When is a Levy Issued?
Technically, there is no legal difference between a levy and a seizure. The IRS uses these terms to specify who was the custody of the property that was taken, either a third party or the taxpayer himself. For the purpose of this discussion we will term property taken from a third party as a levy and property taken directly from the taxpayer as a seizure.
As with the NFTL, the IRS can not levy until the three requirements (notice, demand, and notice of intent to levy) have been issued. These notifications can occur after the NFTL process or in conjunction with it, depending on the specific circumstances.
The Letter 1058, Final Notice of Intent to Levy and Notice of Your Right to a Hearing, must be issued either in person or via certified mail to the taxpayers last known address. Timing issues are critical for your client at this point. His rights to an appeal and/or hearing with or without Judicial review are at stake. We will discuss the specifics of this in the next two sections.
A levy is issued by the IRS to third parties to seize the taxpayers assets in satisfaction of a tax liability. These can be levies to places where the taxpayer has a bank account, brokerage account, business accounts receivables, or even the taxpayers employer as a wage garnishment.
Contact with these types of third parties is covered the IRM and the taxpayer must be notified that the third party will be contacted. This is done via Letter 3164 and Notice 1219. These will be issued after the Letter 1058 has been issued and the waiting period has expired.
There are two types of levies issued to third parties. One is the Form 668A. This form attaches the property/funds in the possession of the third party at the time the levy is issued and the property/funds must be released to the IRS on the 21st day after the levy is received. For example, if a taxpayers bank account was levied on 3 May with a balance of $1500 on that day, that is the levy amount. The bank will not let the taxpayer draw those funds without the release of the levy. However, any money deposited into the account after 3 May are not subject to the levy unless the IRS issues a new levy.
The second type of third party levy is the Form 668W, levy of Wages. This is better known as a wage garnishment. It is an on-going levy and will continue in place until the liability is satisfied or the levy is released. If there are liabilities for a joint return the wage garnishment would normally only be against one of the taxpayers except in cases of flagrant neglect or refusal to pay.
NOTE: Employers may not fire an employee for having a garnishment. It is a felony under USC 1674, punishable by a fine of $1000 and up to a one year prison term.
Levies can also be made on retirement income, pensions, all types of Social Security income except SSI, and the cash surrender value of life insurance policies. Pensions of retirement income that is needs based (SSI, VA disability, etc) are exempt from levy.