Have you received an IRS notice of levy on your bank account? That’s another name for an IRS bank account freeze or seizure. It happens when you don’t pay your tax debt.
It’s an uncomfortable experience all around, but you have options to keep your assets and get yourself back on track. But first, you need to understand what a levy is, what happened to make the IRS place one on your account, and all the steps in between.
You aren’t the only one involved in a bank account freeze or levy. Your banker, creditors, and of course, the federal government are all affected by it.
What Is a Levy?
A levy is the legal seizure of property or an asset to fulfill a tax debt. The IRS can take your assets, such as a home, car, or boat. It also includes your bank account, wages, accounts receivable, and other assets. Once seized, the IRS has the legal right to sell them to make good on your tax debt.
However, freezing your bank account isn’t the first step the IRS will take. The agency really doesn’t want to go to the trouble of arranging for the sale of a house or car. It would rather just receive the tax money and be done with it.
Before the IRS places a levy, it attempts to collect the taxes. If you can’t, won’t, or don’t pay, the IRS will proceed to a tax levy in an attempt to get you to pay your taxes. First, they send a Notice and Demand for Payment. You have 10 days to respond.
By the time you receive a Final Notice of Intent to Levy and Notice of Your Right to a Hearing, the IRS has given you multiple chances to make payment arrangements.
Now that you’ve been notified of a levy, you have 30 days to resolve your debt. Otherwise, the property and/or assets can be levied by the IRS to do with as they will.
When the bank receives the notification of a levy on your account via Form 668-B, the institution is required to freeze any funds in your levied accounts, up to the amount of the tax debt stated in the notification. They can freeze it for up to 21 days before giving it to the federal government. If the bank doesn’t comply with the levy, the IRS could hold them responsible for your tax debt as well as penalties up to 50% of the tax liability.
The bank won’t be happy about that, so it will more than likely freeze your assets as requested and give them over to the IRS if you don’t get things resolved.
You could appeal the IRS decision during that 21-day freeze. Just be sure to contact the IRS within that period. If they don’t hear from you, the bank must release your funds to the federal government.
Gaining the Release of a Levy
The primary method of getting the IRS to release the levy is a simple one - pay off your tax debt. Since you are late in paying, that debt includes penalties for failure to pay and possible for failure to file. It also includes all the interest that has accrued on the unpaid balance since the payment due date.
Once you’ve done that, the IRS is only too happy to remove the freeze from your bank account.
There are a few other ways you might get the levy released.
- Provide documentation that shows releasing the levy will help the IRS collect your tax debt.
- Arrange for a payment agreement with the IRS to pay the liability over time.
- Prove the levy creates a significant financial hardship.
- Discover the time for collections, aka the statute of limitations, ended before the levy was served.
- Show that the asset's true market value exceeds the liability, so a release of part of the asset could be made without blocking the collection of the tax debt.
In certain circumstances, the IRS might consider releasing your funds.
- The levy was served before you were sent the two required notices or before the time you have to respond has passed.
- The IRS didn’t follow procedure.
- They agree to an installment plan. Depending on the language of the agreement, they may not be required to release the levy. If that language is missing and they levy anyway, you might get your funds released.
- You could pay your taxes if they would just let you have your property and assets back.
- It’s in your and the government’s best interest to return your property.
Obtaining a release of your levy takes time. Remember that if you consider skipping your tax payment in the future.
What Should You Do if Your Bank Account Is Frozen?
You have options — three of them, in fact.
Hire someone to help you get the levy lifted and your accounts unfrozen using the available tools, whether it’s through presenting some facts to the IRS for you or by helping you find another way forward.
Work with the IRS yourself.
This option may get your levy and funds released, but success is a mixed bag.
You can enter into an installment payment agreement with the IRS, although the agency won't receive its money as soon. As mentioned above, sometimes, a levy