IRS Bank Levy Overview: Rules and What to Do
An IRS bank account levy is when the IRS seizes funds directly from your bank account to cover back taxes
you owe. Usually, the IRS contacts your bank about your tax debt. Next, your bank must freeze your
assets for 21 days from the day it receives the IRS notice. Consequently, if you don’t take action
during that time, the bank sends all the funds to the IRS.
An IRS bank levy will only impact the current funds in the account. In fact, once your bank activates the
bank levy, it will not affect any future deposits. The IRS can issue another bank levy later.
However, this rarely happens.
Usually, this is the last line of defense for the Internal Revenue Service. The IRS only uses this
enforcement collection method after trying to contact you several times without getting a response. To
understand more about bank levies and how to stop them, explore the information in the links below.
What is a Bank Account Levy? How it Works, What to Expect
IRS Bank Levy Overview: Rules and What to Do
An IRS bank account levy is when the IRS seizes funds directly from your bank account to cover back taxes
you owe. Usually, the IRS contacts your bank about your tax debt. Next, your bank must freeze your
assets for 21 days from the day it receives the IRS notice. Consequently, if you don’t take action
during that time, the bank sends all the funds to the IRS.
An IRS bank levy will only impact the current funds in the account. In fact, once your bank activates the
bank levy, it will not affect any future deposits. The IRS can issue another bank levy later.
However, this rarely happens.
Usually, this is the last line of defense for the Internal Revenue Service. The IRS only uses this
enforcement collection method after trying to contact you several times without getting a response. To
understand more about bank levies and how to stop them, explore the information in the links below.
A bank account levy is one of the IRS’s most aggressive collection enforcement actions. The IRS
forcibly seizes funds in your bank account to cover an outstanding tax debt. This link explains how a bank
account levy works and what to expect.
How to Release or Stop an IRS Bank Account Levy
When you fail to respond to IRS notices about a balance due, the IRS
eventually sends a final notice of intent to levy.
You have 30 days to request an appeal or CDP hearing, which will stop levy action temporarily so you can
work out a resolution with the IRS (discussed below). If you don’t take action during this time, the IRS can
confiscate just about anything you own. Usually, the IRS starts with wages or bank accounts.
One of the IRS’s most popular options is to seize the funds you have in your bank. Some time after the 30
days have passed, the IRS contacts your bank. The bank freezes your account, and if you do not make
arrangements within 21 days, the bank sends the funds to the IRS on the 22nd day.
To avoid a bank levy, you should call the IRS or work with a tax professional. It is important to do so
once you receive the final notice of intent of levy. If your bank has already frozen your funds, you need to
take action during the 21-day holding period. Once the IRS garnishes your bank account, it is difficult to
get it back.
Ways to Stop or Release an IRS Bank Account Levy
Request a CDP Hearing
If you have received a Final Notice of Intent to Levy from the IRS, you can stop the bank levy by
requesting a
Collection Due Process
hearing. You have to do so within 30 days from the date of the letter or notice. Once you appeal,
you will have some time to work out a resolution with the IRS (options discussed below). You can use a
licensed tax professional to work on your behalf. In some cases, you may appeal because you are
currently in bankruptcy proceedings, or the collection statute of limitations has expired.
Pay in Full
If you pay your tax debt in full, the IRS will not move forward with the levy or release the hold on
the funds in your account. Paying in full helps you avoid any more interest and penalties.
If you agree to make monthly payments on your tax debt, the IRS will also remove the freeze on your
account. Tax payments have to be enough to pay off the debt before the statute of limitations on
collection
for a particular tax period expires. Usually, the IRS gives taxpayers several years. If you default on
your
installment agreement, the IRS may levy
your bank account again.
An offer in compromise allows you to settle tax debt for a fraction of the total. The IRS only accepts
this arrangement for taxpayers who qualify. If the IRS believes it can obtain what you owe them in other
ways or thinks you can pay more, they will send you a rejection letter. As this option is complicated,
it’s best to work with a tax professional.
When seizing money from your bank account, the IRS does not make sure you have enough money left to pay
your other bills. However, if you can prove that you cannot live on the remaining funds, that’s a
different story.
To prove the bank account levy affects your health and well being or limits your ability to put a roof
over your head, you need to provide the agency with detailed financial information. If the IRS approves
your hardship application, your account gets labeled as a CNC or uncollectible. It is only a temporary
resolution. The IRS reviews this CNC status every two years and uses your tax returns to assess your
ability to pay.
