What can the IRS do about tax debt? Know your rights

Linda did not open her letters for a different reason than Michael. Michael was avoiding a problem he understood in outline. Linda was avoiding one she had built up in her mind into something that did not exist.

She was 68, a widow, living on Social Security and a small pension from thirty-one years as a school secretary. The tax debt, about $31,000, came from the two years after her husband died, when she had cashed out his retirement account to pay for his final months and the funeral, and nobody had told her the withdrawals were taxable income. She filed. She could not pay. The letters started.

What Linda believed, and what she told her daughter in a voice that made her daughter drive over that same night, was that the IRS was going to take her Social Security check, take her house, and possibly arrest her.

None of that was going to happen the way she pictured it. One part of it could happen in a limited way. Two parts could not happen at all. But because she believed all three, she had been sending the IRS $200 a month she could not spare, without any agreement in place, out of a kind of appeasement, while the balance kept growing and the letters kept coming.

Fear with no shape makes people do things like that. So let us give it a shape.

What the IRS can actually do

I am going to list the powers plainly, because they are real and I do not want to minimize them. Then I am going to list the limits, which are also real and which almost nobody knows.

It can file a lien. The moment a tax is assessed, you are sent a bill, and you do not pay, a federal tax lien arises by law against everything you own and everything you later acquire. You do not see this lien. It is sometimes called the secret or statutory lien. What you can see is a Notice of Federal Tax Lien, a public document filed with your county or state that tells the world about the lien. A filed lien does not take anything from you. It attaches to your property so that if you sell it or borrow against it, the IRS gets paid first. It can wreck a refinance, complicate a home sale, and in some cases show up when a landlord or lender runs a search on you. Chapter 14 is about liens.

It can levy your bank account. As Michael learned, a bank levy freezes whatever is in the account on the day the levy is served, the bank holds it for twenty-one days, and then sends it to the IRS unless the levy is released. It is a one-time grab. The IRS can serve another one later, but each is a separate snapshot.

It can levy your wages. A wage levy is worse than a bank levy because it is continuous. Your employer gets a notice, and from the next pay period onward a portion of every paycheck goes to the IRS until the debt is paid or the levy is released. The portion is not everything. There is a protected amount, which I will come to in a moment, but for most people the protected amount is well below what they live on.

It can levy other income and property. Accounts receivable, if you run a business. Rental income. Commissions. Money owed to you by a customer or a client. Retirement accounts, although the IRS's own manual requires a manager's approval and a finding of flagrant conduct before it goes after a retirement plan, so this is rare for ordinary taxpayers. Physical property, like a vehicle or equipment, which it can seize and sell, although it does this far less than people imagine because the cost and effort rarely justify it.

It can take part of your Social Security. This is the one Linda was right to worry about, in a limited way. Through a program called the Federal Payment Levy Program, the IRS can automatically take up to 15 percent of a Social Security retirement or disability benefit to pay a tax debt. Not all of it. Fifteen percent. It can also, through a manual levy, take more in some cases, but the automated program is the common route and it is capped. Supplemental Security Income and certain other need-based payments are not subject to it.

It can take your state tax refund. CP504 warns of this collection action. A state-refund levy is an exception to the usual pre-levy CDP hearing requirement; hearing rights may be provided afterward. Do not assume the IRS must send another final notice before taking that refund, or that CP504 establishes protection from other levies when prior hearing rights were already provided.

It can take your federal refund. Any refund you would otherwise get is applied to the balance, automatically, every year, as long as you owe. This happens even if you are in a payment plan.

It can block your passport. If your total debt, including penalties and interest, is above a threshold that is indexed for inflation each year and has been in the $60,000 range in recent years, and the debt is in active collection, the IRS can certify it to the State Department as "seriously delinquent." The State Department can then refuse to issue or renew a passport and in some cases revoke one. There are exceptions, including for people in payment plans, people with pending hearings, and people in Currently Not Collectible hardship status.

It can hand you to a private collector. Certain older, inactive accounts are assigned to private collection agencies under contract with the IRS. These agencies can call you and ask for payment. They cannot levy, lien, or do anything else enforcement-wise. They can only ask. You will get a letter from the IRS first telling you this has happened, and you have the right to tell them to stop.

It can hold the debt over you for a long time. Generally ten years from the date each tax was assessed, with events that can pause or extend that period. Chapter 7 is entirely about this clock.

That is the real list. It is a serious list. A continuous wage levy, by itself, can make a household unworkable. A lien can freeze you out of the housing and credit markets for years.

Now the other list.

