The Internal Revenue Service (IRS) has the legal authority to seize your assets and property when you owe back taxes.
Unlike other creditors, the IRS can enact its power when it sees fit. Not only can it use whatever power and means it wishes, but it doesn’t need to get a court order to do so.
A tax levy is a last resort matter for the IRS. It’s expensive for them, and no one wants to be the bad guy that often. Plus, the IRS’s goal is to collect tax – not to punish you for failing to pay it on time.
It is possible to stop a tax levy, but your best bet is to do it before the levy begins. If you received a letter warning you of impending financial doom, you have options. Keep reading to learn about the best IRS tax plans for you.
How to Stop an IRS Tax Levy Before It Starts
The IRS doesn’t just issue a tax levy on any unpaid taxes. It sends several letters of warning and instructions before it does so.
It is almost impossible to stop a levy once it begins, so your best option is to get in touch with the IRS and start to work something out.
Do not ignore the IRS letters. Doing so will only lead to the enaction of the levy, which strangles your finances and limits your options.
Paying Your Tax Bill: Your Options
If and when possible, you should always try to settle at least some of your tax bill, particularly if you have received letters informing you of a potential levy.
These are the best options in order from most preferable to least.
1) Lump Sum Payment
The lump sum payment may be the most painful up front, but it is better for your finances in the long-run.
When you fail to pay your taxes, the IRS immediately begins to assess fees and interest against the balance you owe. When you pay over time – even through an approved payment plan – you will always pay significantly more than you owe.
You may find that you can get a personal loan with better terms than an IRS payment plan. So, if it is possible to borrow the total sum from a bank or another reputable lender, this may be the best solution.
If you have some of the money, but not all, try option two.
2) Offer in Compromise
The Offer in Compromise is an offer to pay your tax debt with the means you have and settle the matter entirely.
If paying off a portion of your tax bill will destroy your finances, this is a good option. If successful, it means your present tax woes are over.
You will almost certainly need a tax professional to ask for an offer in compromise. There is both a significant amount of paperwork and a legal argument to be made.
If you think you could qualify for an Offer in Compromise, begin the process now. It takes time to complete and for the IRS to negotiate and approve the plan. Waiting too long could lead to the levy going into effect, which may further restrict your finances.
3) Payment Plan
If you don’t have any amount of cash and can’t borrow it, then your option may be the payment plan.
Under the payment plan, you’ll agree to make monthly payments to the IRS to settle your debt. These differ from a levy because you’ll pay them yourself through your bank account or a credit card and because you have more control over the terms.
If you owe under $10,000, the IRS often lets you pay back your balance over three years with no minimum monthly payment. If you owe between $10,000 and $25,000, you have 72 months to pay, and you do need to make a minimum payment.
Again, the payment plan means you continue to pay interest on the balance owed. Stretching out the program means paying far more than your original balance. Avoid doing so when you can.
Finally, you can appeal to the IRS to prevent a levy. However, it is essential to understand that the appeal doesn’t eliminate the debt.
If the levy would cause or is causing an “immediate economic hardship,” you can appeal to the IRS for a temporary release.
If the tax debt is your spouse’s and not yours, then you may be able to apply for Innocent Spouse Relief appeal to protect your accounts.
When is the IRS Required to Release a Levy?
The IRS has standards that require it to release the levy on your accounts in specific circumstances. Some will automatically end the levy without you applying, and others will require an argument and supporting paperwork on your behalf.
The IRS automatically releases the levy when:
- You pay the balance
- You agree to an Installment Agreement that stops the levy
- The collection period ends
The collection period for a tax year automatically ends ten years after the tax year. If your levy includes tax from 2012-2015, then the balance will be forgiven in 2022, 2023, 2024, and 2025 respectively.
The IRS is also required to release a levy when you can prove that:
- Releasing it will help you pay your taxes
- Implementing it created an extreme economic hardship (such a failure to buy food or gas)
- The value of the property is more than owed, and the IRS can still collect without holding on the property
Again, these usually require paperwork and an appeal.
A Levy isn’t the End of the World
Unlike other creditors, the IRS doesn’t need permission to implement a levy on balances owed. However, you won’t go from collection straight into a locked account. You have time and options to help you stop a tax levy.
Are you worried about your tax bill? We can help taxes become less of a burden. Take seconds to request a call back for a free, no-obligation consultation to discuss your IRS tax relief options.