So, you owe tax and you aren’t able to pay the amount due. What can the IRS do to collect that tax from you? One way for the IRS to collect is by taking money from your bank account. This is called a levy.
Before the IRS can put a levy on your bank accounts, it must first send you an official IRS letter called a tax bill. This tax bill is called an assessment. For instance, if you are currently in an audit and the auditor is still determining the amount due, the IRS hasn’t, at this point, assessed the tax against you. Or if you filed your tax return with an amount due and couldn’t send a check with it, the IRS will eventually send you a bill for the amount on your return, plus interest and penalties. This is the assessment.
The Final Levy Notice
After you have not paid the amount due, the IRS will send you a Final Notice of Intent to Levy and a Notice of Your Right to a Hearing. This is called the “levy notice.” This starts the clock ticking, giving you a final 30 days to either pay the IRS or make alternate arrangements for payment. If neither option occurs during this time period, the IRS will levy your bank accounts. Most typically, this notice is sent by certified or registered mail, return receipt requested. This is the type of mail that you have to go to the Post Office to get. Please know that just because you don’t go and pick it up at the Post Office, the time doesn’t stop running. The IRS only has to show that it mailed this notice to you, not that you actually received it. The IRS can also give this final notice to you in person or leave it with your home or business. However, that is very rare.
The Bank Levy
If you don’t take any action during your 30 day notice, the IRS will contact the bank to let it know that the IRS is claiming rights to the money held in your account(s) by giving the bank a Notice of Levy. This affects all of your accounts at that bank (except retirement accounts), and not just one account. The bank must hold your money for 21 days before releasing the money to the IRS. This gives you another few weeks to go to the IRS with full payment or to make alternate arrangements. However, you do not have access to this money during this 21-day period and any checks or debits you make to the account would bounce.
What to do About a Bank Levy
Preventing a Levy
During the 30-day notice period, you should get in contact with the IRS immediately to make payment arrangements, whether to start an Offer in Compromise or set up an installment agreement. As part of those types of arrangements, the IRS will usually release the levy and move forward with the payment agreement. Alternatively, if you feel the IRS has made a mistake and that you don’t owe the taxes, then you need to request a hearing for the IRS to determine whether they are following the rules for collection. This hearing shouldn’t be used to just stall the IRS from levying your accounts.
Dealing with a Levy
What happens if a levy is put in place? If you still haven’t contacted the IRS, you should do so immediately or hire a tax professional to do it for you. You won’t be able to pull out any money from your accounts. You also should not deposit any other money into the account until after the funds are released to the IRS. It is possible, if you have a provable hardship, that the IRS will remove the levy and release the money back to you, provided you enter into some sort of payment arrangement. In some cases, depending on the facts and circumstances, the IRS will at least consider releasing of a portion of the funds. This can all be done with a phone call to the number on the top of the initial notice you received.
IRS bank levies are a one-time thing. That means that for each time the IRS wants to get into your accounts, they must do another levy. However, this does not mean they need to send you another 30-day levy notice. The IRS can levy any property of yours that is held by someone else. For example, if you have business accounts receivable, wages, a state tax refund, etc., the IRS has methods for collecting on those as well.
Ignoring the IRS can have significant negative affects on your personal finances that are hard to get out of. Your best bet is always to stay in communication with the IRS to let them know you are aware there is tax due and to set up a way to get them paid.