Understanding Bank Levies and Wage Garnishments
An IRS wage garnishment can be devastating to a taxpayer’s cash flow – making it impossible to pay for normal monthly expenses like rent/mortgage, car payments, utilities and food. Worse, an IRS bank levy can take all of a taxpayer’s hard-earned savings suddenly.
Can the IRS take my money?
The IRS could impose a levy upon a taxpayer who the IRS believes has the ability to pay taxes but won’t pay. The levy is comprised of two prongs: seizing assets and garnishing wages. The IRS may levy (seize) cash and cash-equivalent assets such as bank accounts, social security benefits, and retirement income. The IRS also may seize a taxpayer’s real property and personal property and sell the property to satisfy the tax debt – including cars, boats, and real estate. In addition, any future federal tax refunds or state income tax refunds that the taxpayer’s due may be seized and applied to the federal tax liability.
The IRS is authorized to garnish wages and seize bank accounts “by levy upon all property and rights to property … belonging to such person or on which there is a lien … for the payment of such tax.”26 U.S.C. § 6331(a).
The IRS could impose a levy upon taxpayers who: (a) have the ability to remain current and/or resolve their delinquent taxes through an alternative collection method but will not do so; (b) cannot remain current and/or resolve their liability, but who have assets in excess of exempt amounts that will yield net proceeds and are unwilling or unable to borrow against or liquidate these assets; (c) are pyramiding liabilities; (d) use unsupported tax arguments and continue to resist the requirements to file and pay; (e) will not cooperate with the IRS (e.g., taxpayers that evade contact or refuse to provide financial information); (f) will not comply with the results of the IRS’ financial analysis or will not enter into an installment agreement or Offer in Compromise; (g) are wage earners who have not paid their tax liability and will not adjust their withholding to prevent future delinquencies; (h) are self-employed, have not paid their tax liability and will not make estimated payments to prevent future delinquencies; and (i) do not meet their commitments (without a valid reason) as set forth in an installment agreement, Offer in Compromise, or extension of time to pay.
Prior to the levy, the IRS must provide to the taxpayer written notice of its intent to levy and notice of the taxpayer’s right to a pre-levy Collection Due Process (“CDP”) hearing. The IRS could serve a Notice of Intent to Levy when the taxpayer fails to take any proactive steps to pay the tax liability. These notices must be provided at least thirty days before the levy, and they must be “given in person,” “left at the [taxpayer’s] dwelling or usual place of business,” or “sent by certified or registered mail, return receipt requested, to [the taxpayer’s] last known address.”
Taxpayers seeking a Collection Due Process (CDP) hearing must request a hearing within thirty days of receipt of the CDP Notice. The request must be in writing and state the grounds for the requested hearing. At the CDP hearing, the taxpayer may raise any issue relevant to the tax liability or the proposed levy, including challenges to the “appropriateness of the collection actions” and to the amount of the underlying tax liability. Taxpayers are strongly urged to have representation from a tax attorney during all phases of a CDP hearing.
Can the IRS take my house because I owe back taxes?
The taxpayer’s principal residence is exempt from levy UNLESS a judge or magistrate [judge] of a district court of the United States approves (in writing) the levy of such residence. The Government initiates the proceeding for judicial approval of levy on a principal residence by filing a petition showing that: (1) the underlying liability has not been satisfied; (2) the requirements of any applicable law or administrative procedure relevant to the levy have been met; and (3) no reasonable alternative for collection of the taxpayer’s debt exists. In the petition, the Government will ask the court to issue to the taxpayer an order to show cause why the principal residence property should not be levied and will also ask the court to issue a notice of hearing.
The taxpayer is then granted a hearing to rebut the Government’s prima facie case if the taxpayer files an objection within the time period specified by the court “raising a genuine issue of material fact demonstrating” one or more of the following: (1) the underlying tax liability has been satisfied; (2) the taxpayer has other assets from which the liability can be satisfied; or (3) the [IRS] did not follow the applicable laws or procedures pertaining to the levy. The taxpayer is not permitted to challenge the merits underlying the tax liability in the proceeding. Failure to file a timely objection may result in an order approving the levy.
For an example of a court approving the seizure of a taxpayer’s home, see United States of America v. James N. Gower, 3:16-cv-1247-J-39JRK (M.D. Fla. 7/10/18) (Klindt, J.).
Can I get rid of an IRS levy or get a levy release?
A taxpayer who wishes to obtain a levy release must submit a request for release in writing or by telephone to the district director for the Internal Revenue district in which the levy was made. The IRS must release the levy upon all or a part of the property or rights to property levied upon if it determines that (a) the taxpayer’s liability has been satisfied; (b) the taxpayer’s liability is no longer enforceable because of the collection statute expiration date; (c) the levy release will facilitate collection; (d) the taxpayer has entered into an installment agreement, unless the agreement provides otherwise; or (e) the levy is creating an economic hardship due to the financial condition of the taxpayer. A levy results in economic hardship if satisfaction of the levy in whole or in part [would] cause [the] individual taxpayer to be unable to pay his or her reasonable basic living expenses. If the taxpayer submits a request for release based on economic hardship, the IRS is required to determine whether the levy is creating a hardship unless the request is made five or fewer days prior to a scheduled sale of the property to which the levy relates.
Complicated? You bet.
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