How to Stop IRS Tax Levies on Your Bank Accounts

How to Stop IRS Tax Levies on Your Bank Accounts

Dealing with an IRS tax levy on your bank account can be extremely stressful. A levy allows the IRS to seize your property – like the funds in your bank account – to pay off tax debt you owe. Getting hit with a bank levy can leave you unable to access your money for basic living expenses.

Luckily, there are a number of ways to prevent, remove or reduce the impact of an IRS bank levy. This guide will walk you through the levy process and provide actionable tips on how to stop a bank levy.

What is an IRS Bank Levy?

A levy is one of the most aggressive tools the IRS uses to collect unpaid taxes. It gives them the legal right to seize your property to pay off what you owe.

Specifically, a bank levy allows the IRS to take funds from your bank account(s) – like checking or savings accounts. They can seize all the money in your accounts up to the amount you owe for back taxes, penalties and interest.

Once the levy is in place, you cannot access or withdraw any of the funds from your account. The bank is legally required to turn over the levied money to the IRS. This can leave you unable to pay for basic living expenses like rent, food or utilities.

When Will the IRS Levy My Bank Account?

The IRS won’t just show up out of the blue and levy your bank account. First, they will send you several notices demanding payment and giving you a chance to resolve your tax debt.

If you ignore these notices, the IRS will eventually issue a Final Notice of Intent to Levy and Your Right to a Hearing. This gives you 30 days to request a Collection Due Process hearing to appeal the proposed levy.

If you don’t respond, the IRS can legally levy your bank accounts. They will send a notice to your bank informing them of the levy and ordering them to freeze and surrender your funds.

The Bank Levy Timeline

Here is the general timeline for an IRS bank levy:

1. You fail to pay your taxes on time.
2. The IRS sends you notices demanding payment over a period of several weeks or months.
3. After repeated notices go unanswered, the IRS issues a Final Notice of Intent to Levy.
4. You have 30 days to request a Collection Due Process hearing to appeal the levy.
5. If you don’t respond, the IRS sends a levy notice to your bank ordering them to freeze your accounts.
6. The bank freezes your accounts but cannot send money to the IRS for 21 days.
7. On day 22, the bank sends the levied funds to the IRS to pay your tax debt.

As you can see, you have a few opportunities to head off an IRS bank levy before it goes into effect. But once the levy notice is delivered to your bank, you have very little time to get it stopped.

How to Stop an IRS Bank Levy

Now that you understand what a bank levy is and when it can happen, let’s discuss how to prevent or stop a levy on your accounts.

1. Pay Your Tax Debt

The easiest way to halt a bank levy is to pay your tax debt in full. As soon as your balance due is paid off, the IRS will release the levy. However, many people facing levies don’t have the money readily available to pay in full.

2. Request a Collection Due Process Hearing

You have the right to appeal a proposed levy by requesting a Collection Due Process (CDP) hearing. To do this, you must respond in writing within 30 days of receiving your Final Notice of Intent to Levy.

At the hearing, you can argue why the levy should not take place. For example, you can show it would cause financial hardship or that you need more time to pay. The IRS is required to consider any legitimate issues you raise.

Requesting a hearing prevents the IRS from issuing a levy until after the hearing takes place. This immediately stops any levy action. If you can convince them during the hearing not to levy, then the bank levy can be avoided altogether.

3. Ask for Currently Not Collectible Status

You may qualify to have your account put into Currently Not Collectible status with the IRS. This means they agree not to take enforced collection actions like a levy because it would cause you financial hardship.

To qualify, you must prove you cannot pay any of your living expenses if your bank account is levied. The IRS may ask for documentation like bank statements, bills, pay stubs, etc. to verify your situation.

4. Set Up an Installment Agreement

Instead of paying your full balance at once, you can set up an installment agreement to pay monthly. As long as you stick to the payment plan, the IRS will not levy your bank account.

The IRS looks favorably on taxpayers who make an effort to pay what they can each month. Setting up an installment plan is often the quickest way to get a bank levy stopped or prevented.

5. Submit an Offer in Compromise

If you can’t afford to pay your tax debt in full, you may qualify for an Offer in Compromise. This allows you to settle your tax debt for less than what you owe.

You will need to prove you do not have enough income, assets or ability to pay. If approved, the IRS will remove the levy and you can make reduced payments until the lower offer amount is paid off.

6. File for Bankruptcy

Filing for Chapter 7 or Chapter 13 bankruptcy triggers an automatic stay on IRS collection efforts like levies. So bankruptcy can provide immediate protection.

However, bankruptcy does not make your tax debt go away. You will still have to repay after bankruptcy, so it’s best used with other solutions like installment plans or Offers in Compromise.

7. Prove Financial Hardship

As mentioned above, the IRS cannot levy you if it would prevent you from paying basic living expenses. Proving financial hardship requires submitting documentation about your income, assets, expenses, and ability to pay.

A tax professional can help you organize and present this information to the IRS in the most favorable manner. Financial hardship can be grounds for the IRS to immediately release a bank levy.

8. Claim Tax Identity Theft

If your Social Security number was stolen and used to file a fraudulent tax return, the IRS may mistakenly try to collect from you. This is known as tax-related identity theft.

If you are facing a levy due to someone else’s fraud, you can have the levy stopped and reversed. But you will need to prove to the IRS that you were a victim of identity theft.

9. Argue the Levy is Improper

In limited cases, you may be able to prove the IRS levy is improper and should not take place. For example, if the IRS did not follow proper procedures or is trying to levy exempt funds.

An experienced tax professional can review your case and determine if the levy is improper or invalid. This can provide grounds to reverse or prevent the bank levy.

What to Do if Your Account is Already Levied

If the IRS has already levied your bank account, don’t panic. You still have options to get your money returned.

The 21-day holding period before the bank sends money to the IRS gives you a small window to get the levy stopped. And in some cases, you can recover levied funds even after they are sent to the IRS.

Be sure to contact a tax professional immediately for help responding. Quick action is key to getting a released levy.