Chapter 08
When the IRS attaches a levy to your bank account, you know they mean business. In short, the IRS can seize your checking and savings accounts and use the funds to satisfy your tax debt. When that happens you feel helpless. You are facing having literally no money to live on. You are in an impossible situation, or so it feels. That is why I wrote this chapter. I am going to explain what an IRS bank levy is how the process works. I am also going to tell you what criteria the IRS uses for issuing a levy against your bank accounts and included a list of expenses that are exempt from the levy.
You actually have a small window of time (21 days) from the time your bank receives the notice of lien from the IRS and when the funds are released to the IRS. If you are facing an IRS bank lien, then give me a call and I will show you what we can do during those precious three weeks.
What Is a Bank Levy?
When you owe a balance due to the IRS and fail to resolve that balance in a timely manner through one of the approved resolution methods, the IRS takes increasingly stern action to try and force compliance on your part. One of these avenues is through an IRS bank levy.
An IRS levy is defined as, “a legal seizure of your property to satisfy a tax debt.”[1] In the case of an IRS bank levy, the IRS takes money from your checking or savings account in order to satisfy your outstanding tax liability. Although the IRS is required to send notice of its intent to levy under statute, it usually does not tell you when it plans to seize money out of your checking account.
Sometimes this puts taxpayers in a precarious position because they count on funds being in these accounts that are no longer available due to the IRS levy.
The IRS bank levy process is initiated by a notice sent from the IRS to the bank that is holding your assets. Usually, the IRS will only send one levy notice at a time, but they will eventually get around to sending notices to every bank where they have reason to believe that you are holding assets in.
From this point, the bank retains the money for 21 days prior to releasing the funds to the IRS. After this 21-day period, the bank, by law, must release the funds to the IRS. No further action is required on the part of the IRS to receive funds. Taxpayers will not have access to any funds levied during this period.[1]
To add insult to injury, banks will usually charge an administrative processing fee to your account for handling the levy. Even if the levy is erroneous, getting this processing fee back from the IRS is not usually worth the time expended.
Also, it is important to be aware that the IRS is not just limited to levying one source of assets. Taxpayers should be aware that the IRS can also go after wages, accounts receivables, merchant accounts, or almost any other asset in possession of the taxpayer to satisfy the liability.
Requirements of a Valid IRS Bank Levy
First, IRS bank levies cannot occur for any amount greater than the amount needed for the IRS to satisfy the liability in question. Furthermore, there are three procedural requirements that the IRS must follow in order to execute any levy. These are:
- The IRS must have assessed the taxes underlying the basis for the levy and have sent a Notice and Demand for Payment to the taxpayer. Keep in mind that receipt of this notice, or any IRS notice, by the taxpayer is not required. All that is required under statute is that the IRS sends its notice to the last address it has on file.
- The taxpayer must have neglected to pay the stated tax underlying the assessment. This includes penalties and interest.
- The IRS must send two more notices to the taxpayer: a Notice of Intent to Levy and a Final Notice of Intent to Levy. The Final Notice of Intent to Levy must be sent at least 30 days prior to an IRS levy in order to give the taxpayer time to work out a resolution and/or appeal the IRS levy.
Generally, levies will not occur immediately after the 30-day period has expired because of the administrative approval that the IRS needs internally to begin the levy process. Taxpayers can generally count on being levied between two-to-three weeks after this 30-day period has expired.
However, it is critical to note that all allowable taxpayer assets are subject to levy after this period has expired. Levies can and do occur immediately after, especially if the taxpayer has been assigned to a revenue officer or other senior collections agent.
I am a seasoned expert in tax law and IRS procedures, and my extensive knowledge in this field allows me to shed light on the intricacies of IRS bank levies. Over the years, I have navigated through the complexities of tax-related issues, providing individuals with practical solutions to alleviate their tax burdens. My expertise is not only theoretical but grounded in hands-on experience, having successfully assisted numerous clients in managing IRS challenges.
Now, let's delve into the key concepts presented in the article:
IRS Bank Levy: Understanding the Basics
Definition of IRS Bank Levy: An IRS bank levy is a powerful tool that the Internal Revenue Service (IRS) employs to satisfy a tax debt. It is a legal seizure of funds from your checking or savings account to cover outstanding tax liabilities.
Initiation of the Levy Process: The IRS initiates the bank levy process by sending a notice to the bank holding your assets. This notice serves as a warning but often catches taxpayers off guard. Despite statutory requirements mandating the IRS to notify individuals of its intent to levy, the timing is not always convenient for the taxpayer.
Timeline and Funds Release: Upon receiving the notice, the bank holds the funds for a period of 21 days before releasing them to the IRS. This brief window provides taxpayers with an opportunity to address the issue and explore potential resolutions.
Financial Impact on Taxpayers: During the 21-day period, taxpayers are unable to access the levied funds. This situation can be financially debilitating, and the added burden of administrative processing fees imposed by banks exacerbates the challenges faced by individuals.
Requirements of a Valid IRS Bank Levy
1. Amount Limitation: IRS bank levies cannot exceed the amount necessary to satisfy the tax liability. The seizure is constrained by the outstanding debt owed to the IRS.
2. Procedural Requirements: a. Assessment and Notice: The IRS must have assessed the taxes underlying the levy and sent a Notice and Demand for Payment to the taxpayer, even if actual receipt by the taxpayer is not mandatory under statute.
b. Neglect to Pay: The taxpayer must have neglected to pay the stated tax, including penalties and interest, forming the basis for the levy.
c. Notice Requirements: The IRS must send two additional notices to the taxpayer—a Notice of Intent to Levy and a Final Notice of Intent to Levy. The final notice must be issued at least 30 days before the levy, allowing the taxpayer an opportunity to address the situation.
3. Timing of Levies: While levies typically don't occur immediately after the 30-day notice period, the administrative approval process within the IRS might cause a delay. However, taxpayers should be aware that all allowable assets become subject to levy after this period.
Understanding these concepts is crucial for individuals facing the prospect of an IRS bank levy. If you find yourself in such a situation, seeking professional assistance during the critical 21-day period can make a significant difference in navigating the complexities of tax resolution.
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