Tax Levy- IRS and NYS What they are and how the effect you.

Typically, when you owe a creditor, such as a credit card company, and you have an unpaid balance they would have to go to court and get a judgement against you before they could take steps to take your assets to pay the unpaid balance. Unfortunately, this same legal mechanism is not in place for tax debts owed to the IRS and the States. A tax lexy is a tax collection tool available to the IRS and the States where there is an unpaid tax balance owed, but it does not require court intervention. Technically, a tax levy is a seizure of your assets to pay back taxes owed. The tax levy is difference from a tax lien (or tax warrant), which does not require the taking the assets, but is a lien against your property (for instance your home), similar to how a bank would have mortgage against your property for the balance you owe to the bank. However, a tax lien will affect your FICO score in a very substantial negative way, so it is not harmless.

a1-300x300Before your assets can be seized by the IRS, typically you have been given a fair amount of warning that a tax issue exists. The first step is that the IRS will assess the taxes, either from a tax return you filed, or if you did not file a tax return they would prepare a substitute tax return for you. They will then send you a tax bill and demand payment. They will usually send out three bills, over a 90 day time period. If that tax bill is not paid, your account will go into collections and they will issue a CP504 letter (notice of intent to levy). Even at this stage, the IRS is not levying your assets. If the CP504 letter is not responded to, then they issue a CP90 Notice, that is also known as a Notice of Levy. If that demand letter is not responded to, they have a right to levy and take your assets.

The assets that the IRS and States most likley to levy are wages, bank accounts, physical assets, social security, accounts receivable, and vehicles. From a collection perspective, the IRS will use the levy mechanism that will produce the quickest and easiest method to get your assets to pay off the tax debt. For wage garnishments, they would notify your employer of the tax debt, and under the law in most cases can receive a substantial amount of your salary, often leaving the taxpayer with not enough money to pay their bills.   For bank levies, the IRS contacts your financial institution and tell them to put a 21 day hold on your account. The hope is that during those 21 days an alternate payment mechanism can be worked out with the IRS, such as a payment plan. If that does not happen, at the end of the 21 days they take the assets in the  account to pay the balance owed. For assets seizures (cars, motorcycles, boats) the IRS can just seize them and sell the asset to pay down the debt.

There are methods to stopping a levy, such as showing hardship, filing an offer in compromise, requesting a payment plan, or filing an appeal. Its always best to act quickly to resolve a potential levy issue, and get the proper tax help as needed.

 

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