The Federal Tax Lien (“FTL”) is not self-executing — meaning that the FTL encumbers the taxpayer’s property but it does not collect the delinquent taxes. To enforce the collection of delinquent taxes, the Internal Revenue Service (“IRS”) utilizes the Federal Tax Levy (“Levy”), as an administrative collection tool, by which to take custody of the taxpayer’s property, in order to satisfy any delinquent taxes.
If the taxpayer does not pay the delinquent taxes, within the ten (10) day period, following the Notice and Demand for Payment, then the IRS has the authority to Levy on the taxpayer’s salary, wages, or other property, thirty (30) days after serving a Notice of Intention to Levy.
With the Levy, the IRS can seize all of the interest that the taxpayer has in property or rights to property. With the Levy, the IRS can attach property held by third (3rd) parties or the taxpayer.
The Levy is used to take the taxpayer’s bank accounts, wages, other income, or accounts receivables. A Seizure is used to take property in the taxpayer’s possession — motor vehicle, house, or business assets. Although there is no legal distinction between Levy and Seizure, the practical distinction is simply that the Levy is utilized for property held by third (3rd) parties and a Seizure is utilized for property held by the taxpayer.
Some of the property, that is exempt from the Levy, is as follows: (i) a limited amount of personal belongings; (ii) a limited amount of necessary business or professional books and tools; (iii) unemployment compensation; (iv) worker’s compensation; (v) certain welfare benefits; (vi) certain pension benefits; (vii) Court ordered child support payments; (viii) undelivered mail; (ix) certain types of military service disability payments; and (x) a very small portion of wages.
The IRS must obtain Federal District Court approval to seize the taxpayer’s personal residence.