IRS Bank Levy: Bank Account Garnishment Laws & Process
What Is A Bank Account Levy or Bank Levy?
A bank account levy is one of the most common forms of a Tax Levy used by the IRS to collect back taxes owed within the law. The IRS will notify your bank and will send you a notice of an intent to levy. You normally have 21 days to release the levy or stop it as your bank will hold funds for 21 days before it releases it to the IRS. The IRS will continue to seize amounts within the bank account until it has taken enough money to cover the taxes owed plus interest and penalties. However, if you act quickly, you can limit the damage and get in control of the situation.
When a Bank Levy Is Used & Requirements of IRS before Implementing
A bank levy is one of the preferred methods of levy used by the IRS because they can quickly and easily recoup large amounts of unpaid taxes with minimal effort on their part. The IRS will look at your financial situation when determining what type of levy to use. Once the 30 days have passed the IRS will most likely contact your bank to see the number of funds in your bank account. If there are sufficient then they will immediately require the bank to freeze your account in order for them to levy. If you do not have sufficient funds in your account they most likely won’t use a bank levy and will look at your employment situation and determine if they can the wage garnishment method. The IRS does have a process that it follows before levying someone’s bank account and the most likely won’t levy an account until the following 3 conditions have been satisfied:
- The IRS assessed a tax amount owed and demanded payment of the taxes owed
- After the notice was received by the taxpayer, the taxpayer failed to pay or resolve the taxes owed in another manner
- The IRS sent a final notice of intent to levy 30 days prior to implementing a levy
Once those three conditions have been met they IRS will contact your bank and make a determination if a bank levy will be the appropriate method to seize funds in order to satisfy unpaid taxes.
Options to Handle an IRS Bank Account Levy
Need Help With a Bank Levy?
Depending on your financial and tax situation you will need to take different actions to handle your IRS bank account levy. An IRS bank levy can but stopped but it is important to act quickly since you will not have much time to stop the IRS once a bank levy has been implemented.
There are many different methods to stop an IRS bank levy. The method you use really depends on your financial situation. Understand the different methods that are available so you can make a determination as to what method would work best for your situation. The IRS prefers to resolve a tax problem in another manner than a levy so they are willing to work with the taxpayer, even this late in the collection process.
If for some reason you do not agree with the levy you do have the right to appeal. Even if the 30 days have passed since you received the “Final Notice of Intent to Levy and Notice of Your Right to a Hearing”, you can still file an appeal. The only difference in filing for an appeal after the 30 days are up is that you will not be able to go to court to challenge the appeal decision made by the IRS. The appeal process is very fair and is done so by a third party that is not biased in any way so you can be assured you will have a fair hearing.
When dealing with an IRS bank account levy it is highly suggested that you use a tax professional to help. Normally when resolving problems with the IRS they are willing to work with the taxpayer but the problem with resolving a bank levy is that it is very late in the IRS collection process and the IRS has already lost trust in you and has determined that you are unwilling to work with them on coming to an agreement. Once you hire a tax professional to resolve your problem on your behalf this shows the IRS that you actually are willing to resolve your tax problem and they will be more willing to come to a fair resolution, rather than enforcing the bank levy.
Bank Levy Release: Stopping IRS Bank Account Garnishment
When it comes to stopping an IRS bank levy it is important to act quickly. Once the IRS freezes your bank account you will only have 21 days until the bank sends those funds over to the IRS. During this period you may be able to work out a resolution with the IRS. Even if the IRS does end up seizing funds from your bank account and they did not collect the entire amount of outstanding tax debts they will levy again in the near future once more funds appear in the bank account. If you want to prevent the IRS from seizing your funds it is important to pay off your taxes or come to some other form of agreement.
Ways to Release/Stop an IRS Bank Levy
Once the IRS has received the funds to pay off the entire tax amount owed they will immediately halt the bank levy and you will be back into good standing with the IRS. The reason most people get into the situation of a bank levy is because they couldn’t pay their taxes in full. If this is the case you can think outside of the box a bit in order to pay for the taxes owed. Say you know that bonus from work is coming but you just haven’t received it yet and by the time you receive it the IRS will have already levied your bank account. In this case it could be a good idea to borrow from family or friends temporarily until you will get that extra money. Or maybe you have an old car sitting in the garage that you haven’t touched in years and you know it is a classic and worth some decent money, this could be a good time to consider selling it in order to come up with some funds to stop the IRS.
