Recent changes in tax law have left millions with an unexpected tax bill. In fact, after the passage of the Tax Cuts and Jobs Act, over 30 million Americans ended up owing the IRS come tax time.
Do you owe back taxes to the IRS?
Has the IRS placed a levy on your bank account?
If you find yourself in debt to the IRS – don’t panic. There are several steps you can take to get an IRS levy release.
The most important thing is to take action. Don’t ignore the IRS.
Keep reading to learn more about the steps you can take to get an IRS levy released from your property.
Contact the IRS Right Away
If the IRS levies your property, it’s important that you contact them right away to settle your tax liability and request a levy release. The IRS can release a levy if it is causing you immediate economic hardship.
You can file an appeal before or after the IRS places a levy on your property. Even after proceeds from a levy have been sent to the IRS, you can file a claim to have them returned to you. If that claim is denied, you can appeal the decision.
If the IRS releases your levy, you are still responsible for the balance of your tax debt. The release of a levy doesn’t mean you don’t have to pay what you owe. You’ll need to make arrangements with the IRS to resolve your tax liability or they may reissue the levy.
Now, let’s take a look at the most effective ways to get an IRS levy released and your tax debt resolved.
Pay Your Tax Debt in Full
The easiest and fastest way to get an IRS levy release is to pay what you owe to the IRS in full.
If you are financially able, you should pay your debt in full. Make sure you have a zero balance on your account with the IRS. Of course, this is easier said than done.
If you owe hundreds or even thousands of dollars, paying off your tax debt in full isn’t really an option. Even if you can’t pay in full, there are other things you can do to get rid of a levy on your assets including your bank account, paycheck, house, or car.
Let’s take a look at some of the other methods to stop an IRS levy.
Appeal the IRS Levy
If you are notified by the IRS of its intent to levy one of your assets, you can formally appeal their decision to temporarily avoid a levy. You have 30 days from when you are notified of the IRS’s intent to levy to file an appeal.
By filing a formal appeal, you can buy yourself more time. The levy won’t actually be placed until a decision is made about your situation. You can file an appeal by filling out and submitting the IRS form 9423.
Appealing an intent to levy is a straightforward process but it isn’t a guarantee that you will avoid a levy. The IRS may not reverse its decision and will still enact a levy.
Nonetheless, if you find yourself in this situation, it’s worth filing an appeal. You may be able to prove that the levy on your assets would create extreme financial difficulties.
Filing an appeal could also reveal any errors in the tax debt collection process that would lead the IRS to reverse its decision and release any levies.
Make an Offer in Compromise
Making an offer in compromise allows you to settle your tax debt for less than what you owe. If you can’t pay your full tax liability or paying it would create financial hardship, you may be able to settle for a lower amount.
The IRS takes into account several factors when reviewing an offer including your:
- Ability to pay
- Asset equity
The IRS recommends exploring all other payment options before making an offer in compromise. Offers in compromise are accepted when the amount offered represents how much the IRS can reasonably expect to collect. This program isn’t for all taxpayers.
It’s best to consult a tax professional about all of your options, especially if you want to make an offer in compromise. If you make an offer and it’s rejected, you have 30 days to file an appeal using IRS Form 13711 Request for Appeal of Offer in Compromise.
If you are accepted into this program, you have a couple of options for making your payment. Your initial payment will depend on your offer and the type of payment plan you choose.
Lump Sum Cash
With this payment option, you’ll submit an initial payment of 20 percent of your total offer with your application. If the IRS accepts your offer, you’ll receive written confirmation of their acceptance. Any remaining balance owed on the offer must be paid in five or fewer payments.
If you choose this payment option, you’ll submit your initial payment with your application. Then you will continue to make monthly payments to the IRS on the remaining balance while they consider your offer. If your offer is accepted, you’ll continue to make monthly payments until your balance is paid in full.
Understanding the Process
Some taxpayers may not need to send an application fee or initial payment in with their application. If you meet the IRS’s Low Income Certification guidelines, you won’t need to make these initial payments or any monthly payments while your offer is being evaluated. You can find more information about these guidelines in the offer in compromise application packet.
