IRS Bank Levy

How to Remove or Stop an IRS Bank Levy

If you don’t pay your taxes, the IRS has the right to seize the funds in your bank account. A bank levy can make it impossible to pay your bills, and unfortunately, once the levy is in place, it can be very hard to remove. 

This post looks at how to prevent an IRS bank levy and how to stop an in-progress bank levy. To get help now, contact us at the W Tax Group today. Whether the state or the IRS has seized your account or is threatening to levy your assets, we can help.

Key takeaways

• To avoid bank levy – Appeal when you receive a Final Notice of Intent to Levy.
• To stop bank levy – Prove error or financial hardship, or pay in full.
• Taxpayer rights – You can appeal bank levies and request to have seized funds returned.

How to Prevent an IRS Bank Levy

To stop a bank levy, you need to take action when you receive the Final Notice of Intent to Levy. Here are your options. You must take these steps before the deadline on the notice or the IRS will move forward with the bank levy:

• Pay the tax liability in full.
• Set up an installment agreement.
• Apply for an offer in compromise.
• Appeal the levy by requesting a Collection Due Process (CDP) hearing.
• File for bankruptcy — this will create a stay that will temporarily stop the levy, but you will not necessarily be able to discharge your tax bills through bankruptcy.
• Demonstrate that the levy causes financial hardship.
• If the tax bill was due to identity theft, you need to reach out to the IRS and file Form 14039 (Identity Theft Affidavit).

If you request a CDP hearing, you will be able to explain how the levy affects you financially, and you will be able to talk about payment options. Ideally, the hearing should conclude with you moving forward with a payment plan or settlement. However, if the result of the hearing is a decision to move forward with the bank levy, you typically have the right to appeal to the U.S. Tax Court.

How to Stop an In-Progress Bank Levy

If you do not respond to the final levy notice, the IRS will move forward with the levy, and the process will start with freezing the funds in your bank account. At this point, you have 21 days to pay in full, prove the levy causes hardship, or show that the levy was issued in error. 

Unfortunately, at this point, you generally cannot get the IRS to release the levy just by setting up a payment plan. Instead, consider the following:

• Pay in full – If you pay the tax liability in full, the IRS will remove the levy from your bank account. However, if desired, you may allow the IRS to seize the frozen funds and then send in a payment to cover the remaining balance so that you don’t have to worry about future enforcement actions. 
• Prove the levy was in error – This often happens if someone is a signatory for an account where they do not own the funds. For example, maybe you are the signatory on your parent or adult child’s account but you can prove that all of the funds in the account are really theirs. Another common error is issuing a bank levy after the collection statute has expired – about 10 years after assessment.
• Establish that the IRS didn’t provide proper notice – The IRS must send you notices before levying your bank account. If they made an error with the notice process, they must remove the levy.
• Show the levy was on exempt funds – The IRS cannot seize children’s survivor’s benefits, Supplemental Security Income (SSI), VA benefits, federal student aid, workers’ compensation benefits, unemployment benefits, certain pension payments, and some other payments. If any of the frozen funds came from these sources, contact the IRS or a tax attorney immediately.
• Request levy release due to financial hardship – If the bank levy makes it impossible for you to pay your mortgage, rent, utilities, grocery bill, or other critical expenses, the IRS may need to remove the levy for financial hardship. You will need to document the hardship.

In some cases, you can set up an installment agreement with terms that dictate the IRS must release a levy. However, this is much more likely to happen with other types of levies. If the IRS can legally take the funds in your bank account, it’s generally not going to release them unless you prove error or hardship – that’s why it’s critical to reach out before the IRS freezes the money in your account. 

Common Bank Levy Errors

If any of the following apply, the bank levy was most likely issued in error, and the IRS should release it:

• You didn’t receive proper notice 30 days before the levy.
• The statute of limitations on collection expired.
• You’re already on an approved installment agreement. 
• The IRS is reviewing your request for an offer in compromise.
• You’ve already appealed this collection action or are in the midst of a CDP hearing.
• You’re filing bankruptcy and the stay should have prevented the levy.
• You’ve already paid in full.
• The levy was attached to an account you don’t own.
• The levy attached to funds exempt from IRS tax levies.

