This is the first post in a five part series on IRS levies. This post will cover personal bank account levies; in the following weeks we will discuss wage levies, personal asset seizures, business bank levies, and business asset seizures.
Many people experience a moment of pure panic when they access their online bank account records and see that their account balance is thousands of dollars lower than it was yesterday. The only evidence of this change? A simple notation stating “IRS Levy” or “IRS Legal Action”. At this point, it is clear that the IRS has levied your account and you no longer have access to a least a portion of the funds in your account. So, what comes next? First, in order to know your next steps you need to know what is happening now.
What happens when the IRS issues a bank levy?
When the IRS issues a bank levy, they send a Notice of Levy to any financial institution at which they think you have an account. The Notice of Levy states your social security number and the amount of tax you owe. If the financial institution finds an account linked to your social security number, they are required to place a freeze on all current funds up to the amount of the tax you owe. Only funds that are present in your account on the date the financial institution processes the levy can be frozen. If you deposit a check the day after the levy is processed, the financial institution cannot freeze those funds to satisfy the levy.
The freeze remains in place for 21 days; during this time the money remains in your account, but you do not have access to it. If at the end of the 21 days you have not successfully secured a release of levy from the IRS, the bank will turn the funds over to the IRS. Therefore, it is important to attempt to secure a levy release within this 21 day period.
Arguing that Funds are Exempt from Levy
The first argument for you to explore is whether any of the frozen funds are exempt from levy. Are the funds in the account yours? If the account is joint with a non-liable party, you may have an argument for exempting at least their portion of the funds in the bank account from levy. Are the funds in your account of a type specifically exempt from levy? In most cases, the IRS cannot levy certain funds such as unemployment benefits, pension payments, and workmen’s compensation payments. If you can prove that the source of the money in your account falls under one of these categories, you could qualify for a levy release.
Arguing that the Levy Would Create a Hardship
The second argument for you to consider is whether the levy would create a financial hardship on you or your family. For example, would you be unable pay your monthly living expenses if the IRS took the money from your account? If so, you can gather financial information to show your monthly income and living expenses by filling out an IRS Form 433-A or 433-F. The IRS will only allow expenses that are within their standards or that are reasonable and proven by documentation. If you can show that you need the money in your account to cover living expenses, then the IRS may release the funds back to you.
If you have attempted to negotiate with the IRS agent or IRS division assigned to your case and they refuse to grant you a levy release, there are several options to appeal that decision.
- The Collection Appeals Process can be used for a quick review of a levy. This review is typically limited to whether the levy followed all technical guidelines when it was issued.
- A Collection Due Process Equivalency Hearing can be requested if you received a Final Notice of Intent to Levy within the last year. It can take a long time for this type of appeal to be considered. However, at the collection due process hearing, the appeals officer can consider all collection alternatives to the levy including installment agreements and currently not collectible status.
- You can request the assistance of the Taxpayer Advocacy Service if an IRS levy is creating hardship. If you prove to them that the bank levy will create a financial hardship, they can help you secure the release of the levy and, in extreme cases, they will issue a taxpayer assistance order telling the IRS to release the levy.
If your bank account has been levied by the IRS, quick and efficient action is a necessity to increase your chances of securing a release of levy from the IRS. Contacting an experienced tax attorney to advocate for you in this process can ensure that you have done all you can to present the strongest case for levy release.