The IRS Tax Levy

Definition of IRS Levy

An IRS levy is where taxpayer property is brought into the legal custody of the IRS through seizure, a levy being an absolute legal appropriation of the property being levied upon. See Freeman v. Mayer, 152 F.Supp. 383, 385 (1957). When the IRS lawfully institutes a levy it may “seize and sell such property or rights to property.” See IRC §6331(b). The IRS levy can result in the loss of bank accounts, wages, vehicles, insurance payments, gifts, or any other non-exempt asset.

Procedural Requirements the IRS must follow before Issuing a Levy

The IRS must send the taxpayer a notice (typically this is done by certified mail) no less than 30 days before issuing a levy. The notice must inform the taxpayer of the amount of tax owed, the right to request a hearing, the procedures applicable to a levy and sale, the taxpayer’s administrative appeal rights, and alternative measures that could be taken to avoid a levy and sale.

Why would a Third Parties (such as a bank) Comply With an IRS Levy?

If any person who receives an IRS levy requiring that they transfer a taxpayer’s property that they are holding over to the IRS refuses to surrender such property, they are liable to the Treasury for the amount not surrendered, plus a 50% penalty. See IRC §6332(d). Further, if the person who receives the IRS levy honors it and transfer’s the taxpayer’s property to the Treasury, they are discharged from any obligation or liability to the taxpayer or any other person with respect to the property transferred. See IRC §6332(e). In general, when the IRS issues a levy to a third party they must immediately transfer the property to the IRS, except a bank, which is required to wait 21 days before transferring the property. See IRC §6332(a) & (c).

Property that is Exempt from an IRS Levy

The Following Property is exempt, absent a Judge approving a tax levy:

Collection Due Process Hearing

If a taxpayer receives a notice of intent to levy from the IRS, they may request a collection due process hearing ("CDP hearing").  During a CDP hearing a taxpayer is entitled to raise the following issues:

A CDP hearing suspends the statute of limitations on collections, so it allows the IRS to continue to pursue collections beyond the traditional 10 years. See IRC §6320(c). If a taxpayer receives a negative determination from a CDP hearing they have the right to petition the tax court for review. The taxpayer has 30 days after the determination to petition the tax court.

Equivalent Hearing

A taxpayer has one year from the date of the levy notice to request an equivalent hearing.   This hearing is similar in nature to a CDP hearing, except that the statute of limitations is not suspended and the taxpayer has no right to petition the tax court for review.