What the IRS cannot do

Levy notice and hearing rights. Before most levies, the IRS must give notice and an opportunity for a CDP hearing. For a levy CDP notice such as LT11, Letter 1058 or CP90, the request period is 30 days from the date of the notice. Follow the printed hearing deadline; do not count from when you opened the envelope. A prior CDP notice for the tax and period may already have provided the hearing opportunity. Actual receipt is not the only permitted way of providing notice; do not assume a levy is invalid simply because you did not open or receive a letter. A timely levy CDP request generally prohibits levy for the covered taxes and periods during the CDP process. Statutory exceptions include jeopardy, state-refund, disqualified employment tax and federal contractor levies; these can carry post-levy hearing rights. The IRS normally does not levy during the lien-hearing request period and related CDP process, but a lien hearing is not an unconditional statutory bar to levy. A timely CDP request suspends the collection limitation period until the determination becomes final or you withdraw the request in writing.

It cannot take everything you earn. When the IRS levies wages, a part of each paycheck is exempt by law. The exempt amount is set by a table the IRS publishes each year, Publication 1494, and it is based on your filing status and the number of dependents you claim. The exempt amount is low. It is roughly tied to the standard deduction divided into pay periods, plus an allowance per dependent. For a single person with no dependents paid every two weeks, it has been in the neighborhood of six hundred dollars per check. That is not a living. But it is also not zero, and your employer is required to apply it.

It cannot take certain things at all. The Internal Revenue Code, in section 6334, lists property that is exempt from levy no matter what. The list includes your clothing and school books; a dollar amount of furniture, personal effects, and household goods, indexed for inflation and currently above $10,000; a dollar amount of books and tools you need for your trade or business; unemployment benefits; workers' compensation; certain annuity and pension payments including military disability; court-ordered child support you pay; and certain public assistance. There are more items than that. Chapter 15 has the full list. What matters here is that there is a floor.

It cannot take your home casually. This is the one people fear most and understand least. The IRS can, in theory, seize and sell a principal residence. In practice it is one of the rarest things the agency does, for two legal reasons. First, the Code prohibits seizing a residence to collect a debt of $5,000 or less. Second, and far more important, for any larger debt the IRS cannot seize a principal residence without getting written approval from a federal district court judge or magistrate, after showing that the debt is valid, that the law has been followed, and that there is no reasonable alternative. The IRS has to go to court. The IRS carries out only a few hundred seizures of any kind of property in a typical year, nationally, out of millions of delinquent accounts, and homes are a small fraction of those. The cases that do happen typically involve very large debts and taxpayers who have refused every alternative. A lien on your house is common. The IRS physically taking your house is not.

What the IRS can do, and does, is sit on the lien until you sell or refinance, and then collect from the proceeds. That is a real constraint and a real cost. It is not eviction.

It cannot arrest you for owing. Tax debt is a civil matter. You do not go to jail for being unable to pay. You do not go to jail for being late. You do not go to jail for owing a lot. The criminal side of tax law exists, but it is about willful conduct: filing a return you know is false, deliberately not filing year after year to evade tax, hiding income, lying to agents, structuring cash deposits to dodge reporting. Criminal tax cases are investigated by a separate division of the IRS and prosecuted by the Department of Justice, and they number in the low thousands per year across the entire country. If you filed accurately and simply could not pay, you are not in that world and no collector can put you there. If you have a legitimate reason to worry that you might be, close this book and call a tax attorney today, because that is a different problem and self-help is not the answer to it.

It cannot ignore your rights. Which brings me to a document every taxpayer should know exists.

The ten rights you already have

The Taxpayer Bill of Rights has an odd history for a document that now carries the force of law. For years the National Taxpayer Advocate, Nina Olson, pressed the IRS to collect the dozens of protections scattered through the Code into a short list that an ordinary person could read, on the theory that a right nobody knows about is not really a right. The IRS adopted the list administratively in June 2014. Congress wrote it into section 7803 of the Code in December 2015. It is now ten plain statements, the IRS is required to tell you about them, it does so in a publication that comes with your notices, and almost nobody reads it, which is the problem Olson was trying to solve in the first place.

Read it now. Here are the ten, with what each one means when you owe money.