Unfortunately, the IRS can levy all of the funds in jointly held accounts. So, even if the other accountholders have made all of the deposits, the levy may still be legitimate, and you may not be able to stop it.

How to Deal With Bank Levy Errors

In cases of erroneous bank levies, the account holder or their power of attorney should call the IRS at the number on the Form 668-A(C)DO. They need to explain that the money in the account is theirs and it does not belong to the taxpayer. The IRS may request proof of this claim, but the agency should release the enforcement.

What if the IRS Denies Your Request to Stop the Levy

Generally, you can appeal if the IRS denies your request to stop a levy. The exact appeals process varies based on how you got your denial. For example, if the IRS has proposed a bank levy, you may be able to appeal through the Collection Appeals Program. If the IRS has already taken your funds and denied your request to stop the levy, you may need to appeal in U.S. Tax Court.

In all cases, the appeals process is very strict with lots of deadlines. Missing deadlines can compromise your ability to appeal. To be on the safe side, talk with a tax attorney. Once the IRS has your money, you can also request to have it returned to you. It is very rare that the IRS would say yes to that request, but you have the right to appeal their denial.

What to Expect When the IRS Levies Your Bank Account

The IRS will find your bank accounts based on the information you provided on your tax return or by using your Social Security Number. The agency will send Form 668-A9(C)DO to your bank, and your bank will immediately freeze your funds. You have 21 days to pay the tax in full or dispute the levy. Otherwise, the bank will send the funds to the IRS.

During the 21-day period, those funds are frozen. You will not be able to access them. If you have outstanding checks or automatic payments, you should make a deposit to cover them or they may be returned by the bank. The assessment only affects the funds in your account when the bank receives the levy notice. Additional deposits will not be seized unless the IRS sends another levy.

FAQs About Stopping IRS Bank Levies

How do you know if the IRS is going to levy the funds in your bank account?

Before levying the funds in your bank account, the IRS will send you a Final Notice of Intent to Levy. You must take action within 30 days if you want to stop the enforcement. You can pay the tax in full, appeal the levy, or contact the IRS to set up a payment plan or make other arrangements on your tax bill.

Does the IRS always need to give you 30 days’ notice?

In rare cases, the IRS may not have to wait 30 days before levying the assets in your account. If the IRS feels like the collection is in jeopardy or if you have a disqualified employment tax levy, it can seize the funds in your bank account sooner.

What if the IRS levies your bank account when you’ve already paid in full?

If you’ve already paid the tax liability in full when the IRS levies your account, the bank must remove the levy, but they may charge you a fee to process the levy. 

Can you get a refund if your bank charges a fee and the IRS removes the levy?

You may be able to get a refund of the fee if the following are true:

• The IRS caused the error.
• You didn’t contribute to the error.
• You responded to IRS requests for information before the assessment in a timely fashion.

To request a refund of the bank fee, send Form 8546 (Claim for Reimbursement of Bank Charges) to the IRS.

Can you get back the funds from a bank levy?

Once the IRS has taken the funds from your bank account, you can request to get them back, but in most cases, you will never get that money back. It will be applied to your outstanding tax balance.

What if the bank levy doesn’t cover the full balance due?

If the bank levy doesn’t cover your full tax liability, the agency may also garnish your wages, take your tax refunds, or pursue other collection actions.

Get Help with an IRS Bank Levy

Do not let the IRS take the money from your bank account. Get help from a qualified tax attorney before the IRS levies your bank account. At The W Tax Group, our tax attorneys have extensive experience helping our clients avoid bank levies and negotiate with the IRS. To get help, contact us today.

Lead Tax Attorney at The W Tax Group

Stephen A Weisberg