Internal Revenue Service garnishments and levies are legal seizures of a taxpayer’s property to satisfy past-due taxes. Levies are often confused with liens, but they are two different collection methods. Liens secure tax debt by staking claim to property, while levies and garnishments actually seize the property. IRS officers have the right to seize any personal property a taxpayer owns that may be used to pay off his tax liability, including retirement accounts. Before IRS officers may garnish or levy, they must follow a set list of steps.
IRS Levy and Garnishment Defined
IRS officers consider “levies” and “garnishments” to serve the same purpose -- to collect past-due amounts. These processes give IRS officers the legal right to seize funds in a taxpayer's IRA and other retirement accounts and use them to pay off the balance past due on her tax account. If a taxpayer does not make arrangements to settle or pay, the IRS will seize her bank accounts, property and retirement accounts to satisfy the debt. IRA levies are similar to bank levies, meaning that after the levy goes into effect, the taxpayer has 21 days to work with IRS officers to release the funds before the IRS withdraws the delinquent amount, plus interest, from the IRA account.
Garnishments and Levies on Retirement Accounts
Retirement accounts, including IRAs, are not exempt from an IRS levy. Though state laws protect them from creditors, these laws do not apply to IRS agents. As long as the taxpayer can access his IRA and remove funds from it, the IRS is allowed to levy it. If, however, the taxpayer has no vested rights to his retirement account -- meaning he cannot withdrawal or access the money until a certain age -- the IRS cannot garnish or levy the account.
Before IRS officers can levy a taxpayer’s IRA, they must meet three requirements. First, a "Notice and Demand for Payment" must be sent. This document states the assessed tax and the taxpayer’s rights and obligations to pay it. The IRS must then wait for the taxpayer to ignore or refuse to pay by a specified deadline -- typically within 20 days. Last, the taxpayer receives the “Final Notice of Intent to Levy and Notice of Your Right to a Hearing.” This notice is sent 30 days before the levy and may be left at the taxpayer’s home or office or given to them in person or by certified mail.
Taxpayer’s Right to Appeal
Taxpayers who have had their IRA garnished can appeal their case using a collection due process, a hearing with the IRS’ Office of Appeals. Taxpayers must file their request within 30 days of their levy notification. IRS officers only allow appeals if the tax was already paid, the taxpayer was filing bankruptcy, a procedural error occurred during assessment, the statute of limitation had expired, the taxpayer did not have a chance to dispute her tax liability amount, the taxpayer wants to discuss collection options or the taxpayer is filing for spousal relief. The Office of Appeals will hear the taxpayer’s case. If her outcome is unfavorable, she will have an additional 30 days to bring the suit to tax court. Taxpayers interested in filing for a collection due process should refer to IRS Publication 1660 for more information.
Stopping the IRS Levy or Garnishment
A levy notification means the taxpayer has 30 days to act. He can release the levy on his IRA account by paying the tax liability -- either in full or through payment plans. He will not be able to access his IRA funds until the levy is released or the time during which the IRS can legally collect on the delinquent balance expires.
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