Every year there are many Americans who suffer Internal Revenue Service (IRS) tax problems that lead to an audit, wage garnishment, liens and ultimately an IRS levy. Not everyone realizes that they can find the help necessary to get relief from IRS levies in the form of a compromise or tax settlement. The following information and tips will help you find relief and legal help if you need to stop an IRS levy.
What is an IRS tax levy vs. a lien?
Before we discuss how to stop an IRS levy, it will help to first understand what a levy is in comparison to a lien. A levy can come in different forms such as a bank account or wage levy. A levy refers to the physical act of seizing assets such as a car, a home or any other type of property you may own to pay back taxes owed to the IRS. You generally receive advanced notice of a tax levy in a certified letter.
When the IRS issues a levy, it bypasses the court system and simply seizes your property. The only time a levy will involve the courts in the process is when the IRS seeks the ability to seize property that is within the lien but currently beyond the reach of the IRS levy, such as necessary clothing, textbooks and certain business necessities.
A federal tax lien is the first step in the IRS enforcement collection process. A lien is the legal instrument used by the IRS to stake a claim against any of your assets to help satisfy unpaid taxes. The lien is a public document and, depending on state law, is filed at a County Clerk’s office or with the Secretary of State. A lien can attach to your house or car and can attach to any property or possessions you acquire even after the lien is filed.
A notice must be issued before a levy is performed. The customary notice period for IRS levies is 30 days. However, once a notice is issued, the levy is basically inevitable. Therefore, to stop one, you really have to remove the lien and get help. Doing so is difficult and it's best to seek professional help in the form of a tax attorney or advisor familiar with liens and levies.
So you can think of it this way: A lien is the IRS’s authorization to act by seizing property, and the levy is the actual act of seizure. If you receive a notice of either one of these, it is a guarantee that your problem has escalated to a point where you need to get professional help and take some quick action in hopes of stopping it.
So how can you stop a levy?
Act quickly and immediately file for a short stay of execution requesting a Collection Due Process Hearing. You will then have 30 days from the time you received the Notice of Intent to Levy in order to get help and negotiate with the IRS for an alternate way to pay back your debt.
If the IRS seizes funds from your bank account to help pay your taxes, it is unlikely that you will ever get reimbursed. The best advice is to make sure you get help and act within the first 30 days of receiving a notice. This will come as a certified letter from the IRS letting you know that they will seize your bank account and withdraw funds to pay your debt. Take this notice seriously! Find time to consult with a professional to get help and discuss some type of resolution that will minimize your financial loss. A few financial solutions to consider are:
- Pay your back taxes. Do whatever you can to pay your back taxes. This might be the most difficult (I almost wrote "taxing") method of removing a lien and subsequently stopping any IRS levy, but it is the surest method as well. Even if you haven't filed a tax return in a while, if you pay the back taxes that you owe, the lien will be removed within 30 days and, with it, the chance of an levy. Borrow money from friends and family, sell something of value or quickly refinance your home to help pay your debt.
- Prove financial hardship. Prove to the IRS that levying your bank account right now will only cause you and your family more financial burden, meaning you will never be able to pay them back. The IRS wants to get the money they are owed so by declaring yourself “Currently Not Collectible,” you can temporarily buy yourself a little extra time to contact a professional to get help creating a financial payback plan.
- Pursue an Offer in Compromise (OIC). It really helps to have a lawyer's advice when making an Offer in Compromise, or a settlement, to stop a levy. Instead of paying the full amount of tax due (especially if you are nowhere near being able to afford it), the Offer in Compromise allows you to propose a tax settlement amount as an alternative to the full amount the IRS would gain from the levy. Along with the promise to pay the compromise amount, the settlement would also make you promise to pay your taxes on time for a period of years. The OIC has specific guidelines (which is why an attorney can help). The IRS basically expects you to prove beyond a doubt that your monthly allowable expenses are equal to or exceed your monthly income, and that the only way they are going to get paid something for the levy is if they agree to an OIC. The IRS has the authority to accept or reject such a settlement offer in lieu of full and complete payment. However, if your proposal is well crafted (again, talking to an attorney who is familiar with IRS levies can help) the guaranteed amount you offer in the settlement will be more appealing to the agency than the amount they expect to gain after using their own resources to get it. If the IRS accepts your offer, you might prevent a levy.
- Offer to pay in installments. An installment agreement is an affordable monthly payment plan and is the most common way for delinquent taxes to be paid back once a levy is issued. Paying taxes in this way is most often called an "IRS payment plan" or "IRS monthly payment agreement." The monthly payback amount is established based on your income, required monthly expenses, and the amount you owe. There are conditions that need to be met to receive this help. There may be limitations on the number of months that the IRS allows installments to be made. Be careful not to miss a payment; a missed payment can put your account into default and the agreement for help that you made could be revoked immediately.
Can a lien expire?
Sometimes a lien expires without issuance of a notice of a levy. However, the IRS can easily extend the lien, which means you could still suffer a levy in the future. Simply waiting and hoping the problem disappears isn't the best solution to your concerns. You should probably seek other means of help.
If you owe back taxes, consult with a tax professional (or attorney) immediately to get help and see if there's a way you can start paying the IRS back using some form of settlement. A professional may be able to help you identify possible relief solutions for your particular financial situation and/or need to stop a levy. The IRS tends not to impose a levy if you cooperate and come up with a settlement. An IRS levy or lien will show negatively on your credit report and will make it difficult to secure future loans or other types of credit. For more information about liens, since a levy is inextricably linked to a lien, check out our article - "How To Remove a Tax Lien."