If you have unpaid tax debt, you are at risk of having the IRS place a levy. You should know that dealing with IRS tax debt is not the same as dealing with any other type of debt collector. The IRS has the power to recoup money without filing a lawsuit. Before an IRS tax levy can be placed, the IRS would reach out to you and provide ample notice before taking anything from you. So, what is an IRS levy?
What is an IRS Levy?
According to the IRS, a placed “levy permits the legal seizure of your property to satisfy a tax debt. It can garnish wages, take money in your bank or other financial account, seize and sell your vehicle(s), real estate and other personal property.”
How Can I Avoid a Levy?
The best way to stop a levy is to file your taxes on time and pay any amount owed to the IRS. However, what happens if you do not have the money to repay what you owe? You should not ignore any notices sent to you by the IRS. You have the ability to contact the IRS and make repayment arrangements. If you are not in a position to fulfill any arrangements made with the IRS, you should contact an experienced attorney.
How Do I Stop a Levy?
You have several options to stop an IRS levy:
Set up an installment plan: Do you owe less than $50,000 in tax debt to the IRS? Have been consistently filing your tax returns? If so, you can get set up an installment plan with the IRS to get caught up on your debt. The IRS website has a form available for you to apply for an installment agreement. Click here to get the form. This agreement will give you 72 months to pay off what you owe to the IRS. Do you owe more than $50,000, but less than $100,000 in tax debt? You may still be able to set up an installment agreement.
Remember, interest will continue to accrue on your debt while you are repaying. Also, there are penalties to consider, so do not miss a payment! If you miss a payment on an installment plan with the IRS, your settlement agreement can be revoked. It is important that you take time to research this further.
Offer in compromise: If you cannot afford the monthly payments in an installment plan, the IRS also offers an “offer in compromise.” If you qualify for an offer in compromise, the IRS to take less than what is owed. This is done only if they believe that they will not be able to collect the tax debt.
There are two important requirements to qualify:
- You must offer an amount equal to your disposable earnings over the next one to two years.
- You must offer as much as the liquidation of your assets.
Your excess income or disposable earnings is determined from the information that you provide on Form 433 on your taxes. To determine the liquidation value of your assets, the IRS will look at a quick sale value. This is around 80% of the amount made from the sale of your assets.Once you know your excess income and the liquidation value of your assets, you can submit your offer to the IRS.
File for Bankruptcy: Filing for bankruptcy is actually a good way to deal with your tax debt. It may be surprising to find out that there are certain scenarios where IRS tax debt can be discharged (eliminated). Or, your tax debt can be managed through bankruptcy. This will depend on a combination of factors, including under what chapter of bankruptcy you file. What you qualify for will depend on your financial situation and your state’s requirements.
A Chapter 7 takes less time and will stop the IRS collections process for a short amount of time. However, once the bankruptcy if over, collections will resume. A Chapter 13 will enable you to set up a payment plan, while eliminating a fair amount of interest and penalties.
Before you take any action, be sure that you are informed. Call us for a free consultation to find out the options that will work best to help eliminate your IRS tax debt.