How to Stop an IRS Tax Levy

How to Stop an IRS Tax Levy

A tax levy by the IRS can prove fatal to your financial health. The best way to avoid such a situation is to heed their notices and warnings, and co-operate with the IRS authorities to work out a solution. Here, Buzzle has enlisted a few ways in which you can stop an IRS tax levy.

If you do not respond to the final notice sent by the IRS authorities within 30 days, a tax levy will be imposed on you. It is advisable to immediately respond after you receive the first notice.
The IRS (Internal Revenue Service)1 website defines levy as a legal seizure of your property to satisfy a tax debt. It gives them an authority to sell your property or other financial assets that you might own or have an interest in.

1 It is the agency of government, representing the revenue service of the United States.

First and foremost, I would always reiterate the age-old adage that prevention is better than cure. Thus, instead of waiting for the authorities to freeze your assets, why not act responsibly and pay your taxes in time? Nevertheless, financial burdens can erupt at any time, and it may happen that it is not possible for you to pay taxes in time. But why wait till the IRS knocks on your door? Before we tell you the ways to stop an IRS tax levy, let's get acquainted with the forms and rules relating to tax levy.

Forms Relating to IRS Tax Levy

CP504 Notice to indicate that you've not paid the tax liability, and your income-tax refund might be seized due to it.
CP504B Similar to the above, it is a notice to indicate that you've not paid the tax liability, and your property or rights to property might be seized.
CP523 In case you've not paid the installments as per the agreement with the IRS, and violated the agreement, this is a notice of their decision to cancel it.
CP 90 & CP 297 Notice of levy and notice of your right to a hearing.
CP 91 / CP 298 Final notice before levy on Social Security Benefits.
Letter 668D (LP 68) Notice to indicate that taxpayer's levy is released.
Letter 1058(LT 11) Final notice prior to levy; your right to a hearing.
Letter LP 59 Please contact us about the taxpayer levy.

The IRS department is required by statute to take the following steps before ordering a levy.
  1. A letter for Demand of Payment of Tax and Notice is sent to you.
  2. You've not replied to the notice or taken any steps to make payment.
  3. The 'Final Notice prior to levy; your right to a hearing.' letter is sent to you, and 30 days have elapsed after sending the aforesaid letter.

Ways to Stop an IRS Tax Levy
If you do not respond within 30 days of receiving the final notice, the IRS can order a tax levy. They have the authority to seize your assets or sell off your property, or order a bank account garnishment. It's better to escape from this juggernaut, and avoid a tax levy by adopting the following methods.

The most apparent answer
  1. Pay your taxes and other charges in full. Simply pay your dues to the IRS, along with penalty charges, if any. If you do not have funds, you've to use non-institutional sources of money, such as borrowing from relatives or friends. Though this is not a permanent solution as you will still have a liability to pay off. Again not a foolproof method, since you cannot be sure about the availability of such funds. Else, if you've other assets available, sell them off to pay off the liabilities. However, the problem is your asset should be readily marketable and convertible into liquid money, and due to crunch of time, you may end up selling it at lesser costs.
Alternative Actions for Avoiding a Tax Levy

Installment agreements
You can discuss with the IRS authorities and can negotiate some installment agreement to help you pay your taxes with the available funds along with interest and penalty charges applicable.

Offer a Compromise
You can discuss with the officials if they're willing to accept an offer in compromise, which can reduce your tax burden. However, you need to qualify for the 'Offer in Compromise' as per their rules and regulations. Your case will be assessed on the basis of the information furnished by you, and if it is accepted, you can either pay the requisite amount in full or make periodic payments―as per the negotiations between you and the IRS authorities. However, again, this is not a foolproof method, if you do not fulfill their criteria, your compromise amount may be rejected. Again, seeking legal and professional help might better your chances of getting through the procedure, since they're better equipped with the financial knowledge of dealing with such circumstances.

Innocent Spouse Relief
This type of relief is available to those who file joint tax returns with their spouses; however, you need to fulfill the requisite criteria. By applying, you can shift the financial burden of tax payment to your spouse. However, the procedure is lengthy, and you should have fair reasons for availing this relief. Again, it will be helpful to seek legal help in such a situation.

Apply for Hardship Status
You have to immediately contact the IRS and prove to them that such a levy may cause a genuine hardship to you, and you cannot afford to maintain your basic living standards. Again, you've to meet the IRS requirements for applying to get the "Hardship Status'.

If you've already filed for bankruptcy, and the notice was sent to you, you can escape the tax levy.

If you believe you're not guilty of tax evasion
Challenge the tax levy by filing an appeal, if you do not agree with the IRS's claim of tax revenue, and are unwilling to pay it. If the notice has been sent, despite you paying the taxes regularly, or due to any error in calculations on their part, you may discuss with the IRS officials, and take your stand. Needless to say, you need to keep your documentation updated, to provide evidence about your tax payments. Of course, ensure that your stand is correct, you don't want to be under the IRS scanner again for a wrong appeal.

Again a foreword, though, it is advisable to pay your taxes diligently, and any error on your part, plus ignoring IRS warning notices may prove fatal to your financial health. Respond to their notices in time, and contact them immediately if you want to prevent the IRS from taking stringent actions. Of course, seeking appropriate professional help will always benefit; however, ensure you check his/her credentials. This also highlights the importance of keeping your documents and tax papers updated, in case you're innocent. Yet, if you're at fault, collaborate and co-operate with the IRS officials, to save yourself from financial hardships. Remember the old phrase, 'A stitch in time saves nine!'