IRS Tax Levy, Lien or Garnishment? A complete Roundup of IRS Collections

These terms exemplify the effort that the IRS takes to exert its leverage over taxpayers who owe them money or have unfiled returns. As such, each collection action is increasing severe in nature. While the best option would be to avoid these activities altogether, there are mechanisms to overcoming each of these situations should they be taken against you. If you need help with an IRS levy, garnishment or lien please call (877) 829-8370 to schedule a no-cost consultation.

“Levies and garnishments while effective, are not done with the intent to collect the full balance of unpaid taxes. Rather, these methods are used as effective calls to action.”

– Tax Resolution Institute: Do It Yourself Kit

What is a Wage Levy?

An IRS wage levy, also referred to as a “wage garnishment”, is what occurs when a taxpayer refuses to respond to notices of tax due. This type of collection action typically follows a bank levy but may occur first. In this case, the IRS requires that your employer withhold a portion of each paycheck and remit that amount to them until your unpaid balance including penalties and interest is paid in full. The amount the IRS may withhold can be the total of your paycheck less minimum wage.

If the IRS levies (seizes) your wages, part of your wages will be sent to the IRS each pay period until:

The amount of overdue taxes you owe is paid in full, or
The levy is released because you make other arrangements which may include an installment agreement or placement into currently not-collectible status
We have included some helpful scenarios from the IRS website that relates to wage levies:

Part of your wages may be exempt from the levy and the exempt amount will be paid to you. The exempt amount is based on the standard deduction and the number of personal exemptions you are allowed. The IRS mails Publication 1494 (PDF) with the levy which explains to your employer how to determine the amount exempt from levy. Your employer will provide you with a Statement of Exemptions and Filing Status to complete and return within three days. If you do not return the statement in three days, your exempt amount is figured as if you are married filing separately with one exemption. If you have other income sources, the IRS may allocate the exemptions to the other income source and levy on 100% of the income from a particular employer.

I am scheduled to receive a bonus separately from my paycheck. Is the bonus payment entitled to the same exemptions as the regular wage payment? Or, does the entire bonus get sent to the IRS because the exempt amount was already paid to me for that pay period?

The IRS would receive the entire bonus since the exempt amount is based on the time-period that your wages and bonus are paid. For wage levy purposes, the term salary or wages includes compensation for services paid in the form of fees, commissions, bonuses and similar items.

I pay child support directly to my ex-spouse and not through my employer. How can I get this amount exempted from the levy so I can continue to make the payments?

If your employer did not include child support in your exempt amount, you should contact the IRS at the phone number listed on the Form 668-W(c)(DO) & Form 668-W(ICS). The IRS will release from levy the amount you need to pay court ordered child support that the court ordered before the levy was received by your employer. If support is allowed, the same child cannot be claimed as an exemption for figuring the exempt amount.

If your wages have been levied by the IRS, act quickly by calling us (877) 827-8370 to schedule your free consultation. We have 30+ year’s experience stopping wage levies.

Source: www.irs.gov Information About Wage Levies

IRS Tax Levy Process:

Whether you are in the midst of a collection action or just worried about it, this information may help:

• The IRS assesses the amount of tax you owe, and subsequently sends you a Notice and Demand for Payment also known as a “tax bill”;
• You ignore it (put it in a stack of mail or throw it away), refuse to pay or were unable to pay at that time; then,
• The IRS sends you a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days prior to taking collection action. You may receive this notice in person, it may be left at your home, it may be left at your usual place of business, or it may be sent to your last known address by certified or registered mail (return receipt requested).
• If the IRS intends to levy your State tax refund, you may receive a Notice of Levy on your State Tax Refund Notice, Notice of Your Right to a Hearing after the levy.

When will the IRS issue a levy?

If you do not pay your taxes, or make arrangements to settle your tax debt, and the IRS determines that a levy is the next appropriate action, they may levy any property or right to property you own or have an interest in. For instance, the IRS could 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). The IRS may also seize and sell property that you hold (such as your car, boat or house).

