The levy (also called a garnishment or seizure) is the primary enforced collections device for the IRS and State Departments of Revenue. Levies may be issued against wages, income sources, bank accounts, retirement accounts, Social Security and other retirement income, and property like real estate and vehicles. The levy is frequently confused with the lien, which is a more passive enforcement device whose implications only arise during certain transactions without lien negotiation.
The best defense to levies is prevention – resolving back taxes before they advance to the level of enforced collections. However, sometimes a proper resolution proposal cannot be brought because of a lack of compliance or funds and the enforcement personnel take the next steps and issue levies.
Levies on funds may be distinguished as continuous or non-continuous. A levy on bank funds or retirement accounts will be non-continuous, taking the funds that are on deposit when the levy is served, and subsequent deposits would not be affected by the levy. A levy on wages is commonly continuous, taking all income over the statutory exempt amount until the debt is paid in full. Levies on one-time sources of income are commonly non-continuous, but if those sources are repeating sources of self-employment income, they may be subject to a continuous levy, a scenario more common in the Revenue Officer context.
Levies may be issued against funds or against physical assets such as land or vehicles. Levies against funds such as wages, income and accounts are far more common due to their use by the Automated Collections System and by Revenue Officers. Levies against certain investment and savings assets and land or vehicles are more commonly initiated by Revenue Officers.
Levies can even be initiated by entities other than the IRS. That is, the Federal Payee Levy Program serves to identify recipients of Federal funds who also owe back taxes, and offset the Federal funds by the back taxes. This is the Social Security levy or a levy on other government benefits or pay.
Negotiating a levy once it is issued is driven by the procedural stance of the file, the nature of the assets under levy, the state of compliance with filings and payments, and the availability of an alternative to collections, such as an Installment Agreement or other resolution. Levy negotiations are unfortunately impacted by the individual collections representative on the other side. This is due to the level of discretion that can be used by those personnel and the inconsistency of decision-making among IRS personnel. Generally speaking, however, achieving compliance and making a legitimate and viable proposal to resolve the enforcement, whether by Currently Not Collectible or simply an Extension to Pay agreement, is the most common way to resolve a levy.
There are significant strategic considerations to requesting a release of levy. There are times where a levy may be to the taxpayer’s benefit: a 401k levy will produce more funds to pay down back taxes than a voluntary withdrawal of those funds, which are subject to a penalty. A Social Security levy may take less from a taxpayer than would be required by an Installment Agreement. The processing of a levy might provide the time needed to achieve compliance to make a viable proposal.