An IRS tax levy can be a severe financial setback, as it allows the Internal Revenue Service (IRS) to legally seize your property or assets to cover unpaid tax debts. However, taxpayers have rights, and there are steps you can take to address and potentially release an IRS tax levy. In this article, we’ll delve into the important aspects of releasing an IRS tax levy, including what a levy entails, the consequences of ignoring it, and the steps you need to follow for a potential release.
What is an IRS Tax Levy?
An IRS tax levy is a legal seizure of your property or assets to satisfy a tax debt. It’s one of the collection tools that the IRS can use when taxpayers fail to address their outstanding tax liabilities. The levy can target various types of assets, including bank accounts, wages, retirement accounts, real estate, and personal property.
It’s crucial to understand that an IRS tax levy is a serious matter and should not be ignored. Ignoring a levy can lead to the loss of assets, significant financial consequences, and even legal action by the IRS.
Consequences of an IRS Tax Levy
Before we discuss the process of releasing an IRS tax levy, let’s explore the potential consequences of having a levy in place:
- Bank Levy: If the IRS issues a bank levy, it can freeze your bank accounts and seize the funds to cover your tax debt, including accrued interest and penalties.
- Wage Garnishment: The IRS can initiate a wage garnishment, which means a portion of your wages will be withheld and sent directly to the IRS until your tax debt is paid off.
- Property Seizure: The IRS can seize and sell your real estate or personal property, such as vehicles or valuable assets, to satisfy your tax debt.
- Retirement Account Levy: In some cases, the IRS may levy your retirement accounts, such as 401(k)s or IRAs, to collect unpaid taxes.
- Credit Damage: A tax levy can harm your credit score and make it challenging to obtain credit or loans in the future.
Given these serious consequences, it’s crucial to take immediate action if you receive notice of an impending IRS tax levy.
Steps to Release an IRS Tax Levy
- Communication with the IRS
The first step in releasing an IRS tax levy is to establish communication with the IRS. This can be done by contacting the IRS as soon as you receive a notice of intent to levy or shortly after a levy has been issued.
You can reach out to the IRS using the contact information provided in the notice. Be prepared to discuss your situation and explore potential solutions with a representative. It’s important to be polite, cooperative, and truthful during these conversations.
- Request a Collection Due Process (CDP) Hearing
If you disagree with the IRS’s decision to levy your assets or believe there is a mistake, you have the right to request a Collection Due Process (CDP) hearing. This hearing allows you to present your case to an impartial IRS Appeals Officer.
To request a CDP hearing, you must submit a completed Form 12153, Request for a Collection Due Process or Equivalent Hearing, within 30 days of receiving the IRS notice. The CDP hearing temporarily suspends collection activities, providing you with an opportunity to present your arguments and potentially negotiate a resolution with the IRS.
- Explore Tax Resolution Options
During the CDP hearing or in discussions with the IRS, you can explore various tax resolution options to address your tax debt and potentially release the levy:
- Installment Agreement: You can propose an installment agreement that allows you to pay off your tax debt over time in manageable monthly payments.
- Offer in Compromise (OIC): If you meet specific criteria, you may be eligible for an Offer in Compromise, which allows you to settle your tax debt for less than the total amount owed.
- Currently Not Collectible (CNC) Status: If you are facing financial hardship and cannot afford to pay your tax debt at the moment, the IRS may grant CNC status, temporarily suspending collection efforts.
- Innocent Spouse Relief: If you believe you should not be held responsible for your spouse’s tax debt, you can explore innocent spouse relief options.
- Penalty Abatement: In some cases, you may qualify for penalty abatement if you have a reasonable cause for not filing or paying your taxes on time.
- Provide Supporting Documentation
To support your request for levy release or any of the tax resolution options mentioned above, you will likely need to provide the IRS with documentation to substantiate your claims. These documents may include:
- Financial statements and documentation demonstrating your inability to pay.
- Proof of financial hardship, such as medical bills, unemployment records, or other relevant documents.
- Evidence that the levy was issued in error or that you have corrected the tax issue.
- Supporting documentation for an installment agreement, Offer in Compromise, or other proposed resolutions.
- Attend the CDP Hearing
If you requested a CDP hearing, attend the scheduled hearing with the IRS Appeals Officer. During the hearing, present your case, provide supporting documentation, and explain why you believe the levy should be released or a different resolution should be considered.
The Appeals Officer will evaluate your arguments and documentation and may offer a resolution that both you and the IRS can agree on.
- Consider Legal Representation
Navigating the process of releasing an IRS tax levy can be complex, and it’s often beneficial to seek legal representation from a qualified tax attorney or enrolled agent. A tax professional can advocate on your behalf, help you prepare a strong case, and negotiate with the IRS to achieve the best possible outcome.
- Compliance Moving Forward
Once you have successfully resolved your tax debt issue and the levy has been released, it’s crucial to remain in compliance with your tax obligations. Ensure that you file your tax returns accurately and on time, make any agreed-upon payments promptly, and stay informed about your tax responsibilities.
Conclusion
Releasing an IRS tax levy is a challenging process that requires timely action, effective communication with the IRS, and careful consideration of available tax resolution options. Ignoring a tax levy can lead to severe financial consequences and asset loss. By following the steps outlined above, seeking professional assistance when necessary, and cooperating with the IRS, you can work toward resolving your tax debt issues and achieving a more stable financial future.