The most common way for individuals to pay back taxes when they can’t afford a lump sum payment is to pay back through an IRS payment plan. The most common form of payment plan is an installment agreement. With an installment agreement you will be able to pay back the taxes owed in monthly increments over a period of time. Once your payment plan has been accepted by the IRS you will be considered in good standing with the IRS. It is likely the IRS will accept your payment plan if you can show you can afford to make the monthly payments and you don’t have a history of defaulting on these types of agreements.
The one thing to note about the IRS is that they do not want to collect from individuals if it were to leave them without enough money to feed their family or put a roof over their head but will continue their collection mechanisms even if this were the case unless it is proven to them. Many times collections can be temporarily paused for months and up to years if a taxpayer can prove that their financial situation is bad enough that it would be unfair for the IRS to collect.
An offer in compromise is a method that allows a taxpayer to settle their taxes for less than the total amount owed. The IRS is very selective about who qualifies for this settlement program. People who are being faced with bank levies tend to qualify for these types of agreements. If you want to consider this form of settlement it is a good idea to talk with an offer in compromise professional to see if you will qualify. Once you file for an offer in compromise it will stop collection actions while your case is reviewed.
When dealing with an IRS bank levy it is highly suggested that you use a tax professional to help. Normally when resolving problems with the IRS they are willing to work with the taxpayer but the problem with resolving a bank levy is that it is very late in the IRS collection process and the IRS has already lost trust in you and has determined that you are unwilling to work with them on coming to an agreement. Once you hire a tax professional to resolve your problem on your behalf this shows the IRS that you actually are willing to resolve your tax problem and they will be more willing to come to a fair resolution, rather than enforcing the bank levy.
No matter which way you choose it is important to act quickly to prevent IRS seizure. If you are unsure about the best method to use it is always a good idea to consult with a tax professional.
What Can I Do If the IRS Places a Levy on My Bank Account?
Get Help With Bank Account Levies Get Started
Before placing a levy on your bank account, the IRS must notify you in writing via mail. It is a common misconception that the IRS is above the law and can do anything, but in reality, the IRS is legally obligated to inform you before taking any action against you.
With a bank account levy in place, you will find it very difficult – if not impossible – to enjoy any financial freedom, so you’ll want to resolve your tax problem as quickly as possible.
If you owe back taxes, the IRS will send you a Notice of Intent to Levy, which gives you 30 days to make restitution, either by filing an appeal, paying the taxes you owe in full, entering into a payment plan, or a number of other options. If you make no attempt to rectify your situation within those 30 days, the IRS go into your bank account and take what they believe you owe them. But remember that you still have time – as long as you act fast.
Your best bet is to appeal the Notice of Intent to Levy. This will, at the very least, slow down the bank levy. You will typically have 30 days from the date the notice was received to appeal. You should only go down this road if you disagree with the levy. Some common reasons for disagreeing with the levy are if you:
- Have already entered into an installment agreement
- Submitted a request for an offer in compromise prior to receiving the notice
- Filed for innocent spouse relief
- Were never appropriately assessed with the tax liability
- Were not given a chance to dispute the tax amount owed
Once the levy goes into effect, your bank account is essentially frozen. In some cases, only part of your money may be seized, but this is dependent upon how much you money have in your account, as well as exactly what you owe the IRS in back taxes.
How to Stop the IRS from Seizing Your Bank Account Funds
- Pay the IRS in Full
Paying the IRS in full is the most obvious way to remove the bank account levy. One you pay off your tax bill – including interest and penalties – the IRS will immediately stop the levy and give you back control of your bank account.
- Enter into an Installment Agreement
An installment agreement is the most common way to pay back the IRS when you’re unable to pay in full. Having an installment agreement in place allows you to pay back your taxes in monthly installments until the full amount is paid off. Also, with an installment agreement in place, you are considered in good standing with the IRS as long as your monthly payments are on time.
- File for an Offer in Compromise
An offer in compromise allows you to settle your taxes for far less than the total amount owed. This is not an easy filing and is typically rejected by the IRS. Do not use this as a stalling mechanism because it can get you in more trouble than you are already in. If you want to consider this option it is a good idea to speak with a qualified bank levy professional to determine whether this is the right option for you.
Generally speaking, it is more difficult to get a bank levy released than it is to get a wage levy released. That said, stopping a bank levy is still possible if the right steps are taken, so it’s usually to your benefit to request a hearing and hire an experienced tax professional who can help resolve your situation.