Understanding IRS Bank Levies and How to Prevent Them

Under what circumstances can the IRS levy a taxpayer’s bank account?

A levy is a serious action taken by the IRS to seize assets, including bank accounts, when taxes are owed. Before a levy is legal, there must be an assessment of the tax amount. Once assessed, the IRS sends a series of increasingly urgent notices to the taxpayer. If these notices are ignored, the taxpayer receives a Notice of Intent to Levy, giving them 30 days to pay or request a hearing. Failing to act results in the IRS freezing the bank account after the 30-day period.

Does the taxpayer have to give the IRS access to their bank account?

When the IRS issues a levy, it notifies the bank holding the taxpayer’s account, instructing them to freeze the assets. The bank must comply by law and has no discretion in this matter. The funds are frozen immediately, and the taxpayer cannot access them during this period.

Are the funds taken all at once, or is it a gradual process?

The process depends on the amount owed versus the amount in the account. If the debt is smaller than the available funds, only the amount due is frozen. If the debt exceeds the account balance, the entire amount is frozen. The frozen funds remain inaccessible for 21 days, allowing the taxpayer time to negotiate with the IRS.

Can a bank levy be stopped or reversed?

A bank levy can be stopped if the IRS made an error, such as not waiting the required 30 days after issuing the notice. Additionally, if funds in the account belong to someone else (like a minor child), the taxpayer can often convince the IRS to lift the levy. During the 21-day freeze period, the taxpayer can negotiate with the IRS to release funds if they can prove hardship or provide required documentation.

What should a taxpayer do if they find their bank account has been levied?

If a taxpayer discovers their account has been levied, they should contact the IRS immediately. If they can effectively argue their case, such as by proving a mistake or a potential hardship, the IRS may agree to lift the levy. However, most taxpayers benefit from having a representative familiar with IRS procedures to navigate this process.

Are there accounts or assets taxpayers assume are protected from levies but aren’t?

Retirement accounts, while requiring additional steps for the IRS to levy, are not immune from seizure. The IRS can also levy multiple accounts, including those shared with others, as well as business accounts linked to the taxpayer. Understanding these complexities is crucial to protecting assets.

What can be done if the IRS is preparing to levy a bank account, but funds haven’t been frozen yet?

If a taxpayer receives a notice of intent to levy, they should contact the IRS immediately to open a dialogue. Providing necessary documentation or proving a hardship may persuade the IRS to postpone or lift the levy. The IRS aims to avoid causing undue hardship, but the taxpayer must clearly communicate their situation and intentions.