An IRS Bank Levy is one of the ways the Internal Revenue Service (IRS) can collect unpaid taxes. If you owe back taxes and have not made arrangements to resolve your debt, the IRS can seize your bank account for the amount owed. Understanding the IRS bank levy process, your rights, and options for resolution can help you navigate this difficult financial situation.
How Does an IRS Bank Levy Work?
The IRS sends multiple notices before taking the drastic step of levying your bank account. These notices start with a bill that states the amount owed and progress to a Final Notice of Intent to Levy. If you don’t respond or make arrangements, the IRS can issue a bank levy.
Here’s how it works: The IRS will notify your bank of the levy by sending them Form 668-A. The bank must legally adhere to the levy’s conditions and will freeze the funds in your account. Unfortunately, you can’t withdraw the money subject to levy at this point, but you have time to request a partial or complete release of the levy.
The IRS is only entitled to the amount in your account on the date of the levy. For example, if you owe the IRS $15,000, and the bank receives a levy when there’s $1,000 in your account, but you deposit $3,000 the next day, the bank will only send $1,000 to the IRS. Unlike a wage garnishment, a bank levy is a one-time event, not ongoing. For the IRS to levy your bank account again, they must repeat the process. It is unlikely for the IRS to issue bank levies consecutively, but in cases where taxes remain unpaid after the initial seizure, it remains a possibility.
Releasing an IRS Bank Levy
After your bank account is frozen, you have 21 days to seek a release of the levy. During this time, you can’t access the frozen funds. If you haven’t resolved the issue within 21 days, the bank will send the frozen funds to the IRS.
The IRS may release or partially release a levy when:
- You set up a payment plan to satisfy the liability
- You pay the outstanding taxes in full
- The collection statute has expired
- You demonstrate the levy is causing economic hardship that prevents you from paying basic living expenses
- The IRS determines that the release will help collect the liability
- You submit an offer in compromise
- The IRS wrongfully or erroneously issued the levy
- You file for bankruptcy
What Happens If the Taxpayer Has a Joint Bank Account?
The IRS can levy a joint bank account if one account holder has outstanding tax debt and the others do not. This is true whether the joint account holder is your spouse, child, parent, or another third party.
If you have an unrestricted right to withdraw the funds, the IRS can levy the account even though someone else contributed the money. For example, a son has a joint checking account with his father. The only funds deposited in the account are the father’s monthly social security checks, which the father uses. The IRS can levy the bank account for the son’s delinquent tax debt even though it’s not his money.
However, in our example, the father can contact the IRS to claim ownership of the funds and request the release of the levy. The IRS may release the levy if proof is provided that the funds don’t belong to the taxpayer.
If the levy has already occurred, an administrative wrongful levy claim can be filed to seek reimbursement.
Get Help with an IRS Bank Levy
An IRS bank levy is a severe action taken to collect unpaid taxes. It’s crucial to respond promptly to IRS notices and seek professional advice to find the best way to resolve your tax debt.
Remember, ignoring the problem won’t make it go away. The more proactive you are, the better your chances of reaching a favorable resolution. The tax relief experts at East Coast Tax Consulting Group are ready to help you deal with IRS bank levies or other back tax problems. Call 561-826-9303 for your Free no, no-obligation tax consultation.