The Internal Revenue Service (IRS) possesses extensive legal power to take unpaid taxes in the form of levies, liens, and asset seizures, affecting wages, bank accounts, real property, and even Social Security benefits. Although such measures are ultimate enforcement tools, taxpayers have substantial rights to challenge claims and negotiate alternatives before losing property.
Legal structure: Levies vs. liens vs. seizures
A federal tax lien secures the government’s right to claim a taxpayer’s property as collateral for unpaid debt. Recorded on public records, liens alert creditors to the government’s earlier claim but do not convey ownership. If, say, a taxpayer has a home worth $300,000, a lien ensures that the IRS gets proceeds from the sale ahead of other creditors.
A levy permits the IRS to seize property or streams of income outright. This could involve garnishing as much as 85% of wages, siphoning funds from bank accounts, or seizing tax refunds. Levies differ from liens, which are direct asset transfers. As an illustration, the IRS may seize $1,500 out of a paycheck every two weeks if the taxpayer qualifies for head-of-household status with one dependent.
Seizures happen when the IRS seizes property-cars, houses, or business assets-through force and sells them at auction to pay debts. These are subsequent to failed levy attempts and are required to follow strict notice procedures.
The IRS seizure process
As a prerequisite to levying assets, the IRS is required to mail:
- A Final Notice of Intent to Levy by certified mail with a 30-day wait period.
- Failure to make a request for a hearing or pay debts during this time provides the IRS with the power of action.
Liquid assets are targeted by the IRS but can seize most property other than:
- Exemptions: Schoolbooks, clothing, and equipment to perform work.
- Limited-value items: Home furniture valued at over $7,700.
Notably, Social Security benefits are subject to a 15% withholding under the Federal Payment Levy Program, irrespective of outstanding payments falling below $750.
Wage garnishment mechanics
Caps on garnishments are calculated based on:
- Filing status: Single vs. head-of-household.
- Dependents: Each decreases the levy amount.
- Pay frequency: Weekly vs. biweekly.
A head-of-household employee with one dependent and a $2,000 biweekly wage, for instance, would forfeit $1,084.62 per cycle.
In case a taxpayer has both tax and child support to pay, garnishments for the latter are given priority, 50–65% of income depending on arrears duration.
Disputing IRS actions: Collection due process
Taxpayers are sent Notice of Right to a Hearing with Final Levy notices. Filing a written request within 30 days suspends collections and triggers a Collection Due Process (CDP) hearing.
Hearing outcomes
Taxpayers can do the following at the CDP hearing:
- Suggest installment agreements for payments in installments.
- Request Currently Not Collectible (CNC) status because of financial difficulties.
- Negotiate an Offer in Compromise to pay amounts less than the full amount.
If not resolved, taxpayers can appeal to the U.S. Tax Court within 30 days after a Notice of Determination is issued.
Social Security and federal benefit levies
The Treasury Offset Program (TOP) automates levies on federal payments, including:
- Social Security: 15% taken monthly.
- VA benefits: Except where debts arise from overpayments or fraud.
States are obliged to honor these levies but cannot levy offsets beyond those required by the federal government.
While the IRS has strong collection authority, procedural protections such as CDP hearings and exemption limits discourage mass loss of assets. Confrontational contact-through payment plans, offer in compromise, or hardship claims-often averts extreme enforcement. As the IRS sees, levies are to pay debts, not leave taxpayers destitute. Prompt notice and documented financial hardship are still the best protection against permanent seizures.
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