An IRS bank levy is a legal step that involves taking your assets to pay off a tax debt. It’s important to note that a levy is not the same as a lien—a lien is more like a claim on your property as security for a debt, while a levy involves the actual seizure of property or assets. With a bank levy, the IRS can gain control over your financial accounts or personal property, and it can also apply to assets held by third parties such as banks or brokerage firms.
There are several types of levies the IRS may use in the U.S., such as:
- Bank account levies
- Wage garnishment, including wages and Social Security benefits
- Seizing personal property
Understanding Bank Levies: The Most Common Type
What Are Bank Levies Used For?
A bank levy allows the IRS to freeze and claim funds from personal, business, or savings accounts. Once your bank is notified of the levy, it is required to freeze the funds up to the amount you owe. These funds are held for a period of 21 days before being sent to the IRS.
If you miss a payment arrangement with the IRS, a bank levy can be applied quickly. Removing a levy after it has been imposed is very difficult and usually requires professional tax assistance.
How the Levy Process Works
A bank levy is generally a one-time event. After the bank freezes the required amount, your account is usable again. The funds are not immediately taken by the IRS; they are kept on hold for 21 days, during which time you might be able to resolve the issue. If not, the money will be sent to the IRS after that period and cannot be recovered. If you still owe taxes after the first levy, the IRS may issue additional levies.
Situations That Can Lead to a Levy
- The tax debt is officially recorded by the IRS
- A Notice and Demand for Payment has been sent to you
- A Final Notice of Intent to Levy and a Notice of Your Right to a Hearing have been sent
- This notice is typically sent at least 30 days before the levy action
If you don’t take action after receiving these notices, the IRS can move forward with a levy. Most IRS levies are automated and can be difficult to stop. The IRS can also issue a levy if you default on a prior agreement.
Common Actions That May Trigger a Levy:
- Missing payments on an IRS Installment Agreement
- Failing to file overdue tax returns as promised
- Not paying the agreed-upon tax amount
If the IRS has issued a levy threat, it’s crucial to get professional legal support. The team at Valley Tax Law (ITS) is experienced in dealing with the IRS. Trying to negotiate on your own can often lead to poor outcomes.
How to Remove a Bank Levy
You have a 21-day window to try to get the IRS to release a levy after it has been imposed.
However, the IRS does not release levies without significant reasons. Some situations that might qualify for a levy release include:
- The tax debt is fully paid off
- You submitted an amended tax return with no tax owed
- Your monthly living expenses are higher than your income
- The IRS made a processing error that caused the levy
- The bank account is jointly held, and the funds do not belong to you
- You are unable to pay for basic needs like rent, mortgage, or medical bills
- The levy prevents the IRS from collecting the full amount owed
Before the IRS will consider special circumstances, all required tax returns must be submitted.
What to Know About Asset Seizure and the IRS
An IRS asset seizure gives the agency the authority to take your personal property to cover a tax debt. According to Home Inspectors Twin Cities, once seized, these assets are sold to reduce the amount you owe. Unlike other legal processes, the IRS does not need a court order to levy or seize your property. However, certain conditions must be met before property can be seized:
- The tax debt must be recorded and assessed by the IRS
- The IRS must have sent you a Notice of Assessment
- There must be a demand for payment of the taxes owed
- You must fail to pay the tax within 30 days of receiving the notice
Assets That Can Be Seized by the IRS:
- Vehicles, including cars, boats, and airplanes
- Life insurance policies with cash value
- Accounts receivable
- Stocks and bonds
- Real estate, including your home
- Retirement accounts like IRAs and Keogh plans
- Pension or profit-sharing plans
- State income tax refunds
- Securities, contracts, and promissory notes
- Rental income and dividends
- Licenses and franchises
- Inheritance in progress
Typically, asset seizure happens only after your IRS case is handled by a Revenue Officer.
Assets Exempt from IRS Seizure:
- Basic clothing (luxury items like mink coats are excluded)
- Books and tools needed for your job or business
- Essential school books
- Unemployment benefits
- Essential household items like furniture, appliances, fuel, and food
- Mail, including Social Security and welfare checks
- Certain pension and retirement benefits
- Personal injury judgments
- Workers’ compensation, wage earners’ compensation, and service-connected disability payments
- Judgments for support of minor children
- Veteran’s disability benefits
Contact Valley Tax Law if you need help navigating an IRS tax issue. We’re here to help you get back on track!