How to Release an IRS Levy: Stopping Federal Tax Levies

how to release an IRS levy

Once the IRS starts to levy your assets, the agency will continue to take assets until the taxes are paid in full. The most common forms of levies are wage garnishment and bank levies, but the IRS can take many other real and personal assets, even including your home in some cases. Tax levies can be extremely stressful and financially devastating, but there are a few ways to stop or release them.

What Is a Levy Release?

A levy release is when the IRS stops an in-progress levy or prevents a pending levy from moving forward. When talking about this process, you may hear people say "stopping a levy" or "releasing" a levy.

How to Release an IRS Tax Levy

If the IRS is garnishing your wages, seizing your bank account, or levying other assets, they will release the levy if you do one of the following:

Pay in full - Once you pay in full, the IRS must immediately stop the levy. If the IRS levies any additional assets after you pay in full, they must return the money or property to you.
Set up a qualifying payment plan - The IRS will release the levy if you set up an installment agreement, and the terms of the agreement dictate that the IRS must release the levy. To make sure that the levy will get released, talk with the IRS or a tax pro before you set up the payment plan. Simply setting up a monthly payment plan does not ensure that the agency will release the levy. That must be noted in the terms.
Establish financial hardship - The IRS will also release the levy if you prove that it is causing financial hardship. Be prepared to show immediate hardship such as an eviction or utility shut-off notice. In lieu of and in addition to that, you will also need to share info with the IRS about your income and living expenses by completing a collection information statement. In some cases, the IRS may be willing to push through a hardship claim with limited financial details, such as when you have a terminal illness or unemployment or Social Security is your only source of income.
Convince the IRS that releasing the levy will help you pay your taxes - Ultimately, the IRS wants to get its money. If you can prove that will happen by releasing the levy, the agency may be willing to release it. For example, say that the IRS is seizing equipment you use for work, they may release the levy if you can prove that you need that equipment to earn money to pay your taxes. Or imagine that the IRS is seizing an asset, but if you take out a loan against that asset, you will be able to pay your taxes--that's another argument you could possibly make.
Show that the value of the property is more than the amount owed - In this case, you also must explain to the IRS that releasing the levy won't hinder them from collecting the taxes. If the IRS seizes and sells an asset that is worth more than your tax liability, they will send you the difference between the sale price and your tax debt, but they may withhold some collection costs as well.
Prove that the collection period ended before the levy was issued - The IRS cannot collect taxes after the collection statute expires. The collection expiration date is 10 years from the tax assessment date but it can get paused and extended for several different reasons. If you believe the expiration date connected to your tax debt is incorrect, contact a tax pro--the IRS often makes mistakes with this date.

Once the levy is released, you still owe the tax, and you must make arrangements with the IRS. If you don't make arrangements or if you don't follow through with your payment plan, the IRS can re-issue the levy. The IRS will also release the levy if you prove that it was issued in error.

What If the IRS Issues a Levy in Error?

You can also get a levy released if you contact the IRS and show that the levy was issued in error. Here are some of the errors that may occur.

The levy was issued on exempt property - Exempt property includes furniture, personal effects, books, tools of the trade up to $3,125), unemployment benefits, certain annuity and pension payments, workmen's comp, child support, certain service-related disability payments, and public assistance payments. Your home is exempt if you owe less than $5,000.
The IRS did not give you the proper notice - The IRS must give you at least 30-day notice before seizing assets, except in cases of a jeopardy levy or a disqualified employment tax levy. If the IRS did not send you a Notice of Intent to Levy with your right to a hearing, they did not fulfill the legal steps required before a levy.
The levy was issued while a bankruptcy stay was in place - When you file for bankruptcy, the courts issue a stay which prevents creditors including the IRS from taking action against you. If the levy was issued while a stay was in place, that is a procedural error, and the IRS must stop the levy.
The levy was issued while you had a pending application for a payment plan or relief option - Applying for a payment plan or relief option after a levy is issued, will not necessarily stop the levy. But if you applied for a payment plan before the levy was issued, the IRS is supposed to pause collections while reviewing your application, and if they didn't, that is grounds for releasing the levy.
The levy was issued while you were on an active payment plan or agreement - When the IRS accepts a payment plan, offer in compromise, or currently not collectible status, part of the arrangement is that they also agree to stop collections against you. If they issue a levy after accepting one of these arrangements, that is also an error that they must reverse.
The levy was issued while you were dealing with appeals or Tax Court - The IRS is not allowed to levy assets while you're dealing with appeals or Tax Court. If they do so by mistake, they must release the levy.

