Navigating the complexities of IRS tax collection can be a daunting experience, especially when it involves something as critical as your bank account. The thought of the IRS seizing your hard-earned money is enough to send shivers down anyone's spine. But understanding how often the IRS can levy your bank account, and more importantly, what you can do about it, is crucial for protecting your financial well-being.
Let's dive deep into this topic, providing you with a comprehensive, step-by-step guide to understanding and responding to IRS bank account levies.
Understanding IRS Bank Levies: Your First Line of Defense
Before we even talk about "how often," let's ensure we're all on the same page about what an IRS bank levy actually is. Are you already familiar with the basics of an IRS levy, or is this your first time hearing about it in detail? Take a moment to consider your current understanding, as this will help you gauge how thoroughly you need to read through the initial sections.
Essentially, an IRS bank levy is a legal seizure of funds from your bank account to satisfy an unpaid tax debt. It's one of the most powerful collection tools the IRS has at its disposal, and it's a stark reminder that ignoring tax obligations can have serious consequences. It's important to differentiate a levy from a lien. A tax lien is a legal claim against your property (like your house or car) that secures the government's right to that property if you don't pay your taxes. A tax levy, however, actually takes the property (in this case, money from your bank account) to satisfy the debt.
Step 1: Grasping the IRS's Power to Levy
The first crucial piece of information you need to understand is this: There is no set limit on how many times the IRS can levy your bank account. That's right – the IRS can issue levies as many times as necessary until your entire tax debt, including penalties and interest, is fully collected. This means they could levy your account, and if it doesn't cover the full amount, they could do it again the next month, or the month after, or whenever they believe new funds are available.
This continuous ability to levy underscores the importance of proactive engagement with the IRS if you have an outstanding tax debt. Ignoring the problem will not make it go away; in fact, it will likely lead to repeated and escalating collection actions.
Sub-heading 1.1: The Pre-Levy Checklist - What the IRS Must Do
The good news is that the IRS cannot simply raid your bank account without warning. They have a strict set of procedures they must follow before issuing a levy. These steps are designed to give you opportunities to resolve your tax debt before a levy occurs.
- Assessment of Tax and Notice and Demand for Payment: The IRS must first determine that you owe taxes and then send you a bill or notice demanding payment. This is your initial alert.
- Failure to Pay: You must fail to pay the tax owed within the specified timeframe.
- Final Notice of Intent to Levy: This is the most critical pre-levy notice. The IRS must send you a "Final Notice of Intent to Levy and Notice of Your Right to a Hearing" at least 30 days before they actually levy your bank account (or other assets). This notice is your last clear warning.
- Notice of Third-Party Contact (in some cases): If the IRS plans to contact third parties (like your bank) to gather information about your assets, they may also send you a "Notice of Third-Party Contact" beforehand.
It is absolutely vital to pay attention to these notices. Ignoring them is the surest way to find your bank account frozen.
Sub-heading 1.2: The 21-Day Holding Period
Once a bank receives an IRS levy, it doesn't immediately send your money to the IRS. There's typically a 21-day waiting period during which your bank account funds are frozen. You cannot access or withdraw money during this time. This 21-day window is your last chance to act and prevent the funds from being transferred to the IRS. If you do nothing, the bank will send the levied amount to the IRS after this period.
Step 2: Why the IRS Levies – Understanding the Triggers
The IRS levies bank accounts when they believe it's necessary to collect unpaid taxes. This usually happens after:
- Significant Unpaid Tax Debt: The IRS is unlikely to levy your account for a minor discrepancy. Levies are typically reserved for substantial, unaddressed tax liabilities.
- Unresponsive Taxpayers: If you consistently ignore IRS notices, phone calls, or attempts to resolve your debt, the IRS will escalate to more aggressive collection methods, including levies.
- Failure to Adhere to Payment Agreements: If you previously entered into a payment plan with the IRS (like an Installment Agreement or Offer in Compromise) and then defaulted on the terms, the IRS may revert to levying your assets.
- Discovery of New Assets: If the IRS identifies new bank accounts or other assets that can be used to satisfy your debt, they may issue a new levy.
Step 3: What to Do If Your Bank Account is Levied – Immediate Action!
