IRS Bank Levy Rules

An IRS bank levy is a powerful collection tool the Internal Revenue Service (IRS) uses to collect unpaid taxes by directly seizing funds from your bank accounts, such as checking, savings, or money market accounts. Understanding these rules is essential to protect your finances and respond effectively if a levy occurs.

How Does an IRS Bank Levy Work?

The IRS must follow a precise legal process before levying your bank account:

1. Unpaid Tax Debt: The IRS typically initiates a levy because you owe back taxes, penalties, or interest.
2. Notice and Demand for Payment: You receive a bill, usually IRS Notice CP14, informing you of your balance due.
3. Final Notice of Intent to Levy: If unpaid, the IRS sends a “Final Notice of Intent to Levy and Notice of Your Right to a Hearing” (Form LT11 or Letter 1058), warning you about the levy and your right to request a Collection Due Process (CDP) hearing within 30 days.
4. 30-Day Appeal Period: You have 30 days to respond by paying the debt, entering a payment agreement, or requesting a CDP hearing.
5. Levy Issuance: If no resolution occurs, the IRS issues a levy (Form 668-A or 668-W) to your bank.
6. Bank’s 21-Day Hold: Your bank freezes the specified funds for 21 calendar days, allowing time for you to act.
7. Funds Transferred to IRS: After 21 days, if unresolved, your bank sends the levied funds to the IRS.

This structured process aims to provide multiple chances to address the debt before funds are seized.

What Types of Accounts and Funds Can Be Levied?

The IRS can levy funds in any bank or financial accounts you own:

• Checking accounts
• Savings accounts
• Money market accounts
• Certificates of deposit (CDs)

Joint accounts are also subject to levy, where the IRS can seize the full amount. Investment accounts may also be levied but follow slightly different protocols.

Exemptions: Protecting Essential Funds

Certain types of income and funds are federally exempt from IRS levies, including:

• Social Security benefits (if clearly identified and separated)
• Unemployment compensation
• Public assistance or welfare payments
• Certain pensions and annuities
• Workers’ compensation and specific veterans’ disability payments

If exempt funds are mixed with non-exempt funds in one account, you must document to the IRS which portions should be protected. Maintaining separate accounts for exempt income helps avoid complications.

Your Rights When Facing an IRS Bank Levy

Despite owing taxes, you have important rights:

• Right to Notice: The IRS must send specific advance notices before levying.
• Right to a Collection Due Process (CDP) Hearing: Request a CDP hearing within 30 days of the Final Notice to appeal or negotiate.
• Right to Appeal: After a CDP hearing, you can appeal the IRS decision to the U.S. Tax Court.
• Right to Payment Options: Options include Installment Agreements, Offers in Compromise, or Currently Not Collectible status.
• Right to Levy Release: You can petition to release a levy if it causes economic hardship, if the debt is paid, or other qualifying reasons.

Learn more about Collection Due Process Hearings and Installment Agreements to explore these rights in detail.

What to Do If Your Bank Account Is Levied

If you discover a levy has occurred, act promptly:

1. Contact the IRS immediately using the number on the levy notice.
2. Confirm the amount owed and tax periods involved.
3. Discuss payment or settlement options such as paying in full, entering an installment plan, or submitting an Offer in Compromise.
4. Request a CDP hearing if within the 30-day window.
5. Inform the IRS and your bank if your account contains exempt funds and provide proof.
6. Consider consulting a tax professional like an Enrolled Agent, CPA, or tax attorney for expert assistance.

Timely action during the bank’s 21-day hold can prevent funds from being transferred to the IRS.

Preventing an IRS Bank Levy: Tips for Taxpayers

Prevention is the best strategy:

• File your tax returns on time, even if you cannot pay in full.
• Pay as much as you can by the deadline to reduce penalties and interest.
• Communicate proactively with the IRS to explain hardships or request payment plans.
• Utilize IRS payment plans like the Installment Agreement or Offer in Compromise (OIC).
• Keep thorough records and respond promptly to IRS notices.
• Set aside funds regularly if self-employed or if taxes are not withheld.

IRS Bank Levy vs. Tax Lien

Understand the difference between a levy and a lien:

Tax liens notify others of IRS claims; levies remove money immediately. They often occur sequentially but are independent actions. Learn more about Tax Liens.

Common Myths About IRS Bank Levies

• The IRS cannot locate my accounts. In reality, the IRS uses extensive database connections with banks nationwide.
• The IRS needs a court order to levy. False; the IRS has administrative authority after proper notice.
• Only tax evaders face levies. Anyone with unresolved tax debt is at risk.
• Moving money hides it from the IRS. Attempting to hide assets is illegal and unlikely to succeed.

Frequently Asked Questions

How long does a bank levy last?
A levy is a one-time seizure of funds at the time the levy is served on the bank, but the IRS can issue additional levies if the debt remains unpaid.

Can the IRS levy my joint bank account?
Yes, the entire balance may be levied even if there are other account holders.

Can I get my money back after a levy?
Possibly, if you prove the levy was incorrect or funds were exempt, but it’s easier to act before funds are transferred.

What if my account balance is less than the levy amount?
The bank remits whatever is available; the IRS continues collection efforts for the remaining debt.

How do I check if I owe taxes that could lead to a levy?
Use your IRS online account or contact the IRS directly.

Resources

• IRS official page on Levy
• Consumer Financial Protection Bureau article on Government Money Seizures

Understanding and acting early can help protect your finances and resolve tax debts without losing essential funds.