When you fail to respond to IRS notices about a balance due, the IRS eventually sends a final notice of intent to levy. You have 30 days to request an appeal or CDP hearing, which will stop levy action temporarily so you can work out a resolution with the IRS (discussed below). If you don’t take action during this time, the IRS can confiscate just about anything you own. Usually, the IRS starts with wages or bank accounts.
One of the IRS’s most popular options is to seize the funds you have in your bank. Sometime after the 30 days have passed, the IRS bank levy process begins, whereby the IRS sends a notice orcontacts your bank. The bank freezes your account, and if you do not make arrangements within 21 days, the bank sends the funds to the IRS on the 22nd day.
To avoid an IRSbank levy, you should call the IRS or work with a licensed tax pro. It is important to do so once you receive the final notice of intent of levy. If your bank has already frozen your funds, you need to take action during the 21-day holding period. Once the IRS garnishes your bank account, it is difficult to get it back. Below are some ways to stop a levy but with the exception of financial hardship, you will need to have filed all required tax filings with the IRS. In other words, you need to be compliant with tax filings.
Ways to Stop or Release an IRS Bank Account Levy
Before investigating ways to release an IRS bank levy, it is important to understand that generally, you must have filed all of your returns. Therefore, if you are currently experiencing an IRS bank levy, the first step is to determine if you are in filing compliance.Generally, the IRS will not release a bank levy until all outstanding tax returns have been filed. If you have filed all of your tax returns but are still facing a levy, there are a few options available for releasing the levy. Below, we will review some of those options (not exhaustive).
Request a CDP Hearing
If you have received a Final Notice of Intent to Levy from the IRS, you can stop the bank levy by requesting a Collection Due Process hearing. You have to do so within 30 days of the date of the letter or notice. Once you appeal, you will have some time to work out a resolution with the IRS (options discussed below). You can use a licensed EA, tax attorney, or CPAto work on your behalf. In some cases, you may appeal because you are currently in bankruptcy proceedings, or the collection statute of limitations has expired.
Pay in Full
If you pay your taxes in full, the IRS will not move forward with the levy or they will release the hold on the funds in your account. Paying in full helps you avoid any more interest or penalties.
Amend Your Tax Return(s)
If you owe taxes you believe because of a mistake on a tax return, you can elect to amend your tax return showing you do not owe the taxes the IRS claims you owe.
Enter into an Installment Agreement
If you agree to make monthly payments on your tax, the IRS will also remove the freeze on your account. Tax payments have to be enough to pay off the taxes owed before the statute of limitations on collection for a particular tax period expires. Usually, the IRS gives taxpayers several years. If you default on your installment agreement, the IRS may levy your bank account again.
File for an Offer in Compromise
An offer in compromise allows you to lower the amount of taxes you pay to less than the full amount. The IRS only accepts this arrangement for taxpayers who qualify. If the IRS believes it can obtain what you owe them in other ways or thinks you can pay more, they will send you a rejection letter. As this option is complicated, it’s best to work with a tax professional. Take a look at these IRS OIC FAQs to learn more.
Prove Financial Hardship
When seizing money from your bank account, the IRS does not make sure you have enough money left to pay your other bills. However, if you can prove that you cannot live on the remaining funds, that’s a different story.
To prove the bank account levy affects your health and well-being or limits your ability to put a roof over your head, you need to provide the agency with detailed financial information. If the IRS approves your hardship application, your account gets labeled as a CNC or uncollectible. It is only a temporary resolution. The IRS reviews this CNC status every two years and uses your tax returns to assess your ability to pay.
Prove Identity Theft
If you believe you are a victim of tax-related identity theft, then the IRS is willing to help. In many cases, you will need to set up another resolution with the IRS as this process can take time. You will also need to fill out IRS Form 14039 (Identity Theft Affidavit) and mail it to the IRS. It is always a good idea to have a tax firm or professional help you with tax-related identity theft. The fees usually far outweigh the cost of having the tax amount remain, especially if you are not responsible.
Your Financial Situation inMany Cases is Used to Release an IRS Bank Levy
If you decide to pursue a partial payment installment agreement, Offer in Compromise, or a Hardship status, the IRS in most cases will verify monthly expenses and income along with your assets and liabilities. The IRS will want you to complete a 433-A or 433-F (Collection Information Statement)to assess your financial situation. Because of the complexity of filling out one of these forms, it is best toleverage a licensed tax pro who can provideassistance in completing Form 433.
Can the IRS Take All the Money in Your Bank Account?
The answer is maybe. If you have a delinquent tax debt, the IRS can place a levy on your bank account. This gives them a legal claim to the funds in your account and allows them to withdraw money to pay towardyour outstanding tax debt.
How Long Will the IRS Levy Your Bank Account?
It is important to understand that the bank must hold your funds for 21 days before releasing them to the IRS once your bank account is levied. However, an IRS bank levy (unlike IRS wage garnishment), is a one-time levy. After the IRS levies your bank account, you can use your bank account as normal. However, the IRS can issue another bank levy in the future targeting the same bank account to pay off an unpaid tax debt.
Get Help from a Tax Professional
No matter what method you choose, you must act quickly with an IRS tax levy. Once you discover your bank has frozen your account, you have up to 21 days before the IRS receivesthe funds. Once the money is taken, it is usually not returned.
Even if you set up an installment agreement or qualify for an offer-in-compromise, it’s oftentoo late once the IRS has taken the funds. To get through this situation, you should reach out to a tax professional thathas experience in resolving IRS bank leviesby visiting the linkor beginning your search below.
The information you've shared delves into the intricate process of IRS bank levies and the steps individuals can take to prevent or release such actions. As an enthusiast in tax law and financial matters, this topic is right up my alley.
The IRS utilizes a multifaceted approach when dealing with outstanding tax debts, particularly through bank levies. Here's an overview of the concepts covered:
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IRS Notices and Final Notice of Intent to Levy: The IRS typically issues notices regarding overdue taxes, culminating in a final notice before initiating levy action.
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Levy Process: Once the 30-day response window passes without action, the IRS commences the bank levy process, freezing accounts and potentially confiscating funds.
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Ways to Stop a Levy: Various methods exist to halt or release an IRS bank account levy, including requesting a Collection Due Process (CDP) hearing, paying in full, amending tax returns, setting up installment agreements, or pursuing an offer in compromise.
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Financial Hardship and Identity Theft: These scenarios can impact the IRS's decision regarding levy release. Proving financial hardship or demonstrating identity theft victimization can influence the resolution.
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Financial Evaluation by IRS: Methods like partial payment installment agreements or offers in compromise involve a thorough assessment of your financial situation by the IRS through forms like 433-A or 433-F.
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Duration of Bank Levies: Once the bank freezes funds, it holds them for 21 days before remitting to the IRS. A bank levy is a one-time event, but the IRS can impose future levies on the same account if tax debts remain unpaid.
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Professional Assistance: Seeking help from tax professionals is crucial, especially when dealing with IRS bank levies. They can assist in navigating the complexities and timely actions required.
Understanding the intricacies of tax law and the IRS's procedures is essential in addressing issues like bank levies. Each step demands careful consideration and prompt action to achieve a favorable resolution while complying with tax requirements.
If anyone needs guidance on handling IRS bank levies or navigating tax-related challenges, seeking counsel from experienced tax professionals can greatly assist in mitigating financial repercussions and ensuring a smoother resolution with the IRS.
