Posted by Fred Lake

Wrongfully Levied by the IRS? How the TCJA Can Help.

Wrongfully Levied by the IRS? How the TCJA Can Help.

There are times Uncle Sam might be authorized legally to confiscate a taxpayer’s property. They do this to take care of tax liabilities. It should be noted that a levy stands out from a tax lien. The government uses a tax lien as a legal claim on an individual’s property in a bid to get payment for tax debts.

When Uncle Sam exhausts all means to collect its debt, they resort to levies as the last option. Levies come when the IRS assesses the tax and demands payment, yet the taxpayer refuses to pay. Also, there must have been a final notice of intent to levy. 

There are, however, times when the IRS levies the wrong property. They could seize a property owned by a third party or a property that is exempt. In cases like this, the taxpayer or third party involved will have to file a wrongful levy claim.

Challenging Wrongful IRS Levy With the New Law 

Uncle Sam is authorized by the law to levy or seize assets, accounts, wages, bank accounts, salaries of individuals or businesses to take care of owed taxes. There is time, however, that the IRS can seize the wrong asset.  This happens when they size the asset of someone other than the defaulting taxpayer.

In situations like this, the person is authorized to file a wrongful levy claim with the IRS. The person can also sue the IRS in a bid to make them return the property. Uncle Sam might have to take care of fees for the court's proceeding and attorney's fee to take care of these claims in claims like this.

Recently, there is an announcement from the IRS that individuals and businesses who wish to file an administrative claim can have extra time. This helps bring up civil action in response to a wrong levy. The Tax Cuts and Jobs Act (TCJA) has also provided additional time for making such a lawsuit. With this, rather than the nine months' taxpayers have before, they can make such claims in two years.

Whenever a taxpayer or business discovers that their asset has been wrongfully seized in response to someone else's tax, the party must consult the tax counsel as soon as possible. There are vital time deadlines that make this compulsory.

Thanks to the TCJA, there is a time extension for filing wrongful IRS levy and suing Uncle Sam. Yet, there are still some deadlines to take note of. The implication is that if a taxpayer does not initiate the civil action within the time frame or challenge the wrongful levy in response to the IRS's action, the person or business can forfeit the property.



How TCJA Helps

Whenever there is a wrongful levy, there are a couple of things the taxpayer can do. There is the opportunity for the third party to file a claim provided the asset is with the IRS. They can also try to recover the funds generated from the proceeds of the sale of the item. 

Before the intervention of TCJA, anyone dealing with this has only nine months from the date the wrong levy was issued to file a claim. This is the claim to seek recovery of the asset or funds from its sale.

There is also an opportunity for civil action against the United States. When this happens after a wrongful levy claim, there will be an extension of the two years. This, however, depends on whichever is shorter from these two:

  • Six months after the IRS rejected the claim

  • Twelve months after the wrongful claim was filed.

This provision has been effective for a while. Compliance with these dates is critical as the victim risk forfeits their property if they do not comply.

Whenever the IRS makes a wrongful levy on your property, be sure to seek the help of a professional. It is not easy to challenge a wrongful levy, and it is not a task for your accountant. Make sure to get in touch with tax accountants that understand the intricacies of taxes and the corresponding legal action.


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Fred Lake
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