The IRS Tax Levy on Social Security Benefits: Does it Last Forever?

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An IRS tax levy is a seizure of a person’s property or rights to property.  The IRS then uses the seized property to pay taxes owed.  A levy allows the IRS to confiscate a person’s property, which includes cars, boats, real estate, and other “tangible” property.  The IRS can also levy and take a person’s wages, bank accounts, and retirement income including Social Security benefits.

The IRS has been authorized to impose levies since 1954. Generally, the IRS must wait at least 10 days from the date it sends a notice of intent to levy before it can make a seizure. This notice must inform the taxpayer of his administrative appeal rights and options for entering into an installment agreement to avoid levy.  Once a notice of intent to levy is issued by the IRS to a taxpayer, and the taxpayer does not pay the taxes owed, the IRS is then free to levy against the taxpayer’s assets without any further notice.

IRS levies can be of different types.  There are levies issued that apply only to property existing at the time a levy is issued (e.g. a bank account balance), and other levies that are “continuous” and  apply to all property/income subject to the levy when served and also in the future until the tax debt is paid in full (e.g. wage levies).  The IRS can levy a taxpayer’s Social Security payments to pay unpaid taxes.    Social Security levies, like wage levies, are “continuous” and apply until a taxpayer’s tax debt is paid; however, under a special limit enacted by Congress, a Social Security levy can apply to no more than 15% of the taxpayer’s gross Social Security payments.  Thus, taxpayer’s who receive a levy by the IRS on their Social Security payments should expect to receive no more than 85% of the otherwise expected payment from the government.

With most federal taxes, the IRS does not have an unlimited time to collect payment from a taxpayer.  Generally, the IRS has 10 years from the date the tax is assessed in which to collect taxes owed.   However, the IRS takes the position that where a levy is issued against a taxpayer’s Social Security benefits, the regular 10-year limit on collecting taxes does not apply, and the Social Security levy continues and will not be released until all the taxes (and penalties and interest) are paid in full.

This exception to the 10-year statute of limitations for Social Security tax levies by the IRS is important, and largely unknown by taxpayers and tax practitioners alike.  If an individual owes taxes, and their Social Security benefits are being levied, or a levy against these benefits is being threatened by the IRS, the individual should consult with tax counsel to understand their options and alternatives, rather than believing (incorrectly) that the Social Security levy may expire after 10 years.

 

An IRS tax levy is a seizure of a person’s property or rights to property.  The IRS then uses the seized property to pay taxes owed.  A levy allows the IRS to confiscate a person’s property, which includes cars, boats, real estate, and other “tangible” property.  The IRS can also levy and take a person’s wages, bank accounts, and retirement income including Social Security benefits.

The IRS has been authorized to impose levies since 1954. Generally, the IRS must wait at least 10 days from the date it sends a notice of intent to levy before it can make a seizure. This notice must inform the taxpayer of his administrative appeal rights and options for entering into an installment agreement to avoid levy.  Once a notice of intent to levy is issued by the IRS to a taxpayer, and the taxpayer does not pay the taxes owed, the IRS is then free to levy against the taxpayer’s assets without any further notice.

IRS levies can be of different types.  There are levies issued that apply only to property existing at the time a levy is issued (e.g. a bank account balance), and other levies that are “continuous” and  apply to all property/income subject to the levy when served and also in the future until the tax debt is paid in full (e.g. wage levies).  The IRS can levy a taxpayer’s Social Security payments to pay unpaid taxes.  Social Security levies, like wage levies, are “continuous” and apply until a taxpayer’s tax debt is paid; however, under a special limit enacted by Congress, a Social Security levy can apply to no more than 15% of the taxpayer’s gross Social Security payments.  Thus, taxpayer’s who receive a levy by the IRS on their Social Security payments should expect to receive no more than 85% of the otherwise expected payment from the government.

With most federal taxes, the IRS does not have an unlimited time to collect payment from a taxpayer.  Generally, the IRS has 10 years from the date the tax is assessed in which to collect taxes owed.  However, the IRS takes the position that where a levy is issued against a taxpayer’s Social Security benefits, the regular 10-year limit on collecting taxes does not apply, and the Social Security levy continues and will not be released until all the taxes (and penalties and interest) are paid in full.

This exception to the 10-year statute of limitations for Social Security tax levies by the IRS is important, and largely unknown by taxpayers and tax practitioners alike.  If an individual owes taxes, and their Social Security benefits are being levied, or a levy against these benefits is being threatened by the IRS, the individual should consult with tax counsel to understand their options and alternatives, rather than believing (incorrectly) that the Social Security levy may expire after 10 years.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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