Tax debts that go unpaid may lead the IRS to take possession of a taxpayer's property in a procedure called an IRS levy.
The IRS is empowered by the federal government to take extreme measures to hold taxpayers responsible for paying their taxes. Refusing to pay back taxes can trigger a levy whereby the IRS seizes your property in order to sell it.
The IRS can prevent you from receiving a tax refund. The IRS may also take a portion of your wages or other financial assets such as retirement accounts and tax refunds in order to satisfy your tax debt.
How To Avoid an IRS Levy
The IRS will send you a notice to notify you of past due taxes. Respond to the notice by following the instructions included. Pay the taxes due if you can. That's the quickest and least painful way to avoid any further collections by the IRS. If you are able to pay, then you should pay. It may even be advisable to borrow money in order to pay past due taxes and to avoid the IRS collection process. Further delay will only make the situation more expensive for you in interest and penalties.
If you cannot pay your taxes now, you still must respond to the IRS notice. Inform the IRS that you are unable to pay. You may be able to apply for a payment plan or installment agreement -- where the IRS allows you to make a series of reduced payments until your debt is paid off. Call the number on the notice to find out how to arrange a payment plan or installment agreement.
If you've already received the IRS Final Notice of Intent to Levy and Notice of Your Right to a Hearing, then the levy could happen as soon as 30 days from the date of the notice. In a month, you face losing your car, home, and wages. File Form 12153 or Request for a Collection Due Process or Equivalent Hearing. At the hearing you can enter an appeal to stop the levy. In an appeal you can disagree with the IRS with regard to your tax liability. You must provide the appropriate documentation to support your appeal.
You may also try to make an offer in compromise. This requires that you agree to pay an amount less than what you owe. Most taxpayers will require the help of a tax professional such as an attorney in order to design and negotiate the compromise. If the IRS finds that your offer is acceptable, then you'll be able to avoid the levy by paying a reduced amount of taxes.
If you have reason to think that the IRS is mistaken in attempting to collect tax debts from you call the IRS to let them know. The IRS or the Taxpayer Advocate Service can help you stop collections and prevent a levy if there was a mistake made about your tax liability.