IRS Bank Levy

What is an IRS Bank Levy?

IRS Bank LevyOne of the ways the Internal Revenue Service can collect tax debts is through an IRS bank levy. This is but one of the types of collection methods the IRS uses in order to nudge taxpayers back into compliance. The IRS is very aggressive in hunting down taxpayers with back tax debts and the agency has a variety of strong-arm methods to make them pay.

An IRS bank levy is similar to other levies. The IRS will usually fist try sending a number of notices to the taxpayer about the back taxes they owe to the federal government. If the taxpayer takes no action the IRS may put a tax lien to the taxpayer’s properties as security that the tax debt will be paid. The tax lien will be followed by a levy of personal property. An IRS bank levy falls under this personal property category.

Once the IRS issues a final notice of demand to pay the debts incurred, the taxpayer has thirty days to pay or contact the agency for payment arrangements. But if there is no response from the taxpayer, this is a red flag for the IRS to begin looking to the taxpayer’s personal property such as their wages, investments, bank accounts, real estate properties and the like. An IRS bank levy is the next preferred collection strategy used by the IRS after the wage levy because it is very easy to collect through the taxpayer’s bank account. An IRS bank levy does not require a court order.

How The IRS Bank Levy Works

If the IRS manages to identify the taxpayer’s bank account, the agency will send a notice to the bank stating that the account holder must pay back taxes owed to the federal government. The bank will freeze the account or accounts for 21 days and if there are no responses from the taxpayer, the bank will send the frozen funds to the IRS up to the amount that the taxpayer owes to the government.

However, this can only be done once, so if the account holder or taxpayer deposits some cash to the account after the IRS bank levy, the new balance will not be sent to the IRS. But, the IRS may issue another notice to freeze the account and they can also monitor the transactions in the bank accounts of the taxpayers so they will know if there are additional funds to be extracted from the taxpayer.

Lifting An IRS Bank Levy

In order for the IRS bank levy to be lifted, the taxpayer should pay the amount in full. If this is not possible, the taxpayer can try to work out a tax settlement with the IRS. An IRS installment agreement can be set up in order for the tax debts to be more conveniently paid. The taxpayer will send monthly payments to the IRS for a period of up to three years. The monthly payment amount and exact term will be determined by the IRS depending on the capability of the taxpayer.

Another option that would lift the IRS bank levy is to apply for an offer in compromise or tax settlement in which the taxpayer must prove that the delinquent taxes cannot be paid due to financial hardship and/or that the tax debt is incorrect. Needless to say, in order to avoid being hunted down and facing an IRS bank levy in the first place, taxpayers should to pay their taxes on time if at all possible.

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