fbpx

How Often Can the IRS Levy My Bank Account?

How Often Can the IRS Levy My Bank Account - Rush Tax Resolution

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:

  1. The amount you owe;
  2. How close your debt is to expiration;
  3. 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.

You Received a Notice of Intent to Levy (Notice CP504). Here’s What to do Next.

IRS Notice of Intent to Levy CP504 - Rush Tax Resolution

If you have received a Notice of Intent to Levy (CP504), here are the steps you should take to put an end to your tax debt.

The US government is the country’s most powerful creditor in terms of how far-reaching its ability to lien and levy tardy taxpayers can be. Once the government catches wind of your tax debt, they will initiate the collection process and begin pressuring you to cover your outstanding balance. 

Attempts to ignore the government’s notices and letters can result in a Notice CP504, or a Notice of Intent to Levy. This is one of the last notices the IRS will send your way before they begin seizing your assets and accounts to pay for your tax debt. 

The IRS usually does not resort to levies until a significant amount of time has passed without any attempt on your behalf to pay the debt or get in touch with the IRS to set up a payment plan. Thankfully, you can still salvage the situation if you act now. 

 

What is a Notice of Intent to Levy (Notice CP504)? 

At its simplest, the Notice of Intent to Levy is a severe warning shot fired by the IRS if they have reached the point in the collection process wherein their best shot at getting the money owed to them is via one or more levies. A levy is a physical claim of an asset, the contents of an account, or the portion of a debtor’s wage by a creditor.

However, a Notice of Intent to Levy does not immediately translate into a levy. The IRS is obligated to go through several steps before it can start claiming what it’s owed, and receiving the notice kickstarts a 30-day grace period before the levy begins.  

Within those 30 days, the IRS will also: 

      • Explain your right to appeal the levy within the next 30 days. 
      • Include an explanation for the levy and how the seizure will begin, as well as your immediate options. 
      • Ensure that you receive the Notice CP504. 

There are times when the IRS will skip the 30-day period, although these are rare. They include cases where the IRS believes that waiting will jeopardize the government’s chances of collecting (such as when a tax debt is close to expiring). 

 

Here’s What the IRS Can Levy

If you fail to respond to Notice CP504, set up a payment plan, or outright pay off your tax debt, the IRS will be eligible to begin seizing certain assets. Here is what the IRS can claim during a tax levy

      • Social Security benefits 
      • A portion of your wages (based on number of dependents and income)
      • Personal property
      • Vehicles
      • Real estate property
      • Rights to property
      • Commissions
      • Retirement benefits
      • Payments due to you
      • Government benefits provided by the OPM
      • Bank accounts

If you want to figure out what is exempt from being claimed as a levy on income or wages, consult IRS Publication 1494

If the IRS claims your income or wages, it will take a portion of your filing status, income, and number of dependents until the debt is paid. 

Additionally, if the IRS levies property or assets, it will claim a property, liquidate (sell) it based on its quick sale value (QSV), and use the proceeds to cover your debt. If the proceeds from the sale were not enough to cover the debt, as well as penalties and interest, the IRS will levy something else. If it was more than enough, the IRS will send you the remainder. 

 

Here’s What You Should Do Next After a CP504

There is only one guaranteed way to deal with a Notice of Intent to Levy – by paying the taxman in full. The IRS does not stop any collection actions unless: 

      • The taxpayer is in a payment agreement with the IRS and has not missed any payments. 
      • The taxpayer is in financial trouble and is currently uncollectable.
      • The taxpayer has successfully appealed the IRS’s decision. 

To that end, your best bet is to confront the debt. There are, thankfully, multiple different ways to deal with a tax debt to the IRS, aside from outright paying it all off at once. Your next step should be to talk with a tax professional and figure out what options your circumstances allow. 

 

Dealing With the IRS 

You have multiple options when dealing with a tax debt to the IRS. The first and most obvious is to start paying off your debt. The IRS offers two different types of payment plans (short-term and long-term) for taxpayers looking to halt collection efforts. In most cases, the IRS will reduce the interest rate and halt certain collection efforts once you’ve made at least three consecutive payments in your plan. 

If this was your first time getting into trouble with the IRS, or if certain circumstances such as a disability hindered you from understanding the extent of your debt, you can have certain penalties stricken from your total debt as part of a penalty abatement

 

Offer in Compromise

An offer in compromise is often considered the holy grail of tax debt resolution, but it is not something you can trick the IRS into offering. 

Should you be entirely out of other options financially, you can work with the IRS to figure out a reduced payment plan that would allow them to recover at least part of what you owe them within the rest of the debt’s collectible lifetime (i.e., before the statute of limitations). 

You can use a pre-qualifier tool to see if you are eligible for an offer in compromise, to begin with, but note that such a tool is no guarantee that the IRS will accept your offer. Again, a tax professional can be of further assistance and help you determine if an OIC is a real option for you. 

 

Currently Not Collectible

IRS collection actions are halted if they are causing financial hardship. In these cases, the IRS can mark your account as currently not collectible (CNC) and will not levy your assets or properties but will continue to hold a lien over what you own. As a result, your tax debt will continue to accumulate interest and relevant penalties. 

Your CNC status will be reviewed periodically to determine if your financial situation has improved. 

 

Innocent Spouse Relief

Suppose your spouse is in charge of filing jointly for you and has failed to file on time or pay your taxes. In that case, you might be able to reduce or eliminate your tax debt by appealing for innocent spouse relief

Not all tax debt qualifies for innocent spouse relief. The IRS can figure the amount you are responsible for after you fill out and send Form 8857

 

Whatever You Do, Get a Pro 

The IRS has a responsibility to respect the taxpayer’s rights in any given interaction and ensure fair treatment. But the IRS is in the business of collecting taxes for the government, and they are incentivized to protect the government’s interests above all else. 

