What do I do if the IRS issues a bank levy?
What is a tax levy? A tax levy is a legal seizure of taxpayer’s property to satisfy an outstanding balance due. A tax levy can be against a taxpayer’s bank account and/or any sources of income such as wages, accounts receivables, 1099 income, etc.) .
By the time the IRS issues a bank levy, the taxpayer would have received several notices from the IRS regarding the past due amount.
The IRS issues a tax levy when the following occurs:
- An assessment has been made (a tax balance is due) and a notice and demand for payment on the outstanding balance due was made
- The taxpayer must have neglected or refused to pay
- IRS issued a Final Notice of Intent to Levy and Notice of a Right to a Hearing to the taxpayer providing the taxpayer 30-days from the date of the notice to file a request for a hearing.
When the financial institution such as banks, credit unions, savings and loans, etc. receives the Notice of Levy, they will place a “freeze” on the account and charge the taxpayer a levy processing fee. Banks, credit unions, savings and loans, and similar financial institutions must hold any funds that have attached to the levy for 21 days from the date they receive the Form 668-A, Notice of Levy. The financial institution generally sends a letter to the taxpayer informing the taxpayer about the levy and provides them with the date on which they will send the funds to the IRS (unless the levy is released or modified prior to the 21st day). The time at which a bank sends funds to the IRS pursuant to a levy depends on each bank’s policy, but generally a bank will send the funds anywhere from 10-21 days from the date of the notice. Sometimes, a taxpayer is notified about the levy when they try to withdraw funds from their account, and the funds have been frozen.
A bank levy is a one-time levy which means it is not continuous. The levy will attach to the amount of funds in the bank the date the financial institution received the Notice of Levy, but only up to the amount owed to the IRS. The IRS cannot levy your bank account for more than you owe them. If the funds in the account is greater than the amount of the levy, the levy will only attach to the amount on the levy notice. If the amount in the account is less than the amount of levy, the levy attaches to all of the available funds in the account. Since there is a “freeze” on the account, the taxpayer may have outstanding checks bounce.
The levy attaches to the funds that were in the account, the date the financial institution received the levy. The levy does not attach to any funds after said date (unless another Notice of Levy was issued). Generally, the IRS will wait approximately 30-days to receive a response from the financial institution before taking further action. However, the IRS can issue multiple levies at one time.