1. The right to be informed. You are entitled to clear explanations of the law, the procedures, and the decisions in your case. If a notice does not explain why you owe what it says you owe, you can demand that it be explained.
2. The right to quality service. Prompt, courteous, professional assistance, and the right to speak to a supervisor if you are not getting it.
3. The right to pay no more than the correct amount of tax. This includes penalties and interest. If the number is wrong, you have the right to have it fixed, and you have no obligation to pay a balance you can show is incorrect.
4. The right to challenge the IRS's position and be heard. You can object, provide documentation, and expect the IRS to consider it fairly and promptly.
5. The right to appeal an IRS decision in an independent forum. The Independent Office of Appeals is structurally separate from the collection and examination functions. A Collection Due Process hearing happens there. Most collection decisions can be taken there.
6. The right to finality. You have the right to know the maximum time the IRS has to audit a year or collect a debt, and when it has ended.
7. The right to privacy. IRS actions are supposed to be no more intrusive than necessary and to respect due process, including the protections against unnecessary seizure.
8. The right to confidentiality. Your tax information cannot be disclosed except as the law allows.
9. The right to retain representation. You can be represented by an attorney, a certified public accountant, or an enrolled agent, and if you cannot afford one you may be able to get help from a Low Income Taxpayer Clinic.
10. The right to a fair and just tax system. The IRS is required to consider the facts and circumstances that affect your ability to pay and to provide information timely. If you are experiencing financial hardship, this is the right that gives you access to the Taxpayer Advocate Service.

A word on what these rights are and are not. They are not a magic phrase. Saying "I invoke my right to finality" on the phone does not do anything. What the rights do is tell you where the levers are. Right 5 is a lever: when you get a final levy notice, there is a hearing available in a forum that is not the collector. Right 3 is a lever: you can insist on a transcript and a breakdown and you can dispute what is wrong. Right 10 is a lever: there is an office whose job is to help when the normal channels have failed.

The office that exists to help when nothing else works

The Taxpayer Advocate Service is an independent organization inside the IRS. Its employees report to the National Taxpayer Advocate, not to the collection or examination chains of command. It exists for two situations: when you are suffering or about to suffer significant hardship because of an IRS action, and when an IRS process has broken down and you cannot get it fixed through normal channels.

You reach it by filing Form 911, Request for Taxpayer Advocate Service Assistance, or by calling your local advocate office. If TAS accepts your case, a case advocate is assigned who can contact the IRS on your behalf and, in hardship situations, can issue what is called a Taxpayer Assistance Order directing the IRS to act or to stop acting.

TAS is not a way to get your debt reduced. It is a way to get the IRS to follow its own rules and to move. If a levy is about to make you unable to pay rent, that is a TAS case. If you have sent the same documents three times and nobody has processed them, that is a TAS case. If you simply owe money and want to owe less, it is not.

TAS lost about a quarter of its staff in 2025 along with the rest of the agency. It is slower than it was. It still exists, and for people in Linda's position it is often the difference between a levy released this week and a levy released in three months.

What this meant for Linda

Linda's daughter, who had the good sense to read the letters, found this:

The records showed a CP504 eighteen months earlier and informal $200 monthly payments. Those payments reduced the balance as applied, but did not create an installment agreement, stop all charges or establish a legal collection hold. The absence of a newer letter did not establish that another warning was required. She needed to check the earlier hearing notices for each period and ask the IRS about the current collection status and available alternatives.

There was no levy on her Social Security. There was no lien filed. There was no revenue officer. The house was not in play, and could not have been in play without a federal judge's signature. The arrest she had been imagining had never been a legal possibility.

What Linda had was a $31,000 debt, a fixed income that left her roughly nothing after necessary expenses, a paid-off house worth about $280,000, and a daughter who was now going to help her look at the numbers.

That is a real problem with real options, and some of those options are good. Her income picture points toward Currently Not Collectible status, which can stop collection entirely while her circumstances last. Her house complicates an Offer in Compromise, since the IRS counts equity, but does not rule it out, since the IRS does not expect a 68-year-old to sell her home to pay a tax debt and its own guidelines say so. The tens of thousands she spent on her husband's medical care in those two years were never deducted, and amending those returns could cut the tax itself, not just the penalties. All of that is ahead.

For now, the point is simpler. The thing Linda was afraid of was a monster assembled from fragments: a neighbor's story, a late-night commercial, a half-remembered news item about somebody's garnished wages. The actual agency has a list of powers, each with a trigger, a sequence, and a limit. Once you can see the list, you can see where you are on it.

And once you can see where you are on it, the next question is the one that makes people wince: how did a manageable bill turn into this?

In Linda's case, one unclaimed exception and eighteen months of unofficial payments. In Michael's, three years of skipped estimated taxes. The mechanics of how a tax problem grows are not mysterious, and they are the subject of the next chapter. I promise it is less painful to read about than to live through.

Hearing timing and procedures: IRS Publication 1660, pages 1–2 and Form 12153 and instructions, source-checked October 30, 2026. See Chapter 16 for the lien, levy and equivalent-hearing distinctions.

Official notice sources

IRS CP504 instructions and Publication 1660: collection appeal rights and levy exceptions. Follow current instructions and the deadline on your actual notice.