An income tax levy is instituted when the IRS is trying to satisfy a tax related debt. The IRS has the authority to seize your wages and/or property in order to satisfy an income tax debt. The IRS is required to follow a set number of steps before they can issue a levy. This includes multiple notices.
That is a simple one to answer. The IRS is only interested in one thing, the collection of taxes. IT doesn't matter if they are trying to collect the right amount or not. That is the taxpayer's problem.
a. Pay your owed taxes in full: When you don’t pay your taxes the IRS may charge interest and associated penalties. If you have a way to pay this amount back in full you can avoid a levy. This may mean selling assets, taking a loan out, refinancing your home, or borrowing the money, but if your methods seem reasonable an IRS collector may even stop collections in order to allow you the time to acquire the money.
b. Enter into an IRS Installment Agreement: As long as your owed amount is under $25,000 the IRS will work with you to create an installment agreement. The reason why the IRS will easily work with you on an income tax debt under $25,000 is that the IRS isn't required to find out if you can afford the Installment Agreement.
c. Prove financial hardship: As we said before, the only goal of the IRS is to collect income taxes. If an undue financial hardship would keep that collection from occurring, the IRS may release a levy. This typically must be an extreme situation as “hardship” is not clearly defined. Trouble feeding yourself or family, or affording lodgings, and similar hardships may qualify. An experienced tax professional will be able to navigate this for you.
d. Offers in Compromise: An Offer in Compromise is the program that allows the IRS to settle your income tax debt. An Offer in Compromise will halt collections until a decision is made by the IRS on your settlement offer. An accepted offer will require payment of the stated amount and release the levy. A rejected offer will resume the collections process. It is better to an an experienced IRS Tax Attorney handle your Offer in Compromise.
e. Create a Partial Payment Agreement: Partial payments are similar to installments, but allow you to make smaller payments. This may also reduce the total amount that is owed as well. You must prove that a standard Installment Agreement is an impossibility, and that this is the best opportunity for the IRS to collect taxes owed.
The options we listed above are simply the most commonly pursued. Other options include proving your assets have no equity, waiting for the 10 year statute of limitations to expire, appealing the levy, or filing for bankruptcy. Depending on your financial situation and the amount owed, some options are better than others.