of the details of your case and make a recommendation on the best path forward.
Tax Relief USA has helped many individuals and businesses get out of tax trouble by working directly with the IRS to successfully present cases of financial hardship, reach settlement agreements, or prove that the IRS is in the wrong.
With our expertise we can ensure you’re not only paying your fair share—we’ll do whatever we can to get you into the most advantageous tax position.
If you’ve received a notice of levy from the IRS, get tax help from Tax Relief USA today.