Federal Tax Levy: Procedure & Exempt Property

While the Notice of Federal Tax Lien is just a public announcement of what you owe the IRS, the real action happens in the tax levy process where the IRS seizes your real and personal property or assets. Usually, levy notices are given to the financial institutions and employers with whom the tax debtor is associated. (Levy notice to the bank for a bank levy; to the employer for wage garnishment). Other seizures are for vehicles, business tools, and facilities, plus miscellaneous assets.  

The IRS would likely consider your payment history and your location. Under the Internal Revenue Code §§ 6330 and 6331, the IRS can only levy on a person’s property if it follows these procedures: 

  • Notice of Intent Levy. Either through mail delivered at your last known address based on the IRS files or a notice directly given to you, the agency must first serve a written Notice of Intent to Levy 
  • Appeal rights. The notice must come with an explanation of your appeal rights. Just in case the Appeals Office rejects your case, then you have the opportunity to bring your case to the tax court, and you must consult a tax attorney if you deem it a viable option.  
  • At least 30 days before the seizure, the IRS must already send the intent to levy.  

If you find that the IRS failed to comply with any of these, then impose your right to receive back any asset that they have seized.  

Property Exempt From Tax Levy

Under 26 U.S.C. § 6664, certain property is exempt from an IRS tax levy:

  • Clothing (except luxury wears)  and school books 
  • Furniture, fuel 
  • Profession, trade, or business-related books worth a maximum of $3,960 
  • 85 percent of the unemployment benefits 
  • Compensation benefits of a worker 
  • Child support from a court order 
  • Income or wages’ minimum exemption amount  
  • Public assistance payment 
  • Federal job training collaboration assistance 

If you can justify that your vehicle is necessary for you to go to work, then the IRS can opt not to take it. The last resort of the agency is taking retirement plans and homes. 

If you obtained the immediate right to get your benefits, the IRS can take your Keogh, 401(k), IRA, or SEP. In cases where taking the retirement plan would cause hardship, a debtor can connect with the Taxpayer Advocate Service to plead his or her case and justify that taking away that plan can cause economic hardship on their end, including for their family. The backup plan here is to get into a payment plan with the IRS for the protection of the retirement account. 

Ultimately, the IRS can seize the home of a taxpayer who has liabilities of more than $5,000, but that is extremely rare. To do this, the IRS must obtain a court order, and in case you are in this scenario and they start to threaten you, call the Taxpayer Advocate Service right away.  

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