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Bank Levy

Sometimes, a taxpayer prefers to handle a bank levy without professional help. Others find it prudent to immediately hire a professional to navigate the situation. Learn more here at Tax Champions: your trusted tax experts.

What is a Bank Levy?

Did you know that most creditors can take money directly out of your personal and business bank accounts? That is, if you owe them money and they have a court order. However, it’s not as easy as it sounds – unless you’re the IRS.

The IRS is certainly the only entity that can legally withdraw funds from your account without a court order. Typically, creditors use this option when they’ve been unsuccessful in securing payment for a consumer’s outstanding debt. The IRS has the same objective.

The IRS defines a levy as “a legal seizure of your property to satisfy a tax debt."

Levies are different from liens.

"A lien is a legal claim against property to secure payment of the tax debt, while a levy actually takes the property to satisfy the tax debt,” says the IRS. The IRS refers to this collection process as a bank levy. While the IRS has legal access to a multitude of collection actions, they choose the most efficient path of collection. Specifically, a revenue agent assigned to your case will examine your assets and determine which avenue of collection action to use.

How Does a Bank Levy Work?

Before levying your bank account, the IRS delivers a Final Notice of Intent to Levy and Notice of Your Right to A Hearing. They send it by registered or certified mail. They may also deliver it in person at your last-known home or work address.

The IRS allows the taxpayer 30 days from the date on the notice to respond before the funds in the bank account are affected. If they doesn't receive a response within 30 days, the bank has a legal obligation to "freeze" the funds in your account.

This freeze remains in place for 21 days, giving the taxpayer another opportunity to contact the IRS to resolve the debt. A bank levy remains active until the IRS seizes the appropriate amount to satisfy the back-tax debt. This also includes penalties and interest that have accrued.

How to Stop a Bank Levy

The IRS accommodates a variety of opportunities to stop, reverse or reduce a bank levy. Some options aren’t suitable for all taxpayers. Consult with a qualified tax professional to learn about the options available in your individual circumstances. All taxpayers have access to at least one of the following options:

Lump Sum Payment in Full

If the IRS doesn't receive a response within the first 21 days after the account was frozen, they take possession of the funds and apply them to your outstanding balance. However, if you respond to the IRS with payment in full, including interest and penalties, they'll remove the levy from your account.

Collection Due Process Hearing

The IRS includes a Notice of Your Right to A Hearing with the Final Notice of Intent to Levy. This notice is in reference to a Collection Due Process hearing with the IRS.

This particular hearing gives the taxpayer an opportunity to express why he or she believes the IRS should remove the levy. It’s common for hearings to have favorable outcomes if one of the following applies to the case:

  • The IRS issued the Final Notice of Intent to Levy in error because the taxpayer has paid their full tax liability,
  • The taxpayer has an open bankruptcy proceeding,
  • The deadline to collect on the tax has passed, or
  • An administrative error initiated the levy process.
Extraordinary Financial Hardship

Determining the severity of financial hardship is certainly subjective for everyone. Therefore, hard and fast guidelines for declaring financial hardship are far and few between. Discuss your circumstances with a tax professional to most effectively present an explanation of your hardship to the IRS.

If the IRS agrees to lift the levy due to financial hardship, they’re likely to cease further collection efforts until the taxpayer is back on his or her feet. This is called the Currently Not Collectible status, or CNC. The Taxpayer Advocate says, "There are times where you agree you owe the IRS, but you can’t pay due to your current financial situation. If the IRS agrees you can’t both pay your taxes and your reasonable living expenses, it may place your account in Currently Not Collectible (CNC) status."

A stop in collection activity releases pressure on the taxpayer to pay their tax bill. Taxpayers are still motivated to pay their bill as soon as possible. This is because penalties and interest still accrue until the debt is paid off completely.

Payment Agreement

The IRS may lift a bank levy if they come to a suitable payment arrangement with the taxpayer. This is commonly done in monthly installments or an offer in compromise. The IRS does not attempt debt collection while the taxpayer makes monthly payments on his or her back-tax debt. This also includes further attempts to levy bank accounts and wages.

What to Do Next

If you can resolve your back-tax debt by paying the full amount in one lump sum, simply contact the IRS directly for instructions.

There’s no need to hire professional tax representation in this case. Taxpayers with circumstances more suited to another option should contact a reputable and experienced tax professional. With their fingers on the pulse of the tax law and IRS procedures, tax professionals have a unique ability to present your case to the IRS for the best possible outcome.

Tax Champions has been working with clients in need of tax relief for over 35 years. We’re especially skilled in negotiating terms with the IRS that empower our clients to establish a good standing with them through affordable payment plans. We're proud to offer trusted tax services to people who need help.

We invite you to contact us today for a free consultation with no obligation to hire our firm.

We’ll happily discuss your circumstances to help you discover the best options that you qualify for. If you decide that we’re a good fit for your needs, our staff will get to work immediately to stop the levy and release the funds in your bank account as soon as possible.

We can be reached at 888.518.8964 . We're available seven days a week, during standard business and evening hours. We certainly understand that the stress of a bank levy can't always wait until tomorrow. If you prefer that we reach out to you instead, just submit your contact information to us in the blue box on the right side of this page. Our compassionate and knowledgeable staff is ready to help you sleep better tonight. Contact us today.

Sources

[1] Currently Not Collectible. (30 Jan. 2019). Retrieved from //taxpayeradvocate.irs.gov/get-help/currently-not-collectible

[2] What is a Levy?. (2018, November 5). Retrieved from //www.irs.gov/businesses/small-businesses-self-employed/what-is-a-levy

[3] Filing Past Due Tax Returns. (2019, February 22). Retrieved from //www.irs.gov/businesses/small-businesses-self-employed/filing-past-due-tax-returns

[4] Collection Due Process (CDP). (2019, April 9). Retrieved from //www.irs.gov/appeals/collection-due-process-cdp

 

 

Walter Wotman, CPA

Founder & Managing Partner

Walter Wotman, CPA is the author of "Tax Champions Guide to Tax Resolution." Amazon #1 Best Seller in the Personal Finance category. He is one of America's most experienced tax negotiators with over 35 years of experience helping thousands of clients settle difficult back tax issues.

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