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How to Release or Stop an IRS Bank Account Levy

release bank levyWhen you fail to respond to IRS notices about a balance due, the IRS eventually sends a final notice of intent to levy. You have 30 days to request an appeal or CDP hearing, which will stop levy action temporarily so you can work out a resolution with the IRS (discussed below). If you don’t take action during this time, the IRS can confiscate just about anything you own. Usually, the IRS starts with wages or bank accounts.

One of the IRS’s most popular options is to seize the funds you have in your bank. Some time after the 30 days have passed, the IRS contacts your bank. The bank freezes your account, and if you do not make arrangements within 21 days, the bank sends the funds to the IRS on the 22nd day.

To avoid a bank levy, you should call the IRS or work with a tax professional. It is important to do so once you receive the final notice of intent of levy. If your bank has already frozen your funds, you need to take action during the 21-day holding period. Once the IRS garnishes your bank account, it is difficult to get it back.

Ways to Stop or Release an IRS Bank Account Levy

  • Request a CDP Hearing

    If you have received a Final Notice of Intent to Levy from the IRS, you can stop the bank levy by requesting a Collection Due Process hearing. You have to do so within 30 days from the date of the letter or notice. Once you appeal, you will have some time to work out a resolution with the IRS (options discussed below). You can use a licensed tax professional to work on your behalf. In some cases, you may appeal because you are currently in bankruptcy proceedings, or the collection statute of limitations has expired.

  • Pay in Full

    If you pay your tax debt in full, the IRS will not move forward with the levy or release the hold on the funds in your account. Paying in full helps you avoid any more interest and penalties.

  • Enter into an Installment Agreement

    If you agree to make monthly payments on your tax debt, the IRS will also remove the freeze on your account. Tax payments have to be enough to pay off the debt before the statute of limitations on collection for a particular tax period expires. Usually, the IRS gives taxpayers several years. If you default on your installment agreement, the IRS may levy your bank account again.

  • File for an Offer in Compromise

    An offer in compromise allows you to settle tax debt for a fraction of the total. The IRS only accepts this arrangement for taxpayers who qualify. If the IRS believes it can obtain what you owe them in other ways or thinks you can pay more, they will send you a rejection letter. As this option is complicated, it’s best to work with a tax professional.

  • Prove Financial Hardship

    When seizing money from your bank account, the IRS does not make sure you have enough money left to pay your other bills. However, if you can prove that you cannot live on the remaining funds, that’s a different story.

    To prove the bank account levy affects your health and well being or limits your ability to put a roof over your head, you need to provide the agency with detailed financial information. If the IRS approves your hardship application, your account gets labeled as a CNC or uncollectible. It is only a temporary resolution. The IRS reviews this CNC status every two years and uses your tax returns to assess your ability to pay.

  • Prove Identity Theft

    If you believe you are a victim of tax-related identity theft, then the IRS is willing to help. In many cases, you will need to set up another resolution with the IRS as this process can take time. You will also need to fill out IRS Form 14039 (Identity Theft Affidavit) and mail it to the IRS. It is always a good idea to have a tax firm or professional help you with tax-related identity theft.  The fees usually far outweigh the cost of having tax debt remain, especially if you are not responsible.

Get Help From a Tax Professional

No matter what method you choose, you must act quickly. Once you discover your bank has frozen your account, you have up to 21 days before the IRS receives the funds. Once the money is taken, it is usually not returned.

Even if you set up an installment agreement or qualify for an offer-in-compromise, it’s too late once the IRS has taken the funds. To get through this situation, you should contact a tax professional for help.