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Strayer Saylors & Associates, Inc.

Liens and Levies

A levy is a legal seizure of your property to satisfy a tax debt. Levies are different from liens. A lien is a claim used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt.

If you do not pay your taxes (or make arrangements to settle your debt), the IRS may seize and sell any type of real or personal property that you own or have an interest in. For instance, the IRS could:

  • Seize and sell property that you hold (such as your car, boat or house), or

  • Levy property that is yours but is held by someone else (such as your wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance or commissions).

Collection Due Process Generally, the IRS can levy only after these three requirements are met:

  • The IRS assessed the tax and sent you a Notice and Demand for Payment;
  • You neglected or refused to pay the tax; and

  • The IRS sent you a Final Notice of Intent to Levy and Notice of Your Right to a Hearing (levy notice) at least 30 days before the levy. The IRS may give you this notice in person, leave it at your home or your usual place of business or send it to your last known address by certified or registered mail with a return receipt requested. Caution: The IRS will generally take your state income tax refund first and then provide you with a Notice of Levy on Your State Tax Refund and Notice of Your Right to Hearing after the levy.

You may ask an IRS manager to review your case, or you may request a Collection Due Process hearing with the Office of Appeals by filing a request for a Collection Due Process hearing with the IRS office listed on your notice. You must file your request within 30 days of the date on your notice. Some of the issues that may be discussed include the following:

  • You paid all that you owed before the IRS sent the levy notice,

  • The IRS assessed the tax and sent the levy notice when you were in bankruptcy and subject to the automatic stay during bankruptcy,

  • The IRS made a procedural error in an assessment,

  • The time to collect the tax (called the statute of limitations) expired before the IRS sent the levy notice,

  • You did not have an opportunity to dispute the assessed liability,

  • You wish to discuss the collection options, or

  • You wish to make a spousal defense.

At the conclusion of your hearing, the Office of Appeals will issue a determination. You will have 30 days after the determination date to bring a suit to contest the determination. Refer to IRS Publication 1660, Collection Appeal Rights, for more information. If your property is levied or seized, contact the employee who took the action. You also may ask the manager to review your case. If the matter is still unresolved, the manager can explain your rights to appeal with the Office of Appeals.

Levying Your Wages, Federal Payments, State Refunds or Your Bank Account

  • Wage Levies - If the IRS levies your wages, salary or federal payments, the levy will end when:
    o The levy is released,
    o You pay your tax debt, or
    o The time expires for legally collecting the tax. Generally, under IRC sec 502, the statute of limitations is within 10 years after the assessment tax. It can be longer in certain circumstances. This is a complicated area where you may need professional assistance.

  • Bank Account Levies - If the IRS levies your bank account, your bank must hold funds you have on deposit, up to the amount you owe, for 21 days. This holding period allows time to resolve any issues about account ownership. After 21 days, the bank must send the money plus interest, if it applies, to the IRS. To discuss your case, you should call the IRS employee whose name is shown on the Notice of Levy.

  • Property Liens - Once the due process requirements are met, a lien is created for the amount of your tax debt. By filing notice of this lien, your creditors are publicly notified that the IRS had a claim against all your property, including property you acquire after the lien is filed. This notice is used by courts to establish priority in certain situations, such as bankruptcy proceedings or sales of real estate. The lien attaches to all your property (such as your house or car) and to all your rights to property (such as your accounts receivable, if you are a business). Caution - Once a lien is filed, your credit rating may be harmed. You may not be able to get a loan to buy a house or a car, get a new credit card or sign a lease. Therefore, it is important that you work to resolve your tax liability as quickly as possible, before lien filing becomes necessary.

  • Property Exempt From Seizure - By law, some properties cannot be levied or seized. The IRS may not seize any of your property unless they have determined that the IRS expects there to be net proceeds to apply to the liability. In addition, they may not seize or levy your property on the day you attend a collection interview because of a summons. Other items that the IRS may not levy or seize include:
    o School books and certain clothing,
    o Fuel, provisions, furniture, and personal effects for a household totaling $8,230,*
    o Books and tools you use in your trade, business, or profession totaling $4,120,*
    o Unemployment benefits,
    o Undelivered mail,
    o Certain annuity and pension benefits,
    o Certain service-connected disability payments,
    o Workmen's compensation,
    o Salary, wages, or income included in a judgment for court-ordered child support payments,
    o Certain public assistance payments, or
    o A minimum weekly exemption for wages, salary, and other income. Use Publication 1494 to determine the amount exempt from Levy.

    *These amounts are indexed annually for inflation (amounts shown are for calendar year 2010).

Releasing a Lien The IRS will issue a Release of the Notice of Federal Tax Lien:

  • Within 30 days after you satisfy the tax due (including interest and other additions) by paying the debt or by having it adjusted, or

  • Within 30 days after they accept a bond that you submit, guaranteeing payment of the debt.

In addition, you must pay all fees that a state or other jurisdiction charges to file and release the lien. These fees will be added to the amount you owe. Refer to IRS Publication 1450, Request for Release of Federal Tax Lien. Usually 10 years after a tax is assessed, a lien releases automatically if the IRS has not filed it again. If the IRS knowingly or negligently did not release a Notice of Federal Tax Lien when it should be released, you may sue the federal government, but not IRS employees, for damages.

Applying for a Discharge of a Federal Tax Lien
- If you are giving up ownership of property, such as when you sell your home, you may apply for a Certificate of Discharge. Each application for a discharge of a tax lien releases the effects of the lien against one piece of property. Note that when certain conditions exist, a third party may also request a Certificate of Discharge. If you are selling your primary residence, you may apply for a taxpayer relocation expense allowance. Certain conditions and limitations apply. Refer to Publication 783, Instructions on How to Apply for a Certificate of Discharge of Property from the Federal Tax Lien.