(What Not To Do When the IRS Levies Your Bank Account)
It seems like any other day. You go to the ATM to make a modest withdrawal from your checking account, but the transaction is declined. Ok, that’s happened before — simple accounting error, right? Wrong. Uncle Sam has stepped in and frozen your funds.
What exactly is an IRS Bank Levy?
It’s when the Internal Revenue Service seizes money from your bank account to cover an existing tax debt. If the IRS has issued multiple notices demanding payment and you haven’t paid or attempted to make other arrangements, the IRS may issue a bank levy. When this occurs, the bank freezes access to your account(s) and eventually sends the funds to the IRS.
When does it happen?
If you have unpaid tax bills, the IRS mails you multiple notices, with each letter possessing harsher tones until you eventually receive a “Final Notice of Intent to Levy.” It will state the IRS’ good intention to levy your bank account, wages, or any other property with the value to cover your tax bill.
By law, the IRS cannot take action until 30 days after submitting the notice. During that time, you either need to pay your taxes in full, reach out to the IRS about a payment plan, or make other arrangements. If you don’t do anything, the IRS can legally seize your assets.
Legally, the following conditions must be met before the IRS can take your assets:
- The IRS determined a tax liability and sent a notice to demand payment.
- The taxpayer declined or ignored paying the tax due.
- You’ve received a “Final Notice of Intent to Levy” 30 days prior to the levy from the IRS.
The IRS will send these notices to your last known address or will deliver them in person at your home or work. Upon receipt of the final notice, the levy may occur after 30 days have passed.
In limited cases, the IRS can levy your bank account without providing a 30-day notice of your right to a hearing. There are three primary reasons why this could occur:
- The IRS intends to take your state refund.
- The IRS believes the collection of tax is in jeopardy.
- You were served a Disqualified Employment Tax Levy.
How Does an IRS Bank Levy Work?
Following the 30-day grace period that ends from the Final Notice of Intent to Levy letter, the IRS will determine which form of levy to use, which includes bank account levies and wage garnishment.
If the IRS decides to go with a bank levy, it will locate your bank account. How? The IRS may have your banking details from prior tax returns, or it uses your social security number to track down your bank account. Then the IRS will send a Notice of Levy on Wages, Salary, and Other Income, generally Form 668–A(C)DO, to your bank. Your bank is required by law to comply and freeze your funds. You won’t be able to withdraw your money while your account is frozen. At this moment, you receive an additional 21 days to resolve the debt. If not, the bank will remit the funds to the IRS on the 22nd day. If the bank doesn’t cooperate, the IRS holds them responsible for the debt, so as you would expect, the bank always tends to comply.
It’s important to know that the IRS only takes the existing funds in the account when the levy was placed. So if you make additional deposits during that time, such as direct deposit paychecks, the IRS has to issue a new levy to have access to those funds. If you have outstanding checks or automatic payments when the freeze goes into effect, it’s a good idea to make a deposit to cover pending withdrawals.
It’s safe to say that an IRS bank account levy is most likely the most hard-core collection procedure used by the IRS. Not having access to your hard-earned dollars because the IRS took control of your account is hard to swallow, so it’s important to take action as soon as possible to limit the impact of the action.
What about a California Tax Levy?
Failure to pay California state income tax can also result in facing a levy or garnishment. While the IRS enforces federal income tax obligations, the California Franchise Tax Board (FTB) handles state income tax obligations.
Similar to IRS collections, the FTB can levy the taxpayer’s bank account or garnish his or her wages. However, different standards apply to FTB actions. For example, while the IRS permits the taxpayer 21 days to modify or release a bank levy, the FTB typically only gives the taxpayer ten days to change or release the levy. However, the FTB will grant additional time if the taxpayer can present adequate evidence of hardship. In any case, immediate action such as contacting an experienced tax lawyer is necessary. Moreover, for wage garnishments, the IRS is guided by formulas which provide for a taxpayer’s allowed exemptions from a garnishment. The FTB may garnish up to 25% of the taxpayer’s disposable income subject to modification.
Levies are a final resort for the IRS to deal with unresponsive taxpayers; as a whole, they would much rather work with you on a mutually-agreeable solution. If you are facing a levy, tax law professionals like those here at Delia Tax Attorneys can help you succeed in negotiating a payment plan, apply for a settlement, or obtain hardship relief. Contact us today to discuss your case and regain control of your life.