While your offer is being evaluated, the payments and fees you owe will be applied to your tax liability. These are non-refundable, although you can designate payments to a specific tax year or tax debt.
The IRS may file a Notice of Federal Tax Lien but all other collections activities will be suspended. The legal assessment and collection period for your case will be extended. You will be required to make all payments related to your offer in compromise but you won’t have to make payments on any existing installment agreements.
Your offer will be considered automatically accepted if the IRS doesn’t make a decision within 2 years of the date they receive your offer.
Fresh Start Program
If you owe $25,000 or less in tax debt, you may qualify for the IRS’s Fresh Start Program. These are the full requirements for the program:
- Owe $25,000 or less in back taxes
- Agree to have payments towards your tax debt deducted automatically from your bank account
- Be current on all estimated tax payments
- Be in compliance with all tax returns filed
- Be current and have made 3 installment agreement payments in a row and not be in default
You’ll need to fill out and submit IRS form 12277 to apply for the Fresh Start Program. If you are accepted into the program, the IRS will file the Form 109169(c) with the office in your local county. It’s important that you notify all three of the credit bureaus that you are participating in the Fresh Start Program if you are approved.
Once the IRS decides to levy your assets, it won’t release its claim until your tax debt is completely paid off. Depending on how much you owe, this could take months or years. There is a proactive action you can take to get the levy released quickly.
You can ask the IRS for an installment agreement to pay off your debt in smaller payments. Usually, you would make regular monthly payments towards your tax debt. The amount of the monthly payments depends on your income.
This is to make sure the payments are affordable and reasonable. Entering into an agreement to pay off your debt in installments will result in the IRS releasing its levy on your property.
If your tax debt is out of control and paying it back would create severe financial difficulties for you and your family, you can make a case for financial hardship.
The IRS can’t levy your paycheck or assets to the point where you can’t pay your immediate household expenses. If you are able to prove that you can’t cover these basic expenses with the IRS levy in place, you can make a case for financial hardship with the IRS and ask that the levy be released.
Be prepared to prove your case with financial documents including pay stubs and bank statements.
Let the Statute of Limitations Run
According to the law, the IRS only has ten years to collect a tax debt you owe. If that 10-year statute of limitations is almost up, you can wait for it to expire.
After 10 years, your debt is automatically forgiven. This means you won’t have to make any payments on tax debt after the ten year period is over.
Partial Payment Agreements
If an installment agreement is still too much for you and your household, you may be able to ask for a partial payment agreement. This type of agreement is designed to make settling your tax debt more affordable if you would experience financial or physical challenges under a traditional installment agreement.
Only taxpayers who can prove the need for a partial payment agreement will qualify for this arrangement. With a partial payment agreement, you can make reduced monthly payments on your tax debt to reduce the financial strain of paying what you owe the IRS.
Prove Your Assets Have No Equity
When an IRS levies your property, their primary goal is to liquidate that property to recoupe some or all of the money you owe in back taxes. If your assets have no monetary value, it might not be worth the IRS’s time to try to levy and sell them.
If you can prove that your assets have no equity, you might be able to get the IRS levy against them released. You’ll have to make your case by providing financial proof.
This might include bank statements and proof of balances in checking, savings, and retirement accounts. You may also have to provide appraisals for your property proving their lack of value.
File for Bankruptcy
While this should be your absolute last resort, you can file for bankruptcy to have an IRS levy against your property released. Of course, filing for bankruptcy is not an ideal option as doing so will take a big toll on your credit for years after you file. However, if you’re out of options, filing for bankruptcy will get rid of an IRS levy.
While your case is being filed and decided, creditors and the IRS can’t contact you regarding your debts or take any collections actions against you. While it depends on how old your debt is and how much you owe, you may be able to consolidate it into a Chapter 13 bankruptcy.
In this case, you will pay off your debt with monthly payments. In some cases, although not too often, you could have your tax debt completely forgiven with a Chapter 7 bankruptcy.
Need an IRS Levy Release?
Taking these steps to get an IRS levy release is not just about avoiding having your property sold to settle your IRS debt. You can also use these methods to make paying off your tax debt more manageable.
We can help you get your tax debt under control and make paying it off easier and more affordable. Contact us today and let us help you settle your tax debt and put your mind at ease.