What is an IRS Bank Account Levy? How it Works, What to Expect

irs bank account levyWhat is an IRS Bank Levy?

An IRS bank account levy is the legal seizure of money from your bank account to satisfy tax debt that is owed to the IRS. If you missed several years of paying taxes and the IRS has sent repeated notices (sent to your last known address) requesting payment and if the IRS receives no response from you, it is a good possibility that the IRS may issue a bank levy and freeze your access to your account so they can move forward with the seizure of your funds.

When the IRS Will Use a Bank Account Levy

If you have unpaid tax debt the IRS will give you a lot of warnings prior to issuing a levy. It is likely that you will receive many letters saying how much you owe the IRS in penalties and interest, each letter getting a harsher tone to it. The final letter you will receive before the bank levy takes place is the “Final Notice of Intent to Levy”. This notice is letting you know that the IRS intends to levy your bank account, wages or any other property that they think has value and they can liquidate to pay off your taxes. The IRS has to legally wait 30 days to take action on the levy after sending you this final notice. In those 30 days the taxpayer has the right to pay their taxes or come up with some other form of agreement to settle the taxes owed. By law the following three conditions must be met in order for the IRS to levy a taxpayers assets:

  • The IRS assessed a tax liability and sent a notice to demand payment on that liability
  • The taxpayer ignored or declined to pay the tax amount that was assessed by the IRS
  • The IRS sent a “Final Notice of Intent to Levy” 30 days prior to the levy

The IRS will send these notices to your last known address. They may also attempt to give them to you in person at home or at your place of work. Once the final notice is received you can expect that the IRS will levy assets but no sooner than 30 days to the date the letter was received. The IRS hopes that in this time you will pay your taxes or come to some other sort of agreement with them.

How an IRS Bank Account Levy Works?

After the 30 days have past and no arrangement has been made by the taxpayer to pay the taxes the IRS will decide what form of wage levy to use. If they decide to use a bank account levy they will track down your bank accounts, which can be fairly easy if you have ever reported any interest income and reported in on a past tax return. Even if you have never reported your bank account on any tax returns the IRS will still be able to find it since you are required to use your social security number when opening an account. The IRS will then request information from your bank about the funds in the account. If the account has money it it the IRS will have the bank immediately freeze the account. Once the account is frozen you will not be able to use your check card or take money out of your account. Once the account is frozen the IRS has to wait 21 days in order to seize funds from it.

If you do not take action in these 21 days the bank will send those funds that were frozen over to the IRS. You can be assured that the bank will indeed send the funds over to the IRS because if they don’t they can be held liable for those amounts. The amount sent to the IRS will be credited to your account and reduce the total amount of tax debt that you owe. The levy will not effect any deposits made into the account after the levy, so it is important to deposit money in there after to make sure any outstanding checks that you may have do not bounce. The only way the IRS can touch this money is if they issue yet another levy.

An IRS bank account levy is probably the harshest collection mechanism used by the IRS. Can you imagine not having access to your money because the IRS took control of your account? The IRS shows little remorse for people when it takes these types of actions. It is important to take action as soon as possible to limit the effects of the levy. The IRS does not like to levy. They would much rather come to some other form of settlement with the taxpayer, even if it means letting the taxpayer settle for less than the total amount owed. The IRS uses a levy as a final solution to an unresponsive taxpayer. So if you are being faced with a levy seek immediate help in order to negotiate a resolution with the IRS.