If you believe you are a victim of tax-related identity theft, then the IRS is willing to help. In many
cases, you will need to set up another resolution with the IRS as this process can take time. You will
also need to fill out
IRS Form 14039 - Guide to Completing IRS Form 14039 Identity Theft Affidavit
(Identity Theft Affidavit) and mail it to the IRS. It is always a good idea to have
a tax firm or professional help you with tax-related identity theft. The fees usually far outweigh
the cost of having tax debt remain, especially if you are not responsible.
Get Help From a Tax Professional
No matter what method you choose, you must act quickly. Once you discover your bank has frozen your
account, you have up to 21 days before the IRS receives the funds. Once the money is taken, it is
usually not returned.
Even if you set up an installment agreement or qualify for an offer-in-compromise, it’s too late once the
IRS has taken the funds. To get through this situation, feel free to contact Nugent & Associates with any questions you may have.
You can stop a bank account levy, but you need to act quickly before the IRS seizes the funds. This link
explores multiple ways to stop a bank account levy and protect your assets. The right option depends on your
situation.
IRS Bank Account Levy Frequently Asked Questions (FAQs)
What Is an IRS Bank Account Levy?
A bank account levy is when the IRS seizes the funds in your bank account to cover your tax debt. The IRS
contacts the bank, the bank freezes your money, and the bank sends the money to the IRS on the 21st day.
How Can a Tax Professional Help With an IRS Bank Account Levy?
A tax professional looks at your situation and helps you find the best tax resolution to stop or release
the tax levy. Their advice can help you avoid a bank account levy or prevent the funds from being taken once
the bank has frozen them. It’s important to note, however, that once the IRS has your money, it is difficult
to get it back.
Can You Stop a Bank Account Levy Once the Bank Freezes the Account?
Yes, you can stop a bank account levy after your bank has frozen the funds. However, you only have 21 days,
and if you miss that window, your bank will send your money to the IRS.
Can I Get Back the Money the IRS Seized From My Bank Account?
Usually, you cannot get the money back once the IRS takes it (of course there are exceptions). That money
goes toward the tax you owe. If you want to make arrangements, you need to do that before the funds are
gone. You have 30 days after receiving the Final Notice of Intent and an additional 21 days after the bank
has frozen your account.
What If I Can’t Pay My Other Bills Since My Account Is Frozen?
The IRS doesn’t care if you can’t pay your other bills. However, if you can prove that the levy is causing
severe financial hardship, the IRS may be willing to remove the tax lien. You need to apply for hardship
status. You can request a free consultation above.
How Can I Avoid an IRS Bank Account Levy?
You can avoid a bank account levy by keeping in good standing with the IRS. You need to file all tax
returns. Furthermore, if you cannot pay in full, you at least have an agreement with the IRS. Even if
you cannot pay taxes owed, it is essential to work out an arrangement with the IRS to prevent enforced
collection action (wage garnishment, levies, and liens).
What Are the Laws on IRS Bank Account Levies?
The IRS has tremendous power when it comes to seizing assets such as funds in your bank account. However,
before the agency can take your money, the following three things must usually happen (with exceptions):
- The IRS must assess a tax liability and send you a notice.
- You must fail to pay or fail to make other arrangements.
-
The IRS must send a final notice of intent to levy. The letter must explain that you have 30 days to
appeal or make payment arrangements.
If the IRS skips any of these steps, you can get the levy reversed based on procedural errors. However, the
IRS only needs to send you a notice of your rights once for each tax period.
What Are Some Exceptions To the Rules Above?
- It feels collection of the tax money you owe is jeopardy (flight risk)
- To collect tax from a state tax refund
- The IRS served a Disqualified employment tax levy
In these situations, the IRS will send you a notice of your appeal rights after it issues the levy.
How Many Times Can the IRS Levy Your Bank Account?
The IRS can levy it a bank account more than once. When the IRS levy’s you, it is not a standing levy,
which means you can deposit money the next day. An IRS bank levy attaches to funds once the bank
processes the tax levy. If you make a deposit a few days later, the bank should not freeze it. The IRS
would have to send another levy to the bank, but this is unlikely as it usually won’t happen quickly.
What to Do If the IRS Levied a Bank Account I Had Signature Authority for Only?
The person or a licensed professional representing the person who had their bank account levied by the IRS
should call the telephone number received on Form 668-A(C)DO. At this point, they need to explain to
the IRS how the funds in the account belong to them. You may need to substantiate this claim with
documentation. For example, say you have a bank account with signature authority for your father, but it is
primarily your bank account and your money. The IRS could levy the bank account for taxes your father
owes.
Get Professional Bank Levy Help
Nugent & Associates can help solve your tax problems without sacrificing your financial well being.
Request a free consultation with a tax specialist to talk about stopping your bank levy and settling your tax debt.
