IRS Bank Account Levy: What to Do When the IRS Freezes Your Funds

A bank levy is a serious matter that can affect your financial stability and well-being. If you have received a bank levy notice from the IRS or are worried that you might receive one soon, you may be looking for some guidance and support. You may have questions like:

1. How can I stop the IRS from taking my money?
2. How can I get my money back if the IRS has already levied my account?
3. How can I settle my tax debt and avoid future levies?
4. What are my rights and options as a taxpayer?

These are valid and important questions that deserve clear and accurate answers. However, finding those answers can be challenging and time-consuming. You may need to figure out where to start or who to trust. You may feel overwhelmed by the complexity and urgency of your situation.

If you are facing a bank levy or want to prevent one from happening, a professional tax relief service expert like Tax Hardship Center can help you with your IRS bank levy issue. The Tax Hardship Center is a team of experienced and qualified tax experts who can provide you with the following benefits:

• They can review your case and analyze your financial situation to determine the best course of action for you.
• They can contact the IRS on your behalf and negotiate for a release of the bank levy, a reduction of your tax debt, or a payment plan that works for you.
• They can help you avoid penalties and interest charges that increase your debt over time.
• They can protect your rights and interests as a taxpayer and ensure that the IRS treats you fairly and respectfully.
• They can give you peace of mind and confidence that your tax problem is handled by professionals who care about your success.

The Tax Hardship Center offers a free consultation and a no-obligation quote for tax-related issues. Book your consultation by clicking here or call them at (877)-829-7099 to start. 

, don’t wait any longer. Contact the Tax Hardship Center today and get the help you need. They are ready and willing to work with you and for you. You don’t have to deal with this alone. You have a friend in the Tax Hardship Center.

Let’s dive in.

Understanding the Basics of Bank Levies

What is a Bank Levy?

A bank levy is a legal action where the IRS seizes funds from your bank account to pay for any taxes you owe. This comes in the form of a bank levy notice, a vital legal document indicating the initiation of the bank levy process. The IRS takes drastic measures when individuals need to pay taxes consistently. Upon receipt of this notice, you’d have three weeks to respond with an appeal or evidence to counteract it. 

How does an IRS Bank Levy Work?

An IRS bank levy works in a relatively straightforward manner, albeit one with severe consequences. When you owe back taxes, the IRS communicates with your bank, expressing the taxes owed. Following this, your bank is legally required to freeze your assets for 21 days from the day the notice is received. If you take no action during this window, the bank sends the funds to the IRS directly.

The bank levy only impacts the current balance in your account at the time of the levy; future deposits remain untouched. However, the IRS can issue another bank levy later, although rare.

Note that a bank levy is usually the IRS’s last resort. This enforcement method is primarily employed after multiple unsuccessful contact attempts from the IRS. If you refuse to respond, they may resort to a bank levy. 

In short, when the IRS attaches a levy to your bank account, it means business. The agency can seize your checking and savings accounts and utilize the funds to satisfy your tax debt. 

What’s the Difference Between a Levy and a Lien?

While a lien and a levy are enforcement tools the IRS utilizes to recoup unpaid taxes, they function differently. A tax lien is a claim against your property. It serves as a security for the tax debt and gives the IRS the right to be paid from the sale proceeds before other creditors.

A levy, on the other hand, is the actual seizure of your assets. The IRS may resort to a levy when you’ve failed to pay your taxes and have yet to respond to notices. They have the legal right to take your property, money, or other assets to settle the tax liability.

A lien is the first step towards recovering a tax debt – a claim on your assets. A levy is the follow-up action – confiscating those assets to fulfill the claim.

In the case of a tax lien, you’re merely prevented from selling the property or assets unless the tax debt is settled. A levy, however, strips you of ownership of the assets outright and gives ownership to the IRS. Hence, a levy has a much more significant financial impact than a lien. 

Legal Prerequisites for IRS Levies

Before the IRS proceeds with a levy, they must follow several legal procedures. Firstly, the IRS must assess income taxes against you and send you a bill, allowing you to resolve your tax issues. This often comes as a Notice of Deficiency or another type of IRS notice, which could be triggered by a submitted tax return or an IRS-initiated substitute for return (SFR).

