Bank levies can be a serious matter, especially if you receive multiple notices. You may be asking yourself “how often can the IRS levy my bank account?” This guide can help.
The main question here is: how often can the IRS levy a bank account? The short answer is that the IRS can issue as many levies as it takes to satisfy your current tax liability. The longer answer is that the exact process by which the IRS will levy your assets and accounts may depend on:
- The amount you owe;
- How close your debt is to expiration;
- Your willingness to cooperate with the IRS to resolve your debt.
A tax debt with the federal government is a serious matter. Even bankruptcy doesn’t erase a federal tax debt, and depending on how large it is, it can be something you may have to pay off over several years. Tax debts also grow over time, with a penalty for failing to pay up to 25 percent over the first fifty months (0.5 percent per month), a penalty for filing late returns (5 percent per month), as well as an interest rate that changes quarterly. As your debt grows, so does the IRS’ interest in collecting on it.
A minor debt – a few hundred dollars – might not be worth pursuing immediately. The IRS will give you time to get back to them and resolve the issue through a simple direct payment. But the longer you wait, and the more money you owe, the greater the chances that the IRS will step up their collection actions against your tax account. It often begins with a tax lien on your property and assets and culminates in a levy on your assets, wages, and accounts.
What Is an IRS Bank Levy?
An IRS bank levy is a physical claim on an asset or fixed value of an account. When the IRS issues a bank levy, they are claiming the contents of your bank account to satisfy your tax debt. When this happens, the IRS asks the bank to freeze the account and hold it for up to 21 days before transferring the assets over to the IRS. You can still add money to the account, and use that money. But anything in your levied account at the time of levy is essentially in limbo until you negotiate a payment plan with the IRS, or they claim it.
Most levies begin with an official notice. The IRS usually, but not always, is required to send you a Final Notice of Intent to Levy (CP504) in the mail, with 30 days time to respond before the levy begins. Levies only take place if the taxpayer ignores the IRS’s other collection actions and notices of due tax. Whenever the IRS issues a levy on something like a bank account, they are doing so once. Does this mean they can’t levy your assets again? No, not quite. It just means they will have to begin the process of informing you and formalizing the second levy.
How Often Can the IRS Levy a Bank Account?
If the IRS decides to levy your account, and you continue to add money to it and use that money, the IRS is within its rights to issue another levy on whatever you’ve added to the account after the first one. The IRS can issue levies on properties and assets until:
- Your tax debt is paid;
- You have nothing left that the IRS would be able to claim.
There are exceptions to what the IRS can levy. For example, if you don’t have any savings or assets of your own, and only rent or live in the one property you own, the IRS can issue a demand to garnish your wages instead. But if you don’t earn enough to qualify for wage garnishment, you may instead qualify as currently not collectible. Until further notice (until your financial situation improves), the IRS will not bother you. But your tax debt will continue to accrue interest.
How Can a Tax Levy Be Avoided?
If you are about to face a tax levy – i.e., you’ve received notice of your levy and want to keep your savings – your best bet is to contact a tax professional and get started on talking to the IRS. If you received a bank account levy without notice, then it’s only because your debt was in jeopardy (close to expiration), or because the IRS is claiming your state tax refund. Likewise, if this isn’t the case, then you should contact an attorney and discuss potentially challenging the validity of the levy. The IRS must notify you of its intent to levy.
If your debt was resolved but the IRS’s levy is still registered with your bank, leaving you with a processing fee for a levy you no longer owe, you may be reimbursed for said bank charges via Form 8546. If the IRS levied an account you fund but don’t use (i.e. it’s set up for an elderly relative or child, for example), you can use Form 668-A(C)DO (response to a Form 668-A Notice of Levy) to explain who owns the account. Negotiating a payment plan not only keeps the IRS from issuing further levies, but it may lead to the resolution of any existing liens, as well as a reduction in the amount of interest accruing on your debt.
Other IRS Collection Methods
Liens are another common tool used by the IRS to pressure taxpayers into paying their debt. Unlike a levy, a lien is a legal claim on everything you own. The IRS won’t swoop in and take it all, but it does mean that if you liquidate any assets, the IRS is first in line to take the profits of your sale.
It also means that you cannot use any of your assets to secure a loan, as they effectively belong to the government until you resolve the lien. Another way of looking at is that a lien lets the IRS place itself at the top of your priority list of creditors. Aside from levying your bank accounts, the IRS can also levy wages or assets, such as real estate or vehicles.
Entering a Payment Plan
If you want to avoid having the IRS empty out your bank account, your best bet is to call a pro and begin negotiations. A payment plan can help take a lot of heat off your back and keep you in good graces with the IRS – as long as you’re diligent about your payments. The IRS offers different payment methods, including a simple sum, multiple lump sums paid in 180 days or less (short-term plan), and a monthly installment plan lasting longer than 180 days.
Under most circumstances, you can set up and pay your dues via the Electronic Federal Tax Payment System, through a checking or savings account on the IRS’s Direct Pay page, or by check/money order. When applying for a short-term or long-term payment plan, the IRS will double-check your qualifications based on how much you owe, and whether you’re up-to-date on your tax returns (you will have to continue filing them even if you owe the IRS money).
Approach a Tax Professional
Regardless of your circumstances, your best bet will usually involve discussing your options thoroughly with a tax professional. An attorney or qualified tax pro will help you navigate the IRS’s requirements to get a levy lifted and settle your debt.