February is Tax Season, and with it come dread and confusion. Taxes can often be a confusing and stressful event for many, especially since not everyone is familiar with the ins-and-outs of the process. But knowledge is power, so let’s dig into the murky depths of the tax process. Today we're discussing what the IRS can actually take from individuals, which includes levies and liens.
Knowing exactly what the IRS can and cannot take can be the difference between a good tax season and a bad one. So, sit back, grab a pen, and get ready to learn the various ins and outs of levies and liens and what it means to you, with a little help from our friends at the IRS.
The IRS is permitted to collect unpaid tax debts by garnishing wages or taking money out of your bank accounts. Additionally, they may use their levy power to seize and sell any real estate, vehicles, or other personal property that you own.
The IRS can collect virtually any type of income tax money from taxpayers, including wages and salaries, Social Security benefits, pensions, payments from unemployment insurance, and most other types of government payments. If you owe back taxes to the federal government, they may apply a levy to your bank account or garnish your wages through a wage levy. In some cases, they may also use other assets and accounts like IRAs and 401(k)s to pay down delinquent tax debt.
In terms of filing your taxes each year, the IRS can utilize the Federal Tax Lien to take control of the money owed on income tax returns. This essentially allows them to claim ownership over any property or assets that you own until you have paid the full amount due. The lien remains in effect even if you fail to file your taxes in subsequent years as it is still valid until all amounts due are fulfilled with interest and delinquent penalties.
When the IRS determines that a taxpayer owes taxes, it can take action to receive payment from the taxpayer by way of a lien or levy. Wages and salaries are one type of income that the IRS can tap into to settle the debt. Depending on the circumstances, wages and salaries may be garnished for up to 65% of an employee’s weekly income.
It is important to note that wage garnishments require court orders with specific instructions as to how much and when payment should be made. Employees affected by an IRS wage garnishment must be notified by the IRS at least 30 days prior to commencement of collection action. The notices explain their rights to challenge the garnishment or reach a resolution with the IRS.
When it comes to what possessions the IRS can seize, the answer most often depends on a taxpayer's specific circumstances. Generally, the IRS can seize any property or rights to property that is owned by an individual in order to satisfy the tax debt owed. This could include real estate, vehicles, boats, jewelry, retirement accounts, and more. Sometimes, if necessary, the IRS even has authority to take basic necessities such as furniture and clothing.
When it comes to enforcing tax debt, the IRS may take a variety of approaches, including taking money from bank accounts or seizing property. Many taxpayers are unaware that their accounts and possessions are subject to IRS levies, so it is important for individuals and businesses alike to understand when and how the government can do so.
If you have unpaid taxes and fail to make payment arrangements with the IRS, your bank accounts are vulnerable. This includes savings accounts, checking accounts, payroll deposit accounts, and retirement plans. The IRS generally locates financial institutions where the taxpayer has deposits and serves them with a levy notice. The financial institution is then obligated to hold the funds in the account and reserve them for the IRS until further notice and release those funds to the IRS if given additional instructions to do so.
The same is true for any property owned by an individual or business liable for back taxes. This could include real estate holdings, vehicles and industrial equipment, personal assets such as art work or jewelry, or even investments such as stocks or bonds. If back taxes remain unpaid, the IRS may seize any of these items and auction them off in order to recoup what they are owed in full (plus any interest/penalties that have been incurred). Furthermore, taxpayers cannot transfer ownership of properties that are subject to IRS with the intention of avoiding collection; these transfers will not hold up legally against a government lien.
It is important for both individuals and business owners alike to be aware of these potential consequences should they fail to pay their tax debt. While the IRS does provide some forms of recourse-such as an Offer in Compromise-it is best for taxpayers to stay informed about their options before a dispute arises in order to help ensure timely payments and avoid penalties altogether.
What Methods Does the IRS Use To Enforce Collection? With a better understanding of levies on bank accounts or property, it's important to understand what other avenues of enforcement the Internal Revenue Service may resort to should taxpayers go delinquent with their tax obligations.
The Internal Revenue Service (IRS) collects taxes from taxpayers in a variety of methods, depending on what the taxpayer owes and whether or not the taxpayer has made any payments or arrangements to repay their tax debt. If a taxpayer does not pay their taxes or make arrangements with the IRS, the IRS can take enforcement action to collect this debt. The two most common forms of IRS collection action are tax liens and levies.
One of the primary methods used by the IRS to enforce collection is wage garnishment, also known as wage withholding or wage lien. This occurs when an employer withholds a portion of an employee’s wages and pays it directly to the IRS in order to satisfy a portion of the employee’s unpaid tax debt. This is generally done without notice to the employee and can be done without obtaining a court order if the outstanding balance is over $25,000.
When it comes to the tax collection powers of the Internal Revenue Service (IRS), levies and liens are two of the most common strategies used. A tax levy is an action taken by the IRS to collect unpaid taxes from a taxpayer. The levy allows them to take possession of property, such as wages, bank accounts, and other assets belonging to the taxpayer until the debt is paid off. A tax lien is a legal claim against a person’s property for delinquent taxes. This means that if someone has not paid their taxes, the IRS can file a federal tax lien against them and collect any profits from any type of property they own until their taxes are paid in full.
While levies and liens can both be powerful tools for collecting unpaid taxes from taxpayers, there are some key differences between them. Levies are taking possession of property or seizing assets directly from taxpayers who owe taxes. Liens, on the other hand, are placing a claim on taxpayers’ property for unpaid taxes. The IRS must file a public notice before they take any form of action and this often requires courts to approve levies or liens before they can be enforced.
While levies and liens may seem like intimidating measures by the IRS to collect back-taxes, it should be noted that they typically pursue these options only after they have failed to receive payment from taxpayers through other means. As such, it is important for taxpayers to understand their rights when it comes to dealing with levies and liens so that they know how best to avoid them in the first place.
Now that we have explored exactly what tax levies and liens are, let us turn our attention to what taxpayers can do to avoid IRS collection actions in the next section.
Protecting your assets from the IRS is a complicated process, but there are several steps you can take to reduce your risk. One of the most important steps is to be sure to always pay your taxes in full and on time. If you know you won't be able to pay your taxes on time, you can contact the IRS right away and work out an agreement for paying your taxes late without any penalties. Additionally, it's important to keep meticulous records of all of your financial transactions so that you have evidence of income and expenses if the IRS comes knocking.
You should also seek professional guidance when it comes to investments and other activities that involve potential tax liabilities. Investing through a trust or limited liability company (LLC) can help protect your assets from the IRS by shielding certain assets from creditors and taxes. It's important to note that these entities don't provide absolute protection, so it's key to consult with an experienced attorney or CPA before taking any major financial action.
Finally, consider applying for an Offer in Compromise program with the IRS if you find yourself unable to pay your taxes in full or make a payment plan that works for both parties. This is essentially a negotiation with the IRS in which they may agree to forgive some debt as long as you can show that paying off the full amount would cause you extreme financial hardship.