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The IRS can remove money from your bank account(s) if you owe back taxes. But they typically won’t take this step unless you haven’t made any effort to resolve your tax debt case. The IRS only resorts to a bank levy or other aggressive collection actions after multiple notices asking you to contact them. If you don’t respond, a levy is one measure they can take to force repayment.
A levy is the legal seizure of property or an asset by the IRS to fulfill a tax debt. The IRS can seize and sell property or assets owned by the taxpayer such as house, car, boat, etc. It can also levy property or assets that belong to the taxpayer but are held by somebody else. This includes bank accounts, wages, dividends, rental income, accounts receivables, etc.
Fact: The IRS is much more likely to garnish wages or levy accounts than to seize and sell any physical property. Levying property is usually the last resort because it is not as cost effective for the IRS.
Before placing a levy, the IRS will attempt to collect. If they aren’t successful, they will send the final notice of their intent to levy. This is known as a ‘Final Notice of Intent to Levy and Notice of Your Right to A Hearing’. The notice lets you know that unless you resolve your debt in 30 days, the IRS will levy your property. This letter is the final letter before a levy, after the 30 days has passed, the IRS can levy you at anytime.
When placing a levy, the IRS contacts the bank and asks it to hold the funds in your bank account(s) for a period of 21 days. This holding period is provided to resolve any ownership issues about the bank account(s). The amount is frozen, meaning that even though the money is still there, you don’t have access to it.
If after 21 days, there is no conflict in the ownership, the bank sends the funds to the IRS. The bank cannot refuse to send the money to the IRS. The IRS can seize up to the total amount of your tax debt from your bank account. For many taxpayers, this means the IRS can totally wipe out their account.
After receiving the IRS notice of levy, you should make immediate efforts to resolve the tax debt. You have 30 days to resolve your case. If satisfactory efforts for resolution are not made, then the IRS will contact the bank to initiate the levy.
If you learn that the IRS has frozen your bank accounts, and feel the levy would put you into financial crisis, you should immediately seek help. The IRS will lift a levy if you can prove that the levy would cause you severe financial hardship. You can either contact the IRS directly or hire a tax resolution service to handle the IRS for you. A licensed tax professional will have experience dealing with the IRS to get levies lifted. They have a better idea of what the IRS considers hardship and will be able to make your case accordingly.
If the IRS made a mistake and your bank account(s) were levied, then you can make a claim for reimbursement. You must immediately contact the IRS using the phone number on the levy notice and explain why you believe it is a mistake.
Fact: Other creditors besides the IRS can levy your accounts if they have a judgment and court order.
Unless you are eligible for a release due to hardship, a levy can be released only if a satisfactory resolution is made. Resolution does not necessarily mean paying the tax debt in full in one payment. The IRS has different payment plans that enable you to pay your tax debt in a way that best fits your situation, ranging from paying in full in fixed installments, to postponing payment until you are in a better financial situation.
Levies are no longer pursued after the IRS’ ten year statute of limitations for collecting debt ends. However, within those ten years there is no limit to the number of times the IRS can levy your bank account. The IRS can continue to take funds from your accounts until you make an arrangement to pay your back taxes.
Our advice, as always, is to resolve your tax debt as early as you can. You’ll avoid aggressive collection actions like a bank levy or a wage garnishment and end up paying less in penalties and interest.
Article last modified on March 1, 2019. Published by Debt.com, LLC . Mobile users may also access the AMP Version: IRS Bank Levies: Tapping Your Accounts - AMP.