If you find that your bank account has been levied, don't panic. While it's a serious situation, there are steps you can take. The key is to act quickly within that 21-day holding period.
Sub-heading 3.1: Verify the Levy and Contact the IRS
- Confirm the Levy's Validity: First, contact your bank to confirm that a levy has indeed been placed by the IRS. Ask for a copy of the levy notice they received.
- Gather Information: Locate all IRS notices you've received regarding your tax debt, especially the "Final Notice of Intent to Levy."
- Contact the IRS Immediately: Call the IRS at the number provided on the levy notice or on their official website. Explain your situation calmly and professionally. Be prepared to provide them with your Social Security Number (SSN) or Employer Identification Number (EIN) and other relevant details.
Sub-heading 3.2: Requesting a Levy Release
The IRS may release a levy under certain circumstances. This is your primary goal when your account is levied.
- Prove Economic Hardship: This is one of the most common reasons for a levy release. If the levy prevents you from meeting basic, reasonable living expenses (rent, food, utilities, medical care), the IRS may release it. You'll likely need to provide detailed financial information (income, expenses, assets) to demonstrate hardship. The IRS will typically require you to complete Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals) or Form 433-B (Collection Information
Statement for Businesses). - Establish an Installment Agreement: If you can afford to make regular monthly payments, the IRS may agree to an Installment Agreement. Once an agreement is in place and you are in compliance, the levy may be released. This demonstrates a willingness to resolve the debt.
- Submit an Offer in Compromise (OIC): An OIC allows you to settle your tax debt for less than the full amount you owe if you can demonstrate that you cannot pay the full liability or it would cause significant financial hardship. While an OIC is pending, the IRS generally suspends other collection activities, including levies.
- The Levy Was Issued in Error: In rare cases, a levy might be issued due to an administrative error or identity theft. If you can prove this, the IRS will release the levy.
- The Collection Statute of Limitations Expired: The IRS generally has 10 years from the date of assessment to collect taxes. If this period has expired, they cannot legally levy your account. However, certain actions, like filing for bankruptcy or an Offer in Compromise, can extend this period.
- Post a Bond: While less common for individuals, you can post a bond equal to the amount of the tax liability.
Remember: A levy release does not erase your tax debt. You will still owe the money and need to make arrangements to pay it.
Step 4: Proactive Measures to Prevent Future Levies
The best defense against repeated bank levies is to address your tax debt head-on. Don't wait for the IRS to take action.
Sub-heading 4.1: Filing All Required Returns and Paying on Time
This is the most straightforward and effective preventative measure. Ensure you file all your tax returns on time, even if you can't pay the full amount. If you owe, pay as much as you can.
Sub-heading 4.2: Entering into a Payment Agreement
If you can't pay your tax bill in full, contact the IRS to discuss payment options:
- Installment Agreement (IA): This allows you to make monthly payments over a period of up to 72 months (6 years). If you enter into a Direct Debit Installment Agreement (where payments are automatically withdrawn from your bank account), the IRS may be less likely to file a tax lien or levy, especially for balances below certain thresholds.
- Offer in Compromise (OIC): As mentioned earlier, this is an agreement to pay a lesser amount than what you owe. It's a complex process and usually considered when other payment options are not feasible.
- Currently Not Collectible (CNC) Status: If the IRS determines that you cannot afford to pay your basic living expenses and your tax debt, they may place your account in "currently not collectible" status. This temporarily stops collection actions, including levies, but the debt remains and can accrue interest and penalties. The IRS will periodically review your financial situation.
Sub-heading 4.3: Understanding Your Rights (Collection Due Process Hearing)
When the IRS sends you a Final Notice of Intent to Levy, it also includes information about your right to a Collection Due Process (CDP) Hearing. You have 30 days from the date of the notice to request this hearing by filing Form 12153, "Request for a Collection Due Process or Equivalent Hearing."
- What Happens at a CDP Hearing? You get to meet with an independent IRS Appeals Officer who is separate from the collection division. This officer will review your case and consider alternatives to the levy, such as an Installment Agreement or Offer in Compromise. They will also ensure the IRS followed proper procedures.
- Suspension of Levy Action: If you timely request a CDP hearing, the IRS generally cannot levy your assets during the appeals process. This provides a valuable window of opportunity to resolve your debt.