How to Release a Wage Levy

The most common IRS levy is a wage levy or wage garnishment. If the IRS garnishes your wages, they only leave you a very small exempt amount. For most people, the exempt amount is not enough to cover their regular bills. For tips and ideas, check out this post on how to release a wage levy.

How to Release a Bank Levy

Bank levies also tend to be quite common. You may be able to stop a bank levy by proving financial hardship or establishing that the IRS issued the tax levy in error. To learn more, check out this post on how to release a bank levy.

What If the IRS Refuses to Release the Levy

If the IRS denies your request to release the levy, you can appeal. Ideally, you should appeal as soon as possible when you learn about the IRS's decicion. Generally, the IRS will not move forward with the levy while you're appealing.

FAQs

Will setting up a payment plan stop a tax levy?

The IRS will release the levy if the terms of the payment agreement dictate that. You need to make sure that the terms stipulate a levy release. Talk with a tax professional or contact the IRS to be sure. For example, if the IRS is garnishing your wages and you go online and set up a payment plan, that will not stop the garnishment. The plan's terms must explicitly state that the IRS will remove the levy.

What if the IRS levies assets more than 10 years after assessment?

Generally, the IRS only has 10 years to collect taxes owed. After that time, the tax owed expires. However, there are several actions that can toll (pause) the collection period, and when that happens, the extra time gets added to the end. When that happens, you may face a levy more than 10 years after the assessment. That said, the IRS frequently calculates the debt incorrectly. A tax pro can help you make sure that the debt hasn't expired, and they can help you deal with the IRS if the date is incorrect.

How do you prove financial hardship to the IRS?

The IRS has a strict definition of financial hardship. Essentially, you have to prove that if the IRS takes your assets you won’t be able to meet basic living expenses. Basic living expenses are set at the national level for food, clothing, and other items whereas local standards determine mortgage/rent, property taxes, insurance, gas, electric, and so forth. You can read more about Collection Financial Standards here.

If you prove hardship, the IRS marks your account as “currently uncollectible.” The agency temporarily pauses collection activity and revisits the situation in the future.

Will filing for bankruptcy stop a tax levy?

When you file for bankruptcy, the courts issue a “stay”. That requires all creditors including the IRS to stop collection activity. Bankruptcy may wipe out some tax liabilities, but it depends on the age of the taxes, the types of taxes, and the bankruptcy chapter. You should only take this step in severe situations because it has a lasting impact on your credit score.

What if the IRS doesn't respond to your request to release the levy?

If the IRS is not responding to you, contact a tax professional to advocate for you. Alternatively, if you cannot get a resolution through the usual channels, you can request help through the Taxpayer Advocate Service by filing Form 911.

What is a lien release?

A lien release is when the IRS releases a tax lien from your assets and also removes the Notice of Federal Tax Lien. However, you still owe the tax debt.

When will the IRS release a tax lien?

The conditions of a lien release are different than a levy release. The IRS will release a lien if you pay in full, pay off an accepted offer in compromise, or set up a bond to cover the tax bill. The IRS will automatically release a lien when the collection period ends.

Get Help to Release an IRS Tax Levy

A tax levy is the IRS’s harshest collection mechanism. If the IRS is levying your assets, a tax professional can help you get back on track. They know how to deal with the IRS, and they can point you toward the best solution for your situation. To find the best tax professionals to help with an IRS tax levy, start your search below. Select the agency or agencies involved and then under problems, select tax levy and view the pros with experience helping with this tax problem.