Federal Tax Liens &
Wage & Bank Levies
The good, the bad & the ugly
Updated February 14, 2006
There is nothing good to say. It's only bad and ugly. Over
the past several months, it has become nearly impossible to get bank levies
released and over the past couple of weeks, it has become VERY difficult to get
wage levies released. It is increasingly clear that IRS Commissioner Mark
Everson has decided the following about bank and wage levies:
1) Levies on wages and bank accounts are intended to punish
the taxpayer for past wrongs;
2) Levies on wages and bank accounts must bring in
significant amounts of money;
3) Taxpayers and tax professionals must spread the word that
wages and bank accounts have been levied so other taxpayers will know that
the same will happen to them if they don't pay;
4) The days of the "nice" IRS are over and the bad cop is
back on the beat.
Additionally, if you have a levy on your bank account or
wages, you will almost certainly need to hire a tax professional and you should
expect to pay a considerable amount of money in professional fees. It took us
about 14 hours last week on a simple wage levy release. In the past, that would
have taken a couple of hours maximum. We have no choice but to pass that
increased time along in higher fees.
What actions can the IRS take when they
claim you owe Federal taxes? For starters, they can file a Notice of Federal tax lien that
is recorded in the county in which you reside. The IRS may also service a Notice of Levy
upon your employer to attach your wages or upon your bank to attach any funds you have
deposited. And, occasionally, the IRS may seize an asset such as a vehicle, a business or
even a home.
First, what is the difference between a
lien and a levy? A lien is merely a paper document. By itself it does little to your
everyday life, but it does put a negative mark on your credit report. As a practical
matter, unless you are a homeowner, it doesn't do much damage. The lien attaches to all
property you own or acquire after the fact. The lien is only valid in the county in which
it is filed, so if you own property in Texas, but the lien was filed in Los Angeles
County, CA, you can sell that property free and clear of the lien.
It is difficult, although not impossible
to buy a home if a lien has been filed against you. Most lenders choose not to lend
assuming that you are a bad credit risk. But, I have been successful in proving to lenders
that the lien does not have a priority position over a first Deed of Trust (mortgage). As
a result, I have helped taxpayers with major tax problems to purchase homes.
A levy actually attaches to a specific
item, either wages or a bank account in most cases. Under the law, you get to keep a small
percentage of your wages while the rest is turned over to the IRS. The amount you keep is
based upon your filing status and the number of exemptions you may claim on your tax
return. You may download IRS Publication 1494, Table for
Figuring Amount Exempt From Levy on Wages, Salary & Other Income directly from the IRS
web site. The table is in Adobe PDF format. If you do not have the Adobe Acrobat Free
Reader installed on your computer, you may download it from the Adobe web site.
A levy on your wages is considered to be
continuous. That is, until it is released or the tax is paid in full, it will keep
attaching your wages. A bank levy is very different. It attaches only the money in the
account at the very moment the levy is received by your bank. If you have $50 in your
account at 9 AM and the bank logs in the levy at 9:30 AM and you make a deposit of $5,000
at 10 AM, the levy only attaches $50. A bank levy is a "one shot deal".
However, if you have $5,000 in
the bank at 9 AM and the levy is received at 9:30 AM, the checks you have
written will bounce later in the day. Of course, if the amount you owe is less
than what is in the account, the bank will attach only the amount owed.
Fortunately, you have 21 days to work something out with the IRS. Under the law,
the bank removes the money from your account, but does not send it to the IRS
for 21 days. Use that time wisely and contact a competent tax pro. At one time,
we were able to get bank levies released easily, but no more. In fact, it is
virtually impossible to get bank levies released.
To protest a lien, levy or the mere
threat of a lien or levy you may file Form 911, Application for Taxpayer Assistance Order;
Form 9423, Collection Appeal or Form 12153, Application for Collection Due Process
Hearing. However, if your case has gone that far, you need professional assistance.