2 Common Yet Different IRS Collection Methods

When one thinks about how the IRS attempts to collect back taxes, 2 usual methods spring to mind. An IRS levy and an IRS tax lein. Many have confused these as being the same, but, actually, they aren't. An IRS tax levy is a seizure of personal assets to pay a tax debt. However, a tax lien safeguards and secures the government's interest in a property as well as any legal rights to property. A tax lien will not actually seize the property. Usually, it goes in to effect when the property is sold. The IRS has rights to the proceeds at the time of the sale. However an IRS levy in fact seizes personal property. Prior to the IRS levying, normally 3 specifications must be met: 1. The tax has been assessed by the IRS and a Notice of Demand for Payment has been sent. 2. The tax payer has ignored or simply declined to pay the tax debt. 3. The IRS sent a Final Notice of Intent to Levy and Notice of Your Right Hearing a minimum of 30 days before the tax levy. The IRS may place it at a residence, a place of business or send it to the last known address that the IRS has on record. There are four typical types of tax levy sources for the IRS: 1. Bank Accounts: When the IRS removes money directly from your bank accounts. One usually will not know of it until it has actually happened. The bank must freeze funds up to the amount owed on the same day the levy is received. After 21 days if the levy has not been removed, the bank must send the funds to the IRS. 2. Wage Levy: Is sent to the employer and mandates the they withhold a certain percentage of the taxpayer's paycheck. Up to 85% of a paycheck may be levied by the IRS. The government may also levy Social Security Payment 3. Third party accounts: This kind of tax levy would consist of retirement accounts, stock accounts, 1099 sources and essentially any source of income or assets with a few exceptions. 4. Assets: Because this is typically difficult for the IRS to do, it is the least common type of IRS levy. This would consist of cars, residences, boats or basically any other form of asset. There is also a difference between a continual tax levy and a onetime levy. A continuous levy wouldconsist of wages, social security and other types of income. A one time levy would include 1099 income and a bank levy. The IRS may only take the amount in the account or the amount due the independent contractor the day the IRS levy was issued. This does not hinder the IRS from levying once more. Techniques to stop IRS levy proceedings: An IRS tax levy will continue until the tax debt is paid, the statute of limitations runs out, or other arrangements are made, which can include an Installment Agreement, getting the account placed in Section 53 or a hardship, or having an Offer in Compromise accepted. Additionally, hiring a tax professional with experience in working with the collection department of the IRS will ensure that the tax laws are worked to the tax payer’s benefit. An knowledgeable tax representative will also know how to resolve tax debts and the quickest way to stop IRS levy activity based on the tax payer's specific situation.