To that end, they will inform you of what they must – but are not required to advocate for you. 

If you received a Notice of Intent to Levy (CP504), do not go into a confrontation with the IRS without a professional advocate at your side. Even if all you want is a quick bank levy release and amicable end to your tax debt problems, a tax professional can help you navigate the situation and find the swiftest way to put it behind you. 

 

CONTACT OUR TAX PROFESSIONALS TODAY!

 


 

Understanding the Bank Levy Process

Bank Levy Process - Rush Tax Resolution

A bank levy is one of the IRS’s last resorts when collecting from a taxpayer with an overdue tax bill. This guide explores the bank levy process.

Bank levies do not come out of anywhere – the IRS is obligated to give ample notice and will often try to collect in a myriad of other ways before resorting to a levy on your assets and bank accounts. The IRS currently provides a 21-day waiting period after issuing a notice (via mail) before acting on a bank levy.

If the IRS has issued a bank levy on your accounts, you can still seek action to appeal or release the levy, especially if you can prove that it would cause undue financial hardship. You can get a levy released by working out a reasonable and realistic payment plan with the IRS alone or through a tax professional, and by staying on top of all current and incoming tax payments. We are going to walk you through the bank levy process and what actions you can take.

What Is a Levy?

A levy is a last resort option employed by the IRS when all other attempts at collecting a taxpayer’s debt have failed. During the bank levy process, the IRS freezes all money currently in your bank account, as well as any money kept in other accounts to your name, save for a few key exceptions such as:

  • Social Security benefits
  • Various retirement benefits
  • FEMA Aid
  • Student loan disbursements
  • Veteran benefits
  • Supplemental Security Income

Once frozen, you cannot access or move this money, and the IRS is free to take as much of it as necessary to satisfy your liability to the government. The IRS reserves unique abilities as the revenue service for the US government, in that the liens and levies they apply take precedence over any other creditor unless you specifically work out an agreement with them to make an exception.

While other creditors may be within their right to claim a lien or levy on your assets and accounts, the IRS typically overrides any other creditor. This overarching privilege also means that there are very few options left for a taxpayer to resist the IRS once they issue a levy.

Bank Levies vs. Wage Levies

Bank levies allow the IRS to freeze your accounts, and withdraw money as needed to fulfill your obligation to the government. Wage levies, also known as wage garnishment, allow the IRS to automatically claim a portion of your paycheck each time it comes in until your debt is paid, or an alternative arrangement is made. The amount you receive from your wages is determined by the number of dependents you support.

Aside from typical wages, the IRS can also claim any bonuses, fees, commissions, and any other similar forms of compensation from an employer. If you are self-employed or an independent contractor, the IRS may issue a levy on your bank account instead (i.e. a bank levy). Where wage levies are issued through Form 668-W, bank levies (and other third-party levies) are issued through Form 668-A. Note that the IRS can levy bank accounts as well as real and personal property.

Levies vs. Liens

Where a levy is an automatic or one-time claim by the IRS on an account or continuous wage, a lien constitutes a claim made by the IRS on any property. This claim is a legal claim rather than an actual physical claim, which would constitute a levy. The burden on the taxpayer when a legal claim is issued is that the IRS’s debt takes precedence over any other debt.

While levies are not a matter of public record, liens are, and a lien will often cut into a taxpayer’s credit score and ability to utilize property or accounts as security for loans. Much as with a levy, the IRS must send a notice to the taxpayer before a lien can be issued. Much like a levy, a lien can also be released or withdrawn, and contesting, appealing, or getting a lien released or withdrawn is an entirely separate process.

How and When the IRS Applies Levies

The IRS sends taxpayers a Final Notice of Intent to Levy and a Notice of Your Right to A Hearing when it intends to issue a levy, and will then send one to your employer, bank, or any other party involved. During the bank levy process, the IRS will freeze your account and use its contents to cover your tax debt. If the contents of your bank accounts are not enough to cover the entire tax debt, you will still be held liable for the remainder, and are expected to negotiate a payment plan with the IRS.

If you can prove that a bank levy has caused undue financial hardship, you can work with a tax professional to get a levy released by proving to the IRS that the bank levy is keeping you from meeting the minimum financial requirements needed to meet “reasonable living expenses”. To do so, you will have to provide the IRS with key financial information to help prove your point. Given the current unique situation (COVID-19), the IRS also offers debt relief and assistance in cases of coronavirus-related hardship. For more information, contact a local tax professional and review the IRS’s own guidelines on requesting the release of a levy due to coronavirus hardship.

Appealing a Levy

During the bank levy process, you can appeal a bank levy via the IRS’s Independent Office of Appeals, representing yourself, or through a tax professional, as per your Collection Appeal Rights. Note that the IRS will typically only review and allow an appeal if:

  • You’ve already paid your tax debt;
  • The period for collecting on your tax debt has passed before the levy was issued;
  • The levy is causing financial hardship, and/or is keeping you from paying your tax debt;
  • You have entered into a payment plan with the IRS;
  • The value of the account exceeds the total tax debt, and you are able to pay the debt if the levy is released.

Again, a bank levy is not a matter of public record, which means it won’t affect your credit score, unlike a lien.

During the bank levy process, it’s important to contact a tax professional who can assist you in seeking the best course of action. If you have been issued a levy, contact our team today.
Skip to content