The U.S. government has broad powers to seize assets in order to satisfy any unpaid tax debt. The IRS can issue a tax levy against your wages, salary, and any other income including fees, bonuses, and commissions. This is typically called a wage garnishment. Frequently, the IRS may also attempt to collect an unpaid tax liability by issuing a tax levy against your bank accounts.
However, there are (a few) limitations on these powers to seize assets. The IRS may not seize your personal residence without written approval of a federal district court judge or magistrate. Tangible personal property or real property used in your trade or business (tools of your trade) may not be seized without written approval of an IRS district or assistant director.
Furthermore, there is some property that is exempt from a tax levy:
- Clothing and school books
- Fuel, food, medicine, furniture, and personal effects, up to a certain dollar limit
- Unemployment benefits
- Books and tools of a trade, business, or profession, up to a certain dollar limit
- Undelivered mail
- Certain annuity and pension payments
- Workers’ compensation insurance benefits
- Judgments for support of minor children
It is important to understand how tax levies operate. For example: A levy on wages or salary is a continuous levy. Future paychecks are automatically attached until the levy is satisfied or released. A levy against a bank account is a one-time event. The IRS must issue a new levy to seize assets from that bank a second time. The bank account levy attaches to any funds in your bank account at the time the tax levy is received. Once your bank receives a notice of levy, the bank is required to freeze the amount of the levy in your account(s) as of that day. The bank will pay the funds to the IRS after 21 calendar days. This 21 day waiting period provides you with an opportunity to work with IRS to correct any errors in the levy or to negotiate a full or partial release of the funds.
The IRS will generally release a tax levy if:
- The underlying tax debt is satisfied or becomes unenforceable due to a lapse of time
- Release would facilitate collection of the tax debt
- An installment payment agreement has been established
- The tax levy is creating a financial hardship
- The fair market value of the levied property exceeds the liability, and the partial release of the levy will would not hinder collection of the tax.
Please contact us for more information on garnishments or levies. There is no charge for an initial consultation. Whether you choose a face to face meeting at our office or a telephone consultation, you will speak directly with an experienced CPA who will provide you with a free, confidential consultation.
While our office is located in the Dallas metro area we serve clients in almost all 50 states and have clients located in many areas around the world. All aspects of tax representation can be handled easily via phone, fax, mail and e-mail.