When you owe back taxes, there are several options the IRS has to legally collect the outstanding debt. Typically, this will include placing a tax lien against your property and garnishing your wages. In some cases, however, the IRS may also impose a bank levy.
What is an IRS Bank Levy?
A tax levy is a collection method used by the IRS to legally seize your assets to satisfy unpaid taxes. This may include current 1099 payments, tax refunds, stock dividends, life insurance policies, accounts receivables, and other income. When the IRS issues a bank levy, however, it is seizing the available funds in your checking and/or savings accounts.
How Does a Bank Levy Work?
There are certain steps the IRS must follow before it can issue a bank levy and seize your funds.
- The IRS must send a Notice and Demand for Payment. Unfortunately, receipt of this notice is not required. If you have moved or fail to receive it due to other factors, it will not prevent the IRS from moving forward in its attempts to collect your back taxes.
- If you fail to pay the amount due, including penalties and interest fees, the IRS must then send a Notice of Intent to Levy and a Final Notice of Intent to Levy.
The Final Notice of Intent to Levy is generally sent at least 30 days before the IRS places a bank levy on your account. In some rare instances, however, the IRS may move forward without the 30-day notice if it feels the collection of the tax is in jeopardy or it plans to take your state refund.
Unfortunately, you won’t receive any additional warnings and won’t know exactly when the levy is issued until your bank places a 21-day hold on your current funds. If you fail to make arrangements with the IRS to satisfy you debt during the waiting period, on day 22 the bank will send your money to the IRS. If it’s not enough to satisfy your debt, the IRS could place additional levies on your accounts. To add insult to injury, many banks also charge a fee (up to $125) for processing the levy.
What Are My Options?
The best way to handle a bank levy is to avoid it all together. Once you receive a demand for payment, you’ll need to come up with a game plan ASAP. This may include:
- Challenging the amount owed (appeal);
- Paying the tax debt in full;
- Applying for an installment agreement so you can pay your taxes over several months or years;
- Seeing if you qualify for Currently Not Collectible (CNC) status; or
- Settling your taxes for less than you owe (Offer in Compromise).
Unfortunately, if you fail to receive the notices, you may not know about the bank levy until your funds are frozen. When this happens, you still have 21 days to negotiate with the IRS in order to protect your hard-earned money. Do not wait until the last minute to get help. The sooner you contact a tax professional the better.
At Tax Defense Network, our team of tax specialists will work on your behalf to find the best solution for your situation and do what it takes to help prevent a bank levy from devastating your finances. Call 855-476-6920 to schedule your free consultation today!