***NOTE: an IRS bank levy is sometimes mistakenly referred to as a “bank garnishment”. This is never the case because, unlike a garnishment that occurs repeatedly over time, a levy is a one-time event. That does not mean that the IRS would be precluded from issuing another levy in the future.

Be warned that if you are collectable, no stone will be left unturned in the pursuit of your tax debt.

Source: www.irs.gov Information About Wage Levies

Notice of Levy:

You will receive an office Notice of Levy from the IRS, your State taxing agency or both assuming they have been given permission by a court to take money out of your bank or wages in order to satisfy a tax debt that you owe. There are two possible documents that you may receive from the IRS, as follows:

1. Final Notice of Intent to Levy
2. Notice of Your Right to a Hearing

The amount of a wage levy based on the amount the IRS determines you are able to pay, while a bank levy will freeze all of the money you hold in your account/s (up to the amount owed) and will be remitted to the taxing agency after a certain period of time (21 days for the IRS).

Release of Levy:

The process to release a levy is complex but the principles are clearly laid out on by IRS as follows:

1. Contact the IRS immediately to resolve your tax liability and request a levy release
2. If you can prove an economic hardship the IRS may give you an immediate release
3. If your request for a levy release is denied you may appeal the decision
4. You may even appeal BEFORE the IRS places a levy on your wages, bank account, or other property
5. You can also appeal the denial by the IRS of your request to have levied property returned to  you
6. For a complete explanation of your appeal rights see Form 1660, Collection Appeal Rights

Here are a few things to keep in mind regarding the process of releasing a levy:

1. The bank or employer will need to have a physical copy of the release in order to stop it
2. You should have the fax number of the bank or payroll department prior to contacting the taxing agency
3. Be sure to save a backup copy of the release not only for your records, but to resend if the taxing agency fails to do so.

Intent to Levy:

Here is what we do at the Tax Resolution Institute when you notify us the your have been levied by the IRS or State:

1. We send you a letter of engagement that sets forth the services we will provide
2. We obtain a Power of Attorney from you so that we may represent you before the taxing agencies.  This allows us to get a COMPLETE picture of your tax issues.
3. For the IRS, this is done by faxing your full executed form to the CAF Unit based upon where you reside. This allows us to gather ALL of your records electronically. This crucial step allows us to find information that even you do not know about your case.
4. In order to properly resolve your issue, We MUST KNOW the full extent your case including knowing if there are unfiled returns. Other than unusual circumstances, the IRS will not release levied funds if the taxpayer is not in compliance which includes filing all returns.  
5. Streamlined installment agreement (SIA): is the simplest solution with the lowest cost to the taxpayer in terms of professional fees. While attractive at first glance, a streamlined installment agreement is often an unrealistic solution as the payment amounts are often unaffordable. For instance, on a debt of $50,000.00 the taxpayer would need to over 60 months, a monthly payment of approximately $700. If a payment is missed, the installment agreement will be terminated, and garnishments and levies will commence.
   
   In the past, IRS streamlined installment agreements were only allowed from liabilities of $50,000 or less.  The IRS has recently increased the term to pay from 5 years (60 months) to 7 years (84 months), and increased the liability amount to $100,000.00.
6. Claiming hardship: making monthly payments based upon your ability to pay and not the amount you owe.
7. Currently-Not-Collectible (CNC) status: using the hardship principle above, showing that you do not have the ability to make any payment.  This classification is temporary.
8. Bankruptcy: some taxes are dischargeable in bankruptcy.  Others are not.  We determine if your taxes may be discharged and if so, has sufficient time passed to do so.  We help you determine if waiting the prescribed time outweighs the benefit of filing sooner.
9. Running out the statute of limitations: if you qualify for a hardship, you may be able to pay less than the amount you owe.  The IRS can “actively” collect for 10 years from the date taxes are assessed.  If the 10-year period passes, the IRS will not “actively” collection.  You should understand that this does not preclude the IRS from acting upon an active lien and/or renewing said lien.
10. Offer in Compromise: the IRS allows taxpayers to compromise the amount they owe based upon their inability to pay.  The amount to offer is based upon the taxpayer’s quick sale value of assets plus 12 or 24 (there are two payment options) times their disposable income.  Most often a taxpayer will choose the lump-sum option in which they remit 20% of the offer with the application and pay the balance over 5 months once the offer has been accepted.

