A levy by the IRS is a legal seizure of your property in order to enforce a tax debt. One of the most common and simple types of levies by the IRS is a bank levy. Before an IRS bank levy process begins to take place, the IRS will send you a Notice and Demand for Payment, which notifies you that you owe a certain amount of back federal taxes, including any interest and penalties that the IRS has assessed on the taxes that you owe. Assuming that you do not pay the tax, interest, and penalties assessed, the IRS then will give you a 30-day levy notice, which is called a “Final Notice of Intent to Levy and Notice of Your Right to A Hearing.” This notice can be given to you personally, left at your home or business, or sent to your last known address by registered or certified mail. During that 30-day period, you have the opportunity to resolve your back taxes with the IRS. If you do not respond to the notice or otherwise take any action to resolve the issue, the IRS may decide to issue a bank levy.
An IRS bank levy occurs when the IRS places a hold, or freezes your bank account. This is done in order to seize the funds in your bank account to pay off back taxes that you owe. Once the freeze is put into place, you have only 21 days before the bank turns over those funds to the IRS. Even worse, if the IRS levy does not seize the full amount of back taxes that you owe, the IRS will continue place levies on your bank account once additional funds are available, so long as you owe back taxes.
Options for Stopping an IRS Bank Levy or Bank Account Garnishment
Collection Due Process Hearings
Before the bank levy process begins, you can request a Collection Due Process hearing with the IRS pursuant to the 30-day levy notice. During this hearing, you may be able to persuade the IRS that a bank levy should not be issued against you for various reasons. For example, you paid the taxes in full, the tax was assessed while you were in bankruptcy proceedings, a procedural error was made in the tax assessment, or the collect statute expiration date (CSED) for a particular year has expired.
Payment of Taxes in Full
During the 21-day time period following the IRS notice of levy, you can make efforts to resolve your back taxes with the IRS. If, for instance, you are able to pay the full amount of your back taxes, plus interest and penalties, within that 21-day period, the IRS will immediately release or stop the levy that it has placed on your bank account. As long as you remain current on your monthly payments, you will remain good standing with the IRS.
Perhaps the most common way to avoid an IRS bank levy is to enter into a monthly repayment plan with the IRS. A repayment plan allows you to repay the back federal taxes that you owe over time and places you back in good standing with the IRS.
Another way to avoid an IRS bank levy is to have the back taxes declared uncollectible by the IRS, in that it would be unfair for the IRS to collect the taxes due to your poor financial situation.
You may be able to avoid an IRS bank levy by entering into an Offer in Compromise, which is a selective IRS program that allows some taxpayers to settle their tax debts for less than the total amount that they owe.