At least once a week someone asks me how to avoid or stop or prevent an IRS levy. There are different ways to stop a levy, but one very effective way is to file an Offer in Compromise, and I’m going to discuss that.
Remember, an IRS levy is different than a lien. A levy is when the IRS actually takes action against you to take your money. It’s usually a wage garnishment or a bank levy. The key difference between a wage garnishment and a bank levy is that the wage garnishment is continuous, and by that I mean that the IRS files the paperwork one time, sends it to your employer, and then they get a piece of your paycheck every time you get paid until they are paid in full.
A bank levy is just what you would expect; they take the money out of your bank account. This is often referred to as a one-time levy, which is a little misleading because they can file the paperwork over and over, but the fact is that it is not continuous meaning that when the levy hits your bank account, they get the money in the bank account on the day the levy hits. It is not continuous , meaning if you put more money in there after the levy hits they do not get that money.
The best way to avoid all levies is to get compliant and come up with a plan to solve your tax problem once and for all. However, in the real world, of course, levies happen all the time and people come to me when they are under the gun so to speak.
One way to stop an IRS levy is to file an Offer in Compromise. An Offer in Compromise is a proposal to settle with the IRS. Conceptually, the idea of an Offer in Compromise is very simple, but in reality, folks need help doing it because there is an awful lot of detail involved and if you don’t do it just right, the Internal Revenue Service will reject or return your offer and you will get no benefit from it.
Here’s what the Code says:
Suspension of Levy While offer is Pending
1. IRC 6331(k) provides that no levy may be made
• During the period that the offer is pending
• For an additional 30 days after the offer is rejected, and
• During the time any appeal of the rejection is pending.
2. Treasury Regulation 301.7122-1(d)(2) states that an offer becomes pending once it is accepted for processing. This is the date the Service official signs the Form 656.
A couple of things to keep in mind: Submitting an Offer in Compromise to stop a levy has the potential to be a real home run for you, the taxpayer. In the short term, it can and will stop the levy. And in the long term, it can actually settle your entire debt for less than what you owe. In other words, it can solve the bigger problem, your unpaid tax bill. However, keep in mind that it does take time to put together an Offer in Compromise. This is the hurdle for most folks. When they call because they are being levied, it’s often an emergency-type situation. People need the levy lifted quickly because they cannot pay their bills without their paycheck (obviously). But, in most cases, it takes time and thought to properly put together an Offer in Compromise. How long it takes depends upon your particular circumstances. The other thing to keep in mind is that filing an offer with the Service does not stop the levy immediately. The levy is stopped once the offer is “accepted for processing.” Technically, the offer is “accepted for processing” when the proper Service official signs Form 656 (the Offer in Compromise form). In our experience, offers are usually processed in about two weeks after they are filed.
There are, of course, other ways to stop IRS levies but this is one you may want to consider.