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IRS Levy Types
What All Can IRS Levy?
Just about anything that is a source of cash.
► Checking account
► Savings account
► Minor kids' accounts
► Certificate of Deposit
► Social Security
► Military Retirement
► Any retirement account
► Brokerage accounts
► Any W-2 income source
► Any 1099 income source
► Rental income
► Accounts receivable
► Commission income
► State tax refunds
► Anything that smells like $
As long as there are multiple sources of cash available, IRS will have multiple types of levies. Count on it. It's a fact of life.
Wage Levy This is the favorite collection method of IRS
Most people who owe back taxes still have a job of some sort.
That job is an easy source of revenue for the IRS. It's a favorite way to get the attention of someone who has been ignoring all those letters.
And IRS uses it quite effectively.
It's fairly easy for IRS to find your employer. Most of the time, all they have to do is look at your W-2 from last year since you probably haven't witched jobs. In fact, IRS will typically send levy notices to anyone you worked for in the last three to five years.
IRS will also have record of everyone who paid you as a contractor or subcontractor or consultant or any other type of self-employed worker. Most (but not all) self-employed individuals receive at least one form 1099 for each tax year.
The IRS computer system cross-references employers and their employees by matching the Federal ID Number of the employer to the Social Security Number of the employee. This makes it quite simple for them to verify the income you report on your tax return every year. They want to make sure that the income you reported on your tax return is at least as much as the total of all the W-2s and 1099s they received from everyone who paid you for your work.
If you've changed jobs recently or perhaps started a second job that you didn't have last year, then chances are that IRS won't know about it until May or June of the following year when they've processed all of the W-2s and 1099s sent to them by employers and other payers. Those W-2s and 1099s are usually given to you and sent in to the government in January so that you can use them to prepare your tax return at 10:00 p.m. on April 15th and then drive around town like a complete idiot trying to find the one lonely Post Office way over on the other side of town (or in the third town to the east, or is that the west, gee I wish I'd written down the address like my wife told me to do) that is staying open until midnight for the "convenience of the taxpayers."
Once IRS is successful in finding a good levy source, their levy will will stay active until the underlying tax is completely paid or some other agreement is made and they send your employer that elusive Release of Levy form.
IRS cannot take all of your paycheck for wages, but they often take 80% to 85% of our clients' take-home pay.
If the payment source treats the taxpayer like a self-employed person and doesn't deduct any payroll taxes from the check, then the payer is technically required to withhold all payments to the taxpayer until the total amount of the levy has been sent to IRS. Again, an agreement can be reached with IRS and they can issue a Release of Levy, but only when all of their requirements have been met.
Bank Levy But only under certain circumstances
If IRS knows where your bank account is located, or if you or anyone else tells them where it is, they can also levy your bank account and take whatever money is in the bank.
It doesn't matter whose money it is, either. As long as your Social Security Number is attached to the account, the bank is required to hold the money for IRS.
By law, the bank must hold the funds for 21 days before sending them to IRS. This holding period gives you time to try to get IRS to "let you have it back." In all sincerity, even with our years of experience and knowledge of the IRS System, we find it extremely more difficult to get an IRS Bank Levy Release than it is to get an IRS Wage Levy Release.
Well, keep in mind that IRS must follow those two little rules we keep mentioning about ordinary and necessary expenses and undue economic hardship. IRS has its own precise definitions of these terms and those definitions tend to favor You Know Who.
The Official IRS Opinion is this:
Any money you have laying around in a bank account is extra money that you don't need for ordinary and necessary expenses. Otherwise, you'd have already spent it on those expenses if they were so ordinary and necessary. In spite of the fact that you may have $1,000 in outstanding checks that are going to bounce; regardless of the fact that you really do need to go to the supermarket as usual on Tuesday; so what if today is the 16th and your paycheck was just deposited yesterday and they got all your money; too bad that your 1973 Plymouth is in the shop and it's going to cost you $1,250 to replace the radiator and the fuel pump and 8-track player. That's extra money just sitting right there in your bank account and it isn't ordinary and necessary or you would have already ordinarily and necessarily spent it!
IRS says that in order for them to give you any of that money back ......... they want to see an eviction notice or some utility shut-off notices. We're not making this stuff up, either.
For some unknown reason, IRS simply considers money in the bank as unnecessary. IRS reps on the phone invariably tell us, "well, you know we won't give you a Bank Levy Release." However, our experience has been that we can get an IRS Bank Levy Release from them, but only after a lot of hard work, and definitely not in every case.
If you ask us to negotiate an Installment Agreement for you and you don't need any other type of service, our fee for successfully negotiating with IRS for you will be $995, regardless of the amount of time it takes us to finalize the agreement with IRS. Flat rate.
But remember that most of our clients need more than just an IA by itself.
What Kind of Notification Do They Have To Give You Before ...... ?
IRS must follow specific rules and regulations before they can take your cash.
Even though a lot of people say they were never contacted by IRS before their money disappeared, we find that IRS always follows the Levy Rules.
IRS will usually levy only after these three requirements are met:
They assessed the tax and sent you a Notice and Demand for Payment;
You neglected or refused to pay the tax; and
They 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. They 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, return receipt requested.
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