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Bank Levies and You

July 14, 2011

There are always surprises in life. Sometimes it’s finding $20 in an old jacket, or bumping into a past friend. Other times the surprise can be a flat tire, or worse, a bank levy. Though the IRS never actually “surprises” taxpayers with a bank or wage levy, it often feels that way.

When the IRS is prepared to issue a bank levy, it always sends a Notice of Intent to Levy to the taxpayer’s last known residence. There are instances where the address is incorrect and the person never receives the warning. Yet, for the IRS, it has given proper notice, and it is legally allowed to proceed with the levy.

When the taxpayer tries to withdraw money from their bank account, they are stunned to find the IRS has wiped them out. There is no limit on how much the IRS can take. It can withdraw the full owed amount if it’s in the account.

This is especially no time to panic, though with their account(s) drained, it would be difficult not to. There are actions a taxpayer can take to possibly get that money back, but once the levy is carried out, the time clock has started and they must act quickly.

First, the absolute first thing a person in this position needs to do is find a professional tax debt firm. This is crucial in getting the IRS to release the levy. At this point, the IRS is no longer trying to negotiate with the taxpayer, so the debt firm will file for Power of Attorney and start negotiating with the IRS on the taxpayer’s behalf.

If the taxpayer is in desperate need of the levied money, the licensed tax professional may file for hardship, insisting the IRS release a portion or all of the money for a serious reason. The IRS only recognizes a few situations for hardship; medical bills or necessities, eviction or foreclosure notice, and final notices on utility bills (cable, internet and cell phone are considered luxuries). Other instances may apply, but the IRS can deny them if it disagrees with the severity.

The next step is to become compliant. This means all taxes are filed and current. Also, in order for the licensed tax professionals to have the IRS release the levy, the taxpayer must enter into an agreement either to pay the tax debt in installments, submitting an Offer in Compromise, or being placed in non-collectible status (if the taxpayer is found unable to pay anything towards the debt). Once the IRS accepts, the levy is released.

The last step is to continue making the scheduled payments to the IRS until the arrangement is fulfilled. In some cases, a tax debt firm is able to settle with the IRS for less than owed, but that doesn’t happen for everyone, and should not be expected walking into the situation.

If the taxpayer defaults on the installment plan, the process can start over again, except it is sped up, so a bank levy could be issued immediately after the default. It will also be more difficult to persuade the IRS to release the levy once this happens, and the previous settlement is now null and void.

There are surprises in life, but there are ways to handle them. Hiring trusted professionals to confront the IRS and resolve the problem is the best way to tackle these unexpected situations. Being committed and pro-active will keep the problems away.

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