An IRS Notice of Intent to Levy can be one of the most frightening letters from the IRS for most taxpayers. When the IRS sends you an intent to levy, the letter may seem hard to understand, formal, and too wordy. Put in plain language, when the IRS sends you this notice it means it is ready to take possession and sell your assets to pay your tax debt. This usually comes as a last resort for the IRS and is generally only sent when a taxpayer has refused to pay their tax debt or has not responded to any of the IRS’ attempts to create a payment arrangement. There are three asset classes that the IRS can levy to fulfill your tax obligation. They include your personal property, real property, and investments.
Personal property is defined as property that is movable. Items that fall under this category include your car, boat, jewelry, motor-home, recreational vehicles such as dirt bikes or jet skis, furniture, and more. Real property is defined as property that cannot be moved. Your first and second home, rental residence property, rental business property, and land that you own for farming or the exploitation of natural resources are all considered real property that the IRS can levy. Investments include securities such as stocks, bonds, annuities, and retirement plans. The IRS has not released guidelines that allow taxpayers and their IRS tax lawyers or Enrolled Agent to determine which assets will be levied. However, it is important to note that the IRS will seek to collect the back taxes in the quickest and most cost effective manner, often levying and selling the assets that will produce revenue in the range of the tax debt. For example, if you owe $20,000 to the IRS in unpaid taxes, penalties, and interest, they might sell your car or boat if it expects to receive proceeds from the sale that are close to you tax debt. Other assets that the IRS may levy include the following:
Cash loan value of your life insurance policy
One option to prevent the seizure of a taxpayer’s assets is to establish an irrevocable trust. If you are considering placing your assets into a trust to protect them from an IRS levy, it is important that you first consult with an attorney or Certified Trust and Financial Advisor (CTFA). Writing a trust yourself can cause problems in the future due to a lack of knowledge of the law and what is or is not legally enforceable. Trusts that are ambiguous often create more hardship for families in probate court. There are two common types of trusts, revocable and irrevocable trusts. A revocable trust is one that allows you to change how your assets will be allocated after your death. An irrevocable trust is the exact opposite. Since a revocable trust allows you to revoke your assets from the trust, the IRS considers assets placed into this type of trust to still be owned by the taxpayer. In an irrevocable trust, the taxpayer cannot make any changes once the trust is established and, therefore, the IRS does not consider assets in an irrevocable trust to be owned by the taxpayer. This rule generally prohibits the IRS from levying any assets that you placed into an irrevocable trust because you have relinquished control of them. It is critical to your financial health that you consider the tax and legal obligations associated with trusts before committing your assets to a trust.
Stopping a levy and settling your tax debt can entail a long and complicated process. For more information on how the Hillhurst Tax Group located right off of Los Feliz and the 5 Freeway can help you with all of your IRS tax problems, email us at firstname.lastname@example.org or call us to set up a free consultation with our Los Feliz IRS tax attorney or Enrolled Agents at (323) 486-3314.