Internal Revenue Code 6331: Authority for an IRS Levy

An Internal Revenue Service (IRS) levy is the legal seizure of property to satisfy an outstanding tax debt. This action is distinct from a lien, which is only a claim against property to secure a debt. A levy, in contrast, actually takes the property. The process is governed by federal laws that grant this authority while also providing procedural safeguards for the taxpayer.

The Authority to Levy

Internal Revenue Code (IRC) Section 6331 grants the Secretary of the Treasury the authority to collect delinquent taxes by levying a person’s property and rights to property. This power is defined as “distraint and seizure by any means,” allowing the IRS to take possession of assets to cover the owed tax. The levy can also include additional amounts to cover the expenses of the seizure itself.

The authority extends beyond physical assets to include both real and personal property, whether tangible or intangible. The code allows for a levy on accrued salaries or wages of any officer, employee, or elected official of the United States or the District of Columbia by serving a notice to the employer. This allows for direct action to resolve tax liabilities once all legal prerequisites are met.

If the IRS determines that tax collection is in “jeopardy,” it can demand immediate payment and levy without the standard waiting period. This expedited process is used when there is a risk that the taxpayer might flee, conceal assets, or otherwise act to place the tax beyond the government’s reach.

Prerequisites for a Levy

The IRS must follow specific procedures before it can legally seize property. The process begins after the tax liability is assessed and the IRS sends the taxpayer a bill, known as a Notice and Demand for Payment. This notice details the amount owed, including penalties and interest, and requests payment.

If the taxpayer does not pay after the initial demand, the IRS must send a Final Notice of Intent to Levy and Notice of Your Right to a Hearing. This document must be sent by certified or registered mail to the taxpayer’s last known address. The notice must be sent at least 30 days before the levy can be executed.

This final notice informs the taxpayer of their right to request a Collection Due Process (CDP) hearing with the IRS Office of Appeals. The request must be made within 30 days of the notice date, and a timely request prevents the IRS from levying while the appeal is pending. During the hearing, a taxpayer can challenge the appropriateness of the collection action and propose alternatives, such as an installment agreement or an offer in compromise, providing a formal venue to resolve the tax issue before assets are seized.

Property Subject to Levy

A levy can target property in the taxpayer’s possession or property held by a third party, such as a bank. Funds in bank accounts are commonly seized but are held for 21 days after the bank receives the levy notice. This holding period gives the taxpayer a window to resolve the issue before the funds are sent to the IRS.

Wages, salaries, commissions, and bonuses are also frequently targeted. A levy on wages is continuous, meaning the employer must send a portion of the employee’s pay to the IRS each pay period. This continues until the tax debt is fully paid or the levy is released. This continuous effect also applies to other income streams, such as rental income, where a single levy can capture both current and future payments due under a contract.

Other assets subject to seizure include retirement accounts, dividends, and the cash value of a life insurance policy. The IRS can also take physical property like vehicles, boats, or real estate to be sold to satisfy the liability. Through the Federal Payment Levy Program (FPLP), the IRS can continuously levy certain federal payments, including Social Security benefits, at a rate of 15%.

Property Exempt from Levy

Federal law exempts certain property from seizure to prevent taxpayers from being left without basic necessities. It is important to note that state-level homestead or personal property exemptions do not apply to a federal tax levy. Exempt property and income include:

• Necessary wearing apparel and school books.
• A certain value of fuel, provisions, furniture, and personal effects ($11,710 for 2025).
• A certain value of books and tools used in a trade or business ($5,860 for 2025).
• Unemployment benefits, workers’ compensation, and certain public assistance or disability payments.
• Income needed to pay court-ordered child support judgments that existed before the levy.

Additionally, a portion of an individual’s wages, salary, and other income is exempt to cover basic living expenses. This amount is calculated based on the standard deduction and the number of dependents the taxpayer claims.

Release of a Levy

The IRS is required to release a levy under several circumstances. A levy must be released once the tax liability is paid in full or when the statute of limitations for collection expires. The IRS has ten years from the date of assessment to collect a tax.

A levy will be released if the taxpayer enters into an Installment Agreement, provided its terms do not permit the levy to continue. This allows taxpayers to resolve their debt through a structured payment plan without the immediate threat of asset seizure. The IRS may also release a levy if doing so will help facilitate tax collection, for instance, by allowing a taxpayer to sell a levied asset to pay the liability.

The IRS must release a levy if it creates an economic hardship, which occurs when it prevents the taxpayer from meeting basic living expenses. The taxpayer must provide detailed financial information to the IRS to prove hardship. A release is also required if the seized property’s fair market value is greater than the amount owed and releasing it will not impede collection.