In order to claim hardship or submit an offer, you need to complete a form similar to a loan application. The form number for both installment agreements and offers is 433 (433-A, 433-F, 433-B, 433-A OIC and 433-B OIC) the information included in the form should be current, span over 3-months 12-months or 24-months and you must provide proof of income, expenses and payments via bank statements, invoices, pay stubs etc.

Other possible outcomes:

1. Kindness on the part of the IRS: this option occurs rarely and should not be your main or only course of action.
2. The IRS makes a mistake: this too happens infrequently and proving the mistake to the IRS may not be an easy sell.  Again you should have several courses of actions to remedy your situation.
3. Release of Lien still owing tax: if you beat out the statute of limitations on collection, you may still have an outstanding tax lien.  If you have little to no value in your assets, you may be able to get the lien released.  

IRS Liens

Here is how the IRS defines a tax lien:

“A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets.”

So you understand, here are the steps the IRS takes to file a lien:

1. The IRS assesses your tax liability
2. Assuming you don’t pay, the IRS sends you a bill that explains how much you owe
3. Assuming you still do not pay, the IRS will file a lien along with a Notice of Federal Tax Lien (NFTL – this document is available to the public).  The NFTL alerts creditors that the IRS has a legal right to your property.  This can become a problem to businesses that borrow money because in some instances, the IRS’s lien becomes senior.

If you want to research liens further, you can use this link to visit the IRS website. If you prefer to use professional help, please call us at (877) 829-8370 or use our handy web submission form.

Can I handle my issue myself?

The material that appears below is from a booklet we created to help people who have small scale tax problems (ie. liability amounts below $10,000.00). The booklet is called “The Tax Resolution Do It Yourself Kit”. While it contains a wealth of information, it should by no means be considered complete professional advice or the substitute for years of professional training and experience.

Bank Levies/Wage Garnishments

There a good chance that you are reading this booklet because a taxing agency has either levied your bank account, garnished your wages, or served a 3rd-party levy on vendors that owe you money.

Levies and garnishments while effective, are not done with the intent to collect unpaid taxes in full. Rather, these methods are used as effective calls to action.

A bank levy is accomplished by freezing the available funds in one’s bank account or accounts. After a waiting period (21 days for the IRS), the funds will be remitted to the taxing agency unless the taxpayer can (1) prove they do not owe the money, (2) prove they qualify for hardship status or (3) in some instances enter into an alternative agreement to pay. Keep in mind that upon levy, the money is tied up and is for all intents and purposes in the taxing agency’s “court”. We say, “whoever has the money…wins”.

Simply asking for the money back rarely works. A bank levy is a one-time occurrence but new levies can recur indefinitely. If the IRS is successful in getting funds from a levy, they will most likely do it more than once. For this reason, people either work to resolve their tax matters or attempt to make themselves “levy-proof” by living off the grid. As you may guess, the second alternative is not easy to do and rarely makes sense.

Unlike a bank levy, a wage garnishment is not a one-time event. A wage garnishment is served on one’s employer and requires that the employer withhold and remit funds to the taxing agencies for back taxes. The amount of garnishment may vary, but the IRS has the ability to collect everything someone earns beyond minimum wage. Again, a garnishment is not done to put someone in an impossible situation but rather to “wake them up” so that they may negotiate a more reasonable solution.

