Levies

If a taxpayer fails to pay his or her taxes or does not make arrangements to settle the debt with the Internal Revenue Service, the IRS is authorized to seize and sell real or personal property in which the taxpayer has an interest. This authority extends to property in the hands of a third party.

The IRS typically levies assets such as salary and wages, bank accounts, insurance policies, and similar properties. The IRS is authorized to electronically levy federal payments owed to the taxpayer. In addition, the IRS can levy a taxpayer's state tax refund. However, the IRS does not have the authority to levy upon all of a taxpayer's property. Certain property is exempt under the Internal Revenue Code in order to permit the taxpayer to earn a living and to pay for the necessities of life.

Items exempt from levy by the IRS include the following:

Clothing and school books belonging to the taxpayer and the members of his family.
Principal residence. Only federal district courts have jurisdiction to approve a levy on a taxpayer's principal residence.
Real property used as a taxpayer's residence (even if not a principal residence) if the amount of the levy does not exceed $5000.
Business assets. Tangible personal property or nonrental real property used in a taxpayer's trade or business is exempt unless the levy is approved by an IRS district or assistant director or the IRS determines that the taxpayer's other assets subject to collection are not sufficient to pay the tax liability and the costs of the sale.
Books and tools of the taxpayer's trade, business, or profession up to a statutory amount.
Fuel, provisions, furniture, and personal affects up to a statutory amount.
Undelivered mail.
Certain annuity and pension payments
Unemployment benefits.
Worker's compensation benefits.
Salaries, wages, and other income necessary in order to comply with a court order to support a taxpayer's minor children along with a minimum exemption for the taxpayer.
Certain Social Security and state and local welfare benefits.

Generally, the IRS will not levy on a taxpayer's property unless it has assessed the tax and sent a Notice and Demand for Payment, the taxpayer has refused or neglected to pay the tax, and the IRS has sent a Final Notice of Intent to Levy and a Notice of Right to a Hearing. Under recent rules, an IRS supervisor is required to review a taxpayer's information to ensure that a balance is due and that a levy is appropriate under the circumstance before approving the issuance of a notice of levy. When a taxpayer receives a Final Notice, he or she has 30 days from the date of the notice before the levy is issued.

A taxpayer has the right to request a Collection Due Process hearing with the IRS Office of Appeals. At the conclusion of the hearing, the Office of Appeals will issue a determination, and the taxpayer has 30 days to file an action in court to challenge the determination.