3 Steps to Prevent a Levy and Protect Your Property
Are your IRS back taxes finally catching up to you? Perhaps you’ve intentionally put off your federal financial obligations, or like many honest Americans, meant to pay last April but life got in the way. Whatever the reason may be, chances are that you’ve been picked up on the IRS radar, who’s now threatening to collect on your outstanding debt. Before you start panicking about the property the government is threatening to seize, take a deep breath and know that you can prevent it from happening. We’re here to teach you the steps how.
1. Assess the Damage
Before the IRS can assess a levy to your income or assets, they must first provide you with a series of five letters from their automated collection stream. If by the fifth levy notice the taxpayer has not settled their debt, the IRS may impose their collection decision. Whereas liens are only legal claims to ownership, a levy is an actual seizure and should be avoided at all costs. The first step is figuring out your balance and where it came from. For example, a $5,000 debt can increase dramatically after incurring months and months’ worth of fines and penalties. Get a full picture of your outstanding debt and learn how it got there in the first place.
2. Check for Errors
If you determine that the IRS has not made a mistake and that you indeed have an unsettled balance, the only way to avoid a levy is to enter into an agreement to pay off your debt. However, it is possible that the IRS made an error and is pursuing a wrongful levy against you. You can contest the levy by preparing a request for Appeals and mailing it to the office who sent you the decision letter. You must mail your formal written protest within the time specified in the notice (generally 30 days) in order to be considered.
3. Pick a Plan
In the event that no error was made, you’ll need to find a way to pay back your debt in order to prevent the levy and protect your property. The easiest method is to simply request a 120 day extension and pay off your balance in full. However, if you owe thousands of dollars of debt and need time to pay it off, there are a couple options available to you:
· Installment Plan
Entering into an Installment Agreement means that you promise to settle your balance with the federal government over the course of an agreed amount of time. There are several payment structures that you may qualify for:
o Short-term plan (120 days or less)—no set up fee
o Long-term plan (120 days or more) with automatic withdrawals—$31 online set up fee or $107 over the phone
o Long-term plan without direct debit—$149 online or $225 via phone
*Those who qualify as low income can set up their installment plan for $43.
Keep in mind that although you may enter into a payment plan, the penalties and late fees will continue to rack up until the debt is settled. Therefore it’s in your best interest to pay off your balance as soon as possible, even if your plan affords you more time.
· Offer in Compromise (OIC)
A second option to pay off your back taxes and avoid a levy is through an OIC. This is an agreement between a taxpayer and the government which settles outstanding liabilities for less than the amount owed. The taxpayer proposes an alternative amount to settle for, and if the IRS approves the compromised number, the debt is cleared once the new amount is paid. Keep in mind, however, that taxpayers who can fully pay their liabilities in full using other means generally won’t qualify for this agreement.
Ultimately, the only way to get the IRS off your back and prevent a levy is to give the government the money it’s owed (unless they made an error). It may seem challenging, but with the alternative payment methods available, finding your way back to financial freedom can be done with due diligence. Adjust your budget accordingly to account for your bill—and be proactive next tax season to ensure this problem doesn’t rearise!