3rd party levies are served upon clients and others that pay non-employees. Typically, these levies apply to self-employed individuals. A third-party levy is the most burdensome in that the payor is required to remit to the taxing agency, 100% of the amount they owe the delinquent taxpayer until the tax debt is paid in full. Like the other collection tools, this is used to force the taxpayer into addressing their problem and not to collect the entire debt.

In each case referenced above, you are better off entering into a manageable agreement, rather than worrying about active collection or even worse, waking up one day to find out your money has been taken.

It takes years of experience to be able to negotiate releases of garnishments and levies. For this reason, we recommend you preemptively address your tax matters.

If by chance that ship has sailed, you can always contact the taxing agencies to request a release. Below is a list of points to consider when doing so

Things to Consider When Requesting a Levy/Garnishment Release

1. Don’t just ask for your money back.  Provide valid reason/s why you need it.  It is important to be specific here.  You should list specific expenses that are due very soon and that you will not be able to pay if your funds are compromised.
2. The most effective reason to request a release is hardship.  If you can prove that you are unable to pay your necessary and reasonable expenses, you may be able to have some or all of your funds returned to you
3. If possible try and calculate a reason installment agreement amount (see Installment Agreements below) and have backup to support your number.  If you can enter into an agreement, sometimes you can also obtain a release
4. Have contact information of the person, bank or business on which the levy/garnishment was served.  Before you contact the IRS, you should have a fax number of the person or department that process the levy/garnishment.  If the taxing authorities agree to issue a release, they will ask you where to send it.  If you do not have this information ready, you may need to call back risking the chance of speaking with someone different that changes their mind about issuing the release
5. Request that a 2nd copy of the release be sent to you directly.  If you are successful in request a release, you should follow up with the person or department to which the levy/garnishment was served to verify (1) they received the release and (2) that they are not going to remit funds to the tax agencies.  If by chance they have not received the release, you can fax them a copy yourself assuming you have a one.
6. Don’t wait until the last minute.  It often takes more than one call to have a levy or garnishment released.  If the IRS requires documentation you don’t have ready, you may have blown your chance if the funds are to be remitted in a day or two.  Remember you only have 21 days for the IRS and sometimes less for your State to request that a levy be released.

IRS Garnishment:

An IRS Garnishment is an effort to attach the wages of a taxpayer who has been unwilling or unable to pay their assessed tax bill. The term “IRS Garnishment” is actually a misnomer as it is more appropriately called a “wage levy” and is the result of the, as we’ve mentioned, either not paying your tax bill or not making arrangements to pay it.

There are, of course, more than one possibility in how these tools will be applied to your case. For instance, the IRS may do a bank levy and yet do no wage. They may do a wage levy and yet no bank levy OR they sometimes both a wage levy AND a bank levy.

The limiting factor is what they are able to recover, to wit, because there is an expense involved in filing the requisite court documents, they are not going to continue to file a levy at court on a $10,000.00 debt if you only have $300.00 in the account, the court expenses do not justify it.

If you do have money in the account you can expect bank levy every 21 – 30 days. One odd limitation of the law is that they can only levy the amount that they find in the account at the time of the levy, eg. if you have a $500.00 balance and the levy your account it MAY BE possible to play Russian Roulette with deposits if say, you suddenly wanted to deposit a $10,000.00 check. This should never be construed as advice.

If you are experiencing an IRS Garnishment please call (818) 704-1443 to schedule your free consultation. We have experience in stopping IRS Garnishment.

While our goal has been to provide you with clarity and a sense of direction with your levy, garnishment or lien situation with the IRS we realize that the course can be daunting. If you have a personal tax problem of $10,000 or more we offer a free consultation. Just call (818) 704-1443 or use our contact form in order to get started.

***NOTE: for more information, you can visit the IRS.gov website at:

https://www.irs.gov/businesses/small-businesses-self-employed/levy