Tax Levy Meaning | What is a Tax Levy?

May 31, 2022 by Steve Banner, EA, MBA
gavel, money, seized house

For many of us, when we hear the word “levy,” our mind immediately takes us to the dreamy musical days of the 1950s when a carefree teenager drove his “Chevy to the levee” and thought about things like dancing in his high school gym. But even though they sound the same, Don McLean’s levee in his classic hit “American Pie” is very different than the levy the IRS is talking about when they send you a tax bill. And if you’re not careful, the lyrics in the chorus of your own personal song could include the phrase “lost my Chevy to a levy.” Please allow me to explain.

According to the IRS’ definition, a levy is a legal seizure of your property to satisfy a tax debt. In other words, if you owe money to the IRS to pay taxes and have not been able to pay or make other arrangements, the IRS has the legal right to seize some of your possessions. As you can see by now, a tax levy can be a very serious matter for those who are faced with one.

But tax levies are not issued lightly or at random by the IRS. Instead, certain conditions must be met before a tax levy can be enforced:

 

  1. The IRS must have assessed a tax deficiency and sent you a Notice and Demand for Payment.
  2. You either neglected to pay the tax or refused to do so.
  3. The IRS sent a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days before the levy is scheduled to take effect.
  4. If the IRS is going to contact third parties to collect or determine your ability to pay the tax due, the IRS must provide you with a Notice of Third-Party Contact beforehand.

If the IRS decides to enforce a levy against you to satisfy your tax debt, it can seize any property or right to property you own or have in which you have an interest. This means that the IRS could levy property that is yours but is being held by someone else. For example, this could include your wages, retirement accounts, dividends, bank accounts, rental income, accounts receivables, and the cash loan value of your life insurance. In addition, the IRS could seize and sell property that you do actually hold. For example, your car, boat, house, or classic record collection from the 1970s.

Now for some good news - if you find yourself facing the unpleasant prospect of a tax levy, you do have some options to prevent the above worst-case scenario from happening. The tax code allows you to request a Collection Due Process (CDP) hearing with the Office of Appeals, which you would do by filing a request for a hearing with the office listed on the notice. But you must file the CDP request within 30 days of the date listed on the notice. Under most circumstances, requesting a CDP hearing will suspend the levy actions while the hearing is pending. If the IRS believes the ability to collect the tax is in jeopardy (for example, the taxpayer is leaving the country for an indefinite period of time), the IRS may bypass the suspension and proceed with the levy action.

But rather than navigate the difficult landscape of the tax law on your own, you can contact TaxAudit’s Tax Debt Relief Services for a free, no-obligation review of your tax situation. Our experienced tax professionals will discuss your situation with you and advise you on your options for resolving your tax debt. This short video features one of our tax attorneys as he describes tax levies in more detail and outlines the alternatives available to taxpayers in this situation.


With your tax situation now under control, just think how good it will feel cruising in your Chevy with the radio at full blast on the oldies station!

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Steve Banner, EA, MBA
Tax Content Developer

 

Steve Banner began his career in the field of income tax in 1977 and has since gathered business experience in a variety of countries and cultures. In addition to the United States, he has lived and worked for extended periods in Australia, Saudi Arabia, Canada, and Sweden. Along the way he studied Adult Education and earned a Bachelor of Education, Master of Educational Administration, and MBA. He joined TaxAudit in 2016, where he is a Tax Content Developer.


 

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