If you fail to pay the bill or negotiate a different resolution by the deadline stipulated in the notice, the IRS escalates the situation. At this reign, they dispatch another notice—the Notice of Intent to Levy—an official warning that grants you a 30-day period to appeal against the proposed action.

Once the 30 days lapse with no substantial communication from your end, the IRS obtains the legal sanction to proceed with the levy. Your bank or employer is thus obliged to comply with the IRS’s levy orders against your assets or wages. So, it’s clear that the IRS doesn’t haphazardly execute levies, but there’s a significant buildup before resorting to this severe approach.

Should you receive notices about outstanding income taxes from the IRS, it is crucial to respond promptly to avert potential audits or invoke the IRS’s statutes. These steps are fundamental in circumventing an IRS levy. Add IRS document images to illustrate the timescale and types of notices the IRS issues.

Penalties and Consequences of Bank Levies

Assets That Are Exempt From Tax Levies

Even though the power of the IRS to levy is wide-ranging, certain assets and income are exempt from levies. These include:

1. Certain types of income, like unemployment benefits and workers’ compensation income, are necessary to support you and your family.
2. Personal and household items up to a total value of $6,250. This includes furniture, fuel, and personal care items.
3. Necessary business supplies and tools up to a value of $3,150. These are exempt because they’re essential for the taxpayer to generate income.
4. Portions of a taxpayer’s salary, such as child support, are court-ordered to support minors.
5. Certain kinds of public assistance payments like welfare and SNAP food benefits.
6. Unopened mail, books essential to the livelihood or education of the taxpayer, and certain types of annuity and pension payments.

These exemptions are codified under the Internal Revenue Code (IRC) § 6334. However, remember that the exemption rules are complex, and this list is not exhaustive. 

Ultimately, determining what assets are levy-exempt can be complex and nuanced. Therefore, it’s always a good idea to consult with a tax professional if you’re at risk of an IRS levy.

What happens if you don’t pay or contact the IRS?

Ignoring your tax obligations is never a good plan. After multiple attempts at contact via mailed notices, the IRS will likely move to aggressive collection actions if you fail to respond or pay the outstanding tax bill. Not responding or complying with the IRS’s tax notices can lead to severe consequences:

1. IRS Bank Account Levy: As discussed, if the IRS levies your bank account, they can seize the funds to offset your tax debts. This can disrupt your financial life significantly.
2. Wage Garnishment: The IRS can contact your employer directly and take a portion of your wages until your tax debts are satisfied.
3. Tax Lien: The IRS might place a tax lien on your property, which makes it easier for you to sell if you pay off your tax debt.
4. Asset Seizure: In extreme cases, the IRS might seize and sell your property (like your car, boat, or home) to satisfy your tax debt.
5. Penalties and Interest: The IRS will add late payment penalties and interest as your tax debt remains unpaid. This will increase your debt over time, making it even more challenging to repay.

In sum, when you fail to respond or contact the IRS, your financial health and peace of mind are jeopardized. The best approach is responding promptly and seeking professional help to navigate the process.

How to Deal with a Bank Levy

How to Stop a Bank Account Levy

Primarily, the most effective way to stop an IRS bank levy is to settle your tax debts. However, understanding that this might not be feasible immediately for everyone, here are a few ways to get the bank levy released or stop it:

1. Pay in Full: If you can afford it, pay the total amount of your tax debt. The bank levy will immediately cease once the IRS receives the full payment.
2. Negotiate an Installment Payment Agreement: If it’s impossible to pay the whole debt immediately, you can arrange an installment payment agreement with the IRS. This involves agreeing to pay back your debt, including interest and penalties, via scheduled payments.
3. Request a Temporary Delay: In rare cases, you might qualify to postpone the collection process due to significant financial hardship.
4. Offer in Compromise: Establishing an agreement between you and the IRS allows settling the tax liability for less than the total owed amount.
5. Prove Error: If you prove that the IRS has made an error in assessing your tax situation, this could halt the bank levy. Necessary proof typically includes documented income not included in your tax filings or other supporting documentation demonstrating why the amount due has been significantly reduced or removed.

Remember, time is of the essence. You have 21 days after your bank receives the levy to find a solution. Proactively seeking professional tax help can hasten this process. 

How to Appeal a Tax Levy

You have the right to appeal a proposed tax levy. There are two main avenues for this appeal:

1. Collection Due Process (CDP) Hearing: After receiving the IRS’s final notice of intent to levy, you have 30 days to file for a CDP hearing with the Office of Appeals. During the hearing, be prepared to explain how the levy will affect you, but also be sure to propose a solution, such as an installment agreement. If you disagree with the decision of the hearing, you can appeal to the U.S. Tax Court.
2. Equivalent Hearing: If you miss the deadline for a CDP hearing, you can request an equivalent hearing similar to a CDP hearing. However, if you’re not satisfied with the decision of an equivalent hearing, you can’t appeal to the U.S. Tax Court.

An alternate option, especially for a dispute with an employee at the IRS, is to use the Collection Appeals Program (CAP). This requires you to request a meeting with the employee’s manager. If a resolution is not achieved, you can request a hearing, but please note the deadlines for this appeal process are very short.

Remember, a levy appeal is a complicated process, and you should consider engaging a trained tax professional to guide and represent you during this process. 

Contact the Tax Hardship Center for Help!

We’re here to offer assistance if you’re struggling with an IRS bank levy or are afraid one might be soon. We understand that dealing with tax levies, including those that might impact your primary residence, is a stressful experience. Our knowledge extends to certain exemptions and potential jeopardy instances that the IRS may document.

Let’s get started today with a 100% free consultation. With our team, you’ll get help figuring out the best course of action for your case, including considerations for your residence. 

For any immediate questions about an IRS notice you’ve received, call us at (877) 829-7099 to speak to our service representative as soon as possible. 

Conclusion

Prevention Measures against Future Levies

The key is to maintain a clean tax record to prevent future levies. This includes safeguarding your paycheck from levies by diligently fulfilling your tax obligations. Let’s delve into some measures that could be taken:

1. File Your Taxes On Time: Filing your taxes on time helps you avoid unnecessary late filing penalties and prevents the IRS from needing to levy additional deposits like direct deposit paychecks. These penalties can add up quickly.
2. Pay Your Taxes: Pay your taxes as soon as possible, especially knowing that the IRS and state tax authorities can levy your paycheck should you fail to comply. If you can’t pay your tax bill in full, communicate with the IRS. Typically, a payment plan can be set up.
3. Stay in Contact with the IRS: Regularly communicating with the IRS allows you to understand your tax situation better and take timely actions, particularly concerning the security of your paycheck and other funds.
4. Seek Professional Help: Consult a tax professional if you face potential tax predicaments or contending with IRS penalties or debts. They can help navigate complexities, including those associated with paycheck levy risks, and aid in resolving issues.

Remember, avoiding tax problems is much easier than dealing with them once they’ve occurred. So, taking preventative measures today could protect your paycheck and other funds from IRS levies tomorrow. 

FAQs About Bank Levies

Can the IRS issue a tax levy without notice?

The IRS must conduct proper procedures before issuing a tax levy. First, the IRS must assess the tax debt against you and send a Notice and Demand for Payment. If you fail to pay or respond within the given time, they will send a Notice of Intent to Levy, giving you an additional 30-day period to appeal or make a payment arrangement. Only after this period, if there’s still no action from your end, can the IRS proceed with the levy. However, exceptions apply, like levying federal and state tax refunds or issuing a “Jeopardy Levy” when the IRS believes they are at risk of not collecting the tax due.

Can the IRS take money from my bank account?

Yes, the IRS can take money from your bank account using a bank levy if you owe unpaid taxes. This also includes your debit accounts. If the IRS issues a bank levy, your bank must freeze your accounts, including debit accounts, and send the funds to the IRS after 21 days. This bank levy applies to all accounts where you are a signatory, including various types of debit accounts, single and joint. However, remember that a bank levy serves as the IRS’s final move, employed only after multiple attempts to collect the taxes owed have been unsuccessful.

How much can the IRS levy?

The IRS can levy as much as needed to cover your tax debt and the associated costs. For instance, if you owe $10,000 in taxes, the IRS can demand a levy of $10,000. However, the IRS must leave you with a certain amount of income after a levy based on your filing status and number of dependents. For instance, the exempt amount for a single filer with no dependents is $1,154.17 per month. If you’re married and filing jointly with three dependents, your monthly exempt amount is $3,483.34. The IRS can levy any income over these exempt amounts.