IRS Bank Levy
The Internal Revenue Service (IRS) is known as one of the harshest collection agencies out there. Taxpayers who have accumulated tax debt with the IRS face serious consequences. One of those consequences is an IRS bank levy. There are many existing levies, but the IRS bank levy is one of the most common. In order to avoid this extreme collection action, taxpayers must establish compliance with the IRS. An experienced tax professional can provide guidance and negotiate a structured resolution for taxpayers facing IRS bank levies.
How Does an IRS Bank Levy Work?
Before the IRS issues a bank levy to the delinquent taxpayer, they will send a series of collection notices to the assessed taxpayer. An IRS bank levy should come as no surprise as it is heralded by a series of collection notices for three months. The collection notices are as follows:
- Notice CP14, Balance Due is the first notice the IRS sends when attempting to levy a bank account. This letter will detail the amount owed and the payment deadline.
- Notice CP-501, Important is the next notice the IRS sends out 30 days after the taxpayer has received the first notice. This letter will follow up on the initial letter as reminder of the debt owed as well as any penalties and interest accumulated. Taxpayers will have 30 days to resolve their debt before receiving the next notice.
- Notice CP-503, Urgent is the following warning from the IRS. This letter will summarize the balance due, including penalties and interest, once again.
- Notice CP-504, Refund Levy is sent once the IRS has started determining which assets they intend to levy. Typically, a federal tax lien will follow this notice.
If taxpayers do not comply with the first notice, the Internal Revenue Service (IRS) will send out a final warning. Once the IRS issues a Final Notice Of Intent To Levy, taxpayers will have 30 days to appeal the notice. Otherwise, the IRS will be able to levy the taxpayer's assets. Once the IRS has placed a levy on the taxpayer's account, they will have the legal right to all funds in the account. These funds include checking, savings, and retirement accounts.
Banks Response to IRS Levies on Bank Accounts
Once the Internal Revenue Service (IRS) has successfully placed a levy on the taxpayer's account, they will contact the taxpayer's bank to put a hold on the bank account for 21 days. The IRS will then send a Notice Of Levy On Wages, Salary And Other Income . During this period, the taxpayer's account is frozen. The delinquent taxpayer has an additional 21 days to resolve the bank levy; the bank will transfer the funds to the IRS on the 22nd day.
Once the 21 day period has passed without ownership issues, the bank will send the funds to the IRS. Keep in mind that the bank cannot refuse to send funds to the IRS and that the IRS has the option to clear the entire bank account to satisfy the debt. The IRS will only have access to funds deposited before they issued the bank levy. However, if the levy does not cover the total amount of debt, the IRS will have the right to recollect funds from the bank.
Take Preventative Measures To Avoid A Bank Levy
The IRS will not assess a bank levy out of the blue. Taxpayers are given adequate time to resolve their debt before the levy is authorized. The minute an individual receives notice of a tax levy, they should immediately try to resolve their debt.
For example, suppose an IRS bank levy were to cause a taxpayer financial hardship. In that case, the taxpayer can contact the IRS independently or retain a tax professional to negotiate on their behalf. In order to make a reimbursement claim on an inaccurate bank levy, taxpayers should contact the IRS immediately to explain the discrepancy.
There are several approaches one can take to resolve a bank levy. Regardless of the course a taxpayer chooses to take, it is in their best interest to hire a tax professional to help them navigate the IRS maze!
Options For Bank Levy Release
The obvious way to prevent an IRS bank levy is to file tax returns on time and pay the tax liability. Taxpayers who do not have the means to pay the full amount owed should still pay what they can and work out a payment plan or settlement for the remaining balance.
Pay in Full
This option is the best as it will prevent the IRS from authorizing the bank levy. Taxpayers who have the funds to do so should pay in full in order to avoid penalties and interest.
Show Proof of Financial Hardship
Taxpayers may apply for hardship status, otherwise known as Currently Not Collectible (CNC) status, if they can provide supporting documents to the claim. Taxpayers must provide evidence that the bank levy will negatively affect their living situation, well-being, or health. Once approved, the IRS will place the delinquent taxpayer's account into CNC status for two years.
Apply for an IRS Fresh Start Program
The IRS Fresh Start Program also provides relief to taxpayers facing federal bank levies. Through the IRS Fresh Start program, taxpayers may enter into an Installment Agreement with the IRS. An Installment Agreement will allow taxpayers to make monthly payments towards their tax debt. Note that the monthly payments must be enough to pay off the entire amount owed before the statute of limitations expires. The Offer In Compromise is another Fresh Start program taxpayers may utilize. This program allows taxpayers to settle their debt for less than the original amount owed.
How Lifeback Tax Helps with Releasing Your Bank Levies
If you have received an IRS notice of a bank levy, your first thought might be to ignore it. However, it is essential to remember that the Internal Revenue Service (IRS) takes collection action seriously and will come after you. Therefore, it is in your best interest to take care of the issue before it gets worse! Furthermore, retaining a reputable, experienced tax professional can improve your chances of achieving a desirable outcome.
The Lifeback team is comprised of well-equipped tax professionals with ample experience handling IRS bank levies. Our tax attorneys, Certified Tax Resolution Specialists (CTRS), and Enrolled Agents (EAs) will explore the different levy resolution options with you and help you determine the one best suited for your financial situation. Once you retain our services, we'll have your back against the IRS and get your life back!
IRS Bank Levies FAQs
An IRS bank levy is a legal seizure of property, including funds from bank accounts, to satisfy a tax debt.
The IRS may levy a bank account when:
(1) the IRS assessed the tax and sent you a Notice and Demand for Payment
(2) the tax was unpaid
(3) the IRS sent a Final Notice of Intent to Levy and Notice of Your Right to A Hearing at least 30 days before the levy
(4) the IRS sent advance notification of Third Party Contact notifying the IRS may contact third parties regarding the determination or collection of tax liability.
The IRS may levy your bank account if taxes are unpaid and arrangements are not made to settle the unpaid taxes.
It depends. The IRS will determine the levy amount based on factors like filing status, the number of dependents you may have, and other factors.
Yes. Upon receipt of a notice of intent to levy from the IRS, you may request a hearing to ask for a payment agreement.
A portion of your waves and income is exempt from the levy. The amount will depend on factual circumstances including your filing status, number of dependents, and other factors. Generally, the IRS cannot levy your bank account if they agree seizure of property would result in your inability to meet basic, reasonable living expenses.
Generally, no. The IRS is required to give you notice of a levy. However, the IRS may send you notice to your last known address. It is crucial you maintain current address information so you receive proper notice of a potential levy action and can respond appropriately. In certain circumstances the IRS is legally permitted to garnish wages without warning such as when the collection of the tax is in jeopardy.
Generally, no. The IRS is required to give you notice of a levy. However, the IRS may send you notice to your last known address. It is crucial you maintain current address information so you receive proper notice of a potential levy action and can respond appropriately. In certain circumstances the IRS is legally permitted to garnish wages without warning such as when the collection of the tax is in jeopardy.