A federal tax levy is the IRS's legal seizure of a taxpayer's property — including wages, bank accounts, real estate, vehicles, and other assets — to satisfy an unpaid tax debt.
Pre-levy process: Before the IRS can levy most property, it must: 1. Send a Final Notice of Intent to Levy (and Notice of Right to Hearing) — CP 90 or LT11. 2. Allow the taxpayer 30 days to request a Collection Due Process hearing. 3. If no CDP request, the IRS may proceed with the levy.
What can be levied: - Wages, salaries, commissions (continuous levy — IRS sends one notice to employer; each paycheck is automatically levied). - Bank accounts (one-time levy — seizes funds on deposit on the date of levy; future deposits are not automatically levied). - Accounts receivable, retirement accounts, real property. - Tax refunds.
Exempt property (cannot be levied): - Unemployment benefits. - Certain public assistance payments. - Amounts for schoolbooks and clothing necessary for business/personal use. - Portion of wages (exempt amount based on standard deduction + personal exemptions). - Some pension and Social Security payments (in limited circumstances).
Seizure and sale of real property: - The IRS must give 10 days notice before seizing and selling real property. - A 180-day redemption period allows the taxpayer to buy back seized real property.
> Exam tip: A levy is the actual seizure of assets (vs. a lien, which is just a claim). Wages are levied continuously (employer withholds from every paycheck). Bank accounts are levied once. The 30-day CDP notice must precede levy action.