What is a Bank Levy?
A Bank Levy is when the IRS freezes the money in your bank or financial account. It attaches to the money in the account at that moment. The money is ‘frozen’, usually for 21 days and then released to the IRS. Once the money is released it is very difficult to recover. And, be prepared for your bank to charge you $135 for the privilege of having your account levied.
A Bank Levy is used when a delinquent taxpayer ignores notices to pay past due taxes. Once the IRS sends a ‘notice of intent to levy’ the next move is a bank levy, or wage garnishment. You have 30-days to file an appeal to the final notice. A Bank Levy is an extreme action to get your attention. And it works. Releasing a bank levy can be accomplished a few different ways. One way is to show your money is needed for living expenses, or to maintain a business. The form to use can be found at: https://www.irs.gov/pub/irs-pdf/f433a.pdf.
Five Steps to your Tax Freedom
When can a Bank Levy occur?
The short answer is when you get an LT11 or L1058 Notice of Intent to Levy. If an appeal is filed, the IRS cannot levy until the appeal is resolved. There is a similar form, the CP504 that also threatens Notice of Intent to Levy. However, the IRS cannot Levy you with the CP504 form. Are you confused yet? Here is the simple answer: The IRS cannot Levy you until they give you a notice of appeal rights. The LT11 or L1058 is the only notice that does that.
Items that can be levied include wages, commissions, bank accounts, and personal assets.
What can I do if I get levied or a threat of levy?
Here are a few things:
- Contact the IRS and negotiate something less severe, such as a payment plan. You need to have a breakdown for income and all your expenses before you call.
- File bankruptcy, but remember there are limitations on extinguishing IRS debt through bankruptcy.
- Pay them. Contact the IRS and ask for transcripts to verify the amount owed. Advise them your intention is to pay the debt in full. This will stop the collection process for 90 days.
- Ask for time to get your financial affairs in order e.g. file past returns etc.
- Contact a tax specialist or resolution firm with experience in the process.
Is it advisable to handle this on my own?
That is a difficult question and some of the considerations are:
- Your degree of knowledge.
- How much you owe.
- Is there a Revenue Officer involved.
- Is it personal or business debt.
- Have you had garnishments or levies before.
- Are all your tax returns filed.
- Your income.
- Have you defaulted on a payment plan prior.
To give you an idea whether working with the IRS on your own is a good idea; statistics show that an offer in compromise is accepted 14% of the time when submitted by the taxpayer. The percentage should increase dramatically if done by professionals.
Dealing with the IRS is part art and part science. The science comes in by studying the guidelines and utilizing them to your best advantage. However, like any legal or administrative process there is interpretation and room for negotiation. That is where the art comes in.
How is a Bank Levy different from a Wage Garnishment?
A bank levy is a one-time event that attaches the money on the day of issue. A bank levy can take all of your money up to the amount you owe. The money is not immediately sent to the IRS. Usually that takes place 21 days later. A bank levy does not take money you deposit after the levy. However, be careful as the IRS knows where you bank and can issue addition levies.
A wage garnishment is continuous. It does not stop until removed, or the total amount of debt is collected. A wage garnishment does not take all your money. It leaves you an exempted amount which can be very little.
How does the IRS find out where I bank or work?
- Your employer sends the IRS a W2.
- If you are self-employed, the company that pays you sends in a 1099.
- Your bank sends a 1099 to the IRS for accounts that earned interest.
- You write the IRS a check.
- They investigate you through their database.
- They ask neighbors/relatives/others.
- You call them to ‘negotiate’ and they will automatcially ask you.
Anytime you contact the IRS they are going to ask you where you work, bank, live, etc.
What resources are available?
Google most IRS questions and you will find direct links to the IRS regarding your request. Be careful. Make sure the link is from IRS.gov
The Taxpayer Advocate Service are IRS employees that help taxpayers resolve their IRS problems. The service is free. It can be found here: https://www.irs.gov/advocate/local-taxpayer-advocate. These people can be very helpful. Remember however, they are IRS employees.
There are many blogs and articles online. Take care not to become a victim of unscrupulous tax resolution companies. Check their BBB rating, ask for credentials, find out how long they have been in business, and ask for former clients you can talk to.