If you have unpaid taxes, the IRS may take enforced collection actions to pay off your tax debt. Collection actions are the various means by which the IRS compels taxpayers to fulfil their obligations and pay their debts. These include wage garnishment, refund offset, property lien, or bank account levy. It’s common knowledge that the IRS can withdraw funds from people’s bank accounts to satisfy the taxes owed. However, it is still unclear to some whether or not the IRS has the authority to take money from taxpayers’ bank accounts without notice.
This article will uncover the answer to this question, look at how the IRS does this, how to stop this, and how to get the money back if you feel you were wrongfully targeted.
What is an IRS Bank Levy?
If you owe back taxes to the IRS and don’t pay them on time, the IRS may use extreme measures to collect your tax debt. One of the harshest methods the IRS uses is through a bank levy.
The IRS uses a bank account levy to take funds from your bank account to pay off your tax debt. The IRS may put a levy on your bank account if you ignore multiple notices for payment or do not establish payment arrangements to settle your tax debt. They can take money from any bank account, such as savings, checking, credit union, mortgage escrow accounts, and even retirement accounts like IRAs and 401ks.
Once your bank gets the levy notice from the IRS, you won’t be able to take money out of your account. However, you may be able to lift the levy if you can work out a plan to pay your outstanding tax bill.
How Does the IRS Find My Bank Information?
When the IRS decides to levy your bank account, they will obtain access to the information regarding your bank account and then proceed with the levy. In either case, your employer or the information you provide will keep tabs on your financial records. The IRS or the Social Security Administration may be able to verify the details you’ve provided through your previous tax returns or your bank account information linked to your Social Security number.
Can the IRS Take Money From My Bank Account Without Notice?
Typically, the IRS sends several notices before issuing a levy against your bank account. You will initially get letters informing you that you have a tax liability that you need to pay. These notices will list your total tax debt, including interest and penalties. If you don’t respond to these letters or pay the money you owe, they may eventually send a Final Notice of Intent to Levy. The IRS mails this notice to your last known address.
The Final Notice of Intent to Levy gives you 30 days to pay off your delinquent tax balance. Additionally, it gives you the right to submit a written request for a Collection Due Process (CDP) hearing. The CPD hearing allows you to present your case to the IRS. You can contest the amount of tax owed, request a payment plan, apply for certain types of tax relief, or look into other alternatives to a levy. If you don’t take action to resolve the matter during those 30 days, the IRS will issue a levy to your bank account.
It is important to note, though, that there are certain instances wherein the IRS can garnish money from your bank account without giving you a 30-days notice of your right to hearing. This might happen if the IRS intends to keep a state refund, believes that tax collection is in jeopardy, or serves a Disqualified Employment Tax Levy on you.
How Can the IRS Take Money From My Bank Account?
If you don’t pay your balance or reach a settlement with the IRS, they’ll notify your bank of the levy. The IRS requires the bank to freeze your account for 21 days before releasing funds. This hold does not remove the funds from the account but rather freezes them. You won’t have access to your account during this time.
Within that 21-day holding period, you have the opportunity to make payment arrangements with the IRS or to demonstrate that the seizure would place you in financial hardship. Otherwise, the bank will have to remit the funds from your account to the IRS on the 22nd day.
The levy will only apply to the funds that were available in your account at the time when the IRS places the levy on you. If you make any further deposits during that time, the IRS has to issue a new levy to gain access to those funds.
What To Do When The IRS Wrongfully Levy My Bank Account?
If the IRS did not adhere to the procedures correctly or if the funds in question do not rightfully belong to the taxpayer, a bank levy can be invalidated. If the IRS serves the levy in error, you may be able to cancel it or request a reimbursement.
Bank Levy on Joint or Third-Party Account
The IRS can levy a joint bank account if one of the account holders owes back taxes and all other necessary procedures have been followed. This holds true regardless of whether the joint account holder is your spouse, a relative, or someone else. The IRS may still levy the account even if the non-liable account owner made the deposit.
Should the non-liable party wishes to contest the levy, they may contact the IRS to assert ownership of the funds. If the third party can prove that the funds don’t belong to the taxpayer, the IRS may release the levy.
On the other hand, if the levy has already been carried out, the third party may submit a claim for an administrative wrongful levy to ask for a reimbursement.
Erroneous IRS Bank Levy
An erroneous levy intends to seize the taxpayer’s asset rather than the third party, but prematurely served or violates a procedure or law. You may request a levy release if you believe the levy was issued in error due to any of the following:
- All taxes are up to date and paid in full.
- You were not provided with the appropriate notice in advance of the levy.
- Premature levy issued before the requisite grace periods have passed
- The statute of limitations for collection has expired.
- The levy was sent while an instalment plan or OIC request was pending or accepted.
- The levy happened during the CDP hearing process or while the Tax Court is considering your case.
You can file an erroneous levy claim before the levy occurs under the Collection Appeal Program (CAP). This will allow you to present your case before the IRS takes the fund from your account.
If the money has been seized, you can file an administrative levy claim to seek a return of the fund. Once the IRS accepts the claim, you may get your levied fund back up to two years after the levy takes place.
How To Stop or Release an IRS Bank Account Levy?
The easiest way to stop a bank levy is by paying your entire tax debt. If you do this, the IRS will immediately cease all collection efforts against you and your bank account. However, the IRS offers several options to delay or stop the levy if you lack the funds to pay your debt in full.
File an appeal
The IRS gives you 30 days to file a formal appeal upon receiving the Final Notice of Intent to Levy. The appeal temporarily suspends the levy until a determination is made regarding your tax situation. You can request a formal appeal by submitting the IRS Form 9423. Filing an appeal can be a relatively simple process. Nevertheless, there is no assurance that the IRS will reconsider its decision to seize your asset.
Prove Financial Hardship
If you can demonstrate that paying the levy will put an immediate strain on your finances, you might be able to avoid or release the levy. To make this claim, you will need proof of your finances, like bank statements and pay stubs. If approved, the IRS could put you in a status called “currently not collectible,”. This means that the IRS cannot get any money from you right now.
Request an Installment Agreement
Another way to release an IRS bank account levy is through an instalment agreement plan. This enables you to make regular payments toward the balance over time until you settle your tax debt in full.
Because the payments depend on how much money you make, you can rest assured that they are affordable and suitable for your situation.
Apply for an Offer in Compromise
An Offer in Compromise is a way to reduce debt if you owe more than your income can cover. Your offer depends on your monthly disposable income and asset equity. Upon the approval of your OIC, you must settle the agreed-upon amount by the due date. The levy will be lifted once the debt is paid in full.
Report an Identity Theft
If you are a victim of tax identity theft, you can request a levy release. Identity theft occurs when someone uses your Social Security number to commit tax fraud.
Wait Until Your Statue of Limitation Expires
The IRS has ten years to collect on a debt you owe. If the statute of limitations is approaching its end, you may simply wait for it to expire. Once ten years have passed, the debt you incurred is automatically absolved. Therefore, payment is no longer necessary.
Get Help with IRS Bank Account Levy
Levy negotiation is typically a stressful and complicated process. Getting help from a tax resolution expert is probably the most effective strategy to stop bank levies. Remember, time is essential when dealing with IRS levies. You must act fast before the IRS takes away all your assets in your bank account. Otherwise, you might not have the chance to get your fund back.
Tax resolution specialists like us can help you stop the bank levy and resolve your tax liabilities. We can assist you in negotiating a payment plan, filing for a settlement, or obtaining hardship relief. Contact us today to get the tax relief you need!