IRS Bank Levy: How They Work and How to Stop
- November 2, 2019
- Posted by: Platinum Tax defenders
- Category: Tax Relief
Bank levy is one of the most aggressive collection enforcement actions by the Internal Revenue Service (IRS). It happens when the IRS forcibly hold your bank funds to cover your tax debts. In layman’s term, bank levy occurs when a judgment creditor instructs a bank to withdraw money from a specific account. IRS levies an account with or without the permission of the account holder or the debtor. IRS Bank Levy
But before they seize your funds, they would send you a Notice and Demand for Payment. This notice serves as a notification that you have certain debts like interest and penalties. On a legal level, the IRS cannot take action right away until after 30 days after sending the notice.
So it is your chance to contact the IRS about your payment plan or pay your taxes in full. The agency has the right to issue a bank levy on instances that they have sent multiple notices. At the same time, the IRS can also release a levy when you fail to set up settlements. Thus, to prevent this from happening, seeking legal advice is all you need.
How much can the IRS levy from my bank account?
Once the IRS issues a levy, they would first send a notice to your employer. The IRS would require your company to send a part of your paycheck to them.
The amount that the IRS would get from your paycheck would depend on your filing status, the number of dependents, and the pay period.
For instance, if you’re making $1000 every two weeks, with no dependents, the IRS will get $538 from your salary. You can find the computation of the exempt amount on the IRS Publication 1484.
How does a levy on a bank account work?
The process of bank levy is not rocket science, and it is not difficult to grasp. For instance, if you owe a lump sum and haven’t paid in months, your creditor might feel frustrated in the long run. They may seek legal actions against you, which can hurt your financial stability. But how does a bank levy work?
- With the 30-day grace period after receiving the Final Notice of Intent to Levy letter, the IRS will decide the type of levy to use. They can either pose a bank account levy or wage garnishment. If they choose to use the bank levy, the IRS will track down your bank account. They have the ability and the resources to do so. They can get a copy of your banking details, previous tax returns, and in some cases, your social security number.
- The IRS will send Form 668-A(C)DO to your bank, which is a Notice of Levy on Wages, Salary, and Other Income. Once your bank received the notice, they should comply and freeze your account even without your permission. You won’t be able to withdraw your funds during this time.
- The IRS will give you another 21 days to settle the situation; otherwise, your bank will forward your funds to the IRS on the 22nd day. If the bank does not comply, the IRS will hold them responsible for the debt.
- You must take action during the 21 days and seek out a bank levy release. While getting a bank levy release is challenging, it is not impossible. If the 21 days are over and the IRS has your assets, it would be difficult to get it back. So, don’t wait until the last day.
What can I do to prevent an IRS levy?
Can you imagine not being able to access your funds because the IRS took over? Thus, it is vital to take action immediately to limit the effects of the levy. Although you can stop a bank account levy, there is a need to act quickly. You have to find feasible solutions before the IRS control your funds. Good thing, there are several ways to minimize the possibilities of tax levies on your assets. Here are some approaches you can consider to prevent an IRS levy:
Request for a CDP Hearing
- Once you have the final notice, you have 30 days to request for a Collection Due Process (CDP) hearing. The IRS would give you enough time to ask help from a professional or a tax resolution service provider. You have the chance to avoid an IRS levy by requesting a CDP before the bank freezes your funds.
Pay the Tax Debt in Full
- Your best option to stop the IRS from charging interest and penalties is to pay your debts in full. You should know how to communicate with the IRS regarding their collection. To avoid getting a bank levy release, paying in full is your best option.
Make an Offer in Compromise (OIC)
- You can appeal an OIC with the IRS if you cannot pay in full. With OIC, the IRS lets you resolve your tax debt for less than what you owe. To qualify, you should meet their strict criteria, and your offer should reflect your current income and assets. The IRS accepts the OIC if they believe it’s the only way to get money from you.
File for Bankruptcy
- Your last resort is filing for bankruptcy to get the tax levy released from your property. While it may take a negative toll on your credit report, no creditor — even the IRS — can contact you regarding your tax debts.
A bank levy by the IRS is an aggressive collection mechanism that can happen to you if you fail to pay your taxes. They are capable of garnishing wages, freezing your account, and seizing your assets to make up for your outstanding debts. It can be a stressful and terrifying experience. Still, with the help of tax professionals from Platinum Tax Defenders, we can help you find the best solution available to get out of debt in no time. Get sound advice from our professionals today!