The IRS can use a levy when a taxpayer does not respond to payment requests following the assessment of a tax balance. The IRS may levy an individual’s wages, bank accounts, Social Security benefits, and retirement income to satisfy a tax debt. Also, they can sell seized property such as a car, boat, or real estate. In 2012, the IRS issued around 3 million levies.
The process of the levy begins with a notice sent from the IRS. The taxpayer will receive the following information:
- Notice and demand for payment
- Final notice of the intent to levy: CP 90/CP 297 – Notice of Intent to Levy and Notice of Your Right to a Hearing
The IRS sends five letters to initiate the collection process. These automated five letters may include CP14, CP501, CP503, CP504, and L1058/LT11. If these letters remain unanswered and no satisfactory efforts are made to resolve the debt, the IRS can initiate a levy. This may include garnishment of wages, and confiscation of funds in bank accounts, retirement accounts, etc.
You can disagree with the IRS’ estimate of your tax liability or their claim that you owe back taxes at all. You must have sufficient documentation to prove the IRS is in error. If the information the IRS has is accurate, the only other solution is to pay the back taxes. You can pay a tax debt in monthly installments or possibly get a reduction agreement if you are experiencing a hardship. The IRS will consider your financial condition, including income from all sources and assets, when determining the validity of your hardship.
If you cannot pay any amount due to hardship, you may qualify for the status of Currently Not Collectible. This means that you cannot presently pay any amount of back taxes. Obtaining this status halts all collection action until your financial condition improves.
If you want more time to reach an agreement with the IRS, you can request an extension. This will allow you up to 120 days to pay off your back taxes.
If you have unpaid taxes, the IRS will apply your future tax refunds to your back taxes. Therefore, you are not eligible to receive any refunds until your tax debt is paid in full.