- Judicial Review: If you're not satisfied with the Appeals Officer's decision, you can generally appeal to the U.S. Tax Court.
Sub-heading 4.4: Seeking Professional Help
Dealing with the IRS can be overwhelming. Consider consulting with a qualified tax professional, such as:
- Enrolled Agent (EA): Federally licensed tax practitioners who specialize in taxation and have unlimited rights to represent taxpayers before
the IRS. - Certified Public Accountant (CPA): Licensed accountants who can also represent taxpayers before the IRS.
- Tax Attorney: Lawyers specializing in tax law who can provide legal advice and representation.
These professionals can help you understand your options, negotiate with the IRS, prepare necessary financial statements, and represent you in hearings.
Step 5: What if the Funds in Your Account are Exempt?
Certain funds are exempt from IRS levies, meaning the IRS cannot seize them. This is critical to understand, especially if the funds in your account are from these sources.
- Social Security Benefits: Up to 15% of your Social Security benefits can be levied through the Federal Payment Levy Program (FPLP), but the remaining 85% is generally exempt.
- Certain Public Assistance Payments: Welfare, Supplemental Security Income (SSI), and certain other public assistance payments are typically exempt.
- Unemployment Benefits: Often exempt from levy.
- Worker's Compensation: Generally exempt.
- Certain Pension and Annuity Payments: While some might be subject to levy, there are protections for others.
- Child Support Payments: Typically exempt.
It's important to note that while the source of funds might be exempt, if they are commingled with non-exempt funds in a bank account, it can make it more challenging to protect the exempt portion. It's best to keep exempt funds in a separate account if possible. If your bank account contains exempt funds that have been levied, you'll need to demonstrate this to the IRS and your bank to request their release.
10 Related FAQ Questions
Here are 10 frequently asked questions, designed to give you quick answers on various aspects of IRS bank levies:
How to Know if the IRS is Going to Levy My Bank Account?
You will receive a "Final Notice of Intent to Levy and Notice of Your Right to a Hearing" (typically Letter 1058 or CP90) at least 30 days before a levy is initiated. This is your primary warning.
How to Stop an IRS Bank Levy Once It's Issued?
Contact the IRS immediately to discuss your options. You can request a release based on economic hardship, enter into an installment agreement, or submit an Offer in Compromise. Timely requesting a Collection Due Process (CDP) hearing can also suspend the levy.
How to Get Money Back from an IRS Bank Levy?
If a levy was improper or caused significant economic hardship, you can request a release from the IRS. If granted, the IRS will refund the levied funds, though the process can take several weeks.
How to Protect My Bank Account from an IRS Levy in the First Place?
File all required tax returns, pay your taxes on time, or if you can't pay in full, proactively contact the IRS to set up a payment plan (like an Installment Agreement or Offer in Compromise).
How to Appeal an IRS Bank Levy?
If you receive a "Final Notice of Intent to Levy," you have 30 days to request a Collection Due Process (CDP) hearing by filing Form 12153. This hearing allows you to dispute the levy before an independent Appeals Officer.
How to Know if I Qualify for an Installment Agreement to Avoid a Levy?
Generally, individuals owing $50,000 or less (combined tax, penalties, and interest) and businesses owing $25,000 or less that have filed all required returns may qualify for a streamlined installment agreement.
How to Determine if My Funds are Exempt from an IRS Levy?
Certain funds, like a significant portion of Social Security benefits, welfare, and unemployment benefits, are exempt. You'll need to provide documentation to the IRS and your bank to prove the source of these funds if they are levied.
How to Handle a Joint Bank Account with an IRS Levy?
If you have a joint account, the IRS can generally levy the entire account, even if only one account holder owes the tax. The non-liable party may need to demonstrate their ownership of the funds to claim their portion.
How to Find Professional Help to Deal with an IRS Levy?
You can seek assistance from Enrolled Agents (EAs), Certified Public Accountants (CPAs), or tax attorneys who specialize in tax resolution and can represent you before the IRS.
How to Prevent Future Levies if I've Already Had One?
The best way is to establish a clear payment arrangement with the IRS (Installment Agreement, Offer in Compromise) and ensure you remain compliant with its terms, including filing all future tax returns and making payments.