A levy is a legal enforcement action taken by the IRS or a state tax authority to seize a taxpayer’s property or assets in order to collect unpaid tax debt.
Key distinction:
- A lien is a legal claim against property
- A levy actually takes the property or money
Common Types of Levies
Bank Levy
- The IRS can freeze funds in a taxpayer’s bank account
- After a holding period, the funds are sent to the IRS
Wage Garnishment
- A portion of the taxpayer’s paycheck is withheld
- The amount continues to be sent to the IRS each pay period
- Continues until the debt is paid or the levy is released
Asset Seizure
- The IRS may seize and sell property, such as:
- Vehicles
- Real estate
- Business assets
- Valuable personal property
Social Security or Retirement Income Levy
- The IRS can take a portion of federal payments, including:
- Social Security benefits
- Certain retirement income
- This is often done through the Federal Payment Levy Program (FPLP)
Important Notes
- The IRS generally sends multiple notices before issuing a levy
- Taxpayers must receive a Final Notice of Intent to Levy and Notice of Your Right to a Hearing
- Taxpayers have the right to request a Collection Due Process (CDP) hearing
- Usually within 30 days of the final notice
How Levies Can Be Avoided or Released
A levy may be prevented or removed if the taxpayer:
- Pays the tax debt in full
- Sets up an installment agreement
- Qualifies for Currently Not Collectible (CNC) status due to hardship
- Submits an Offer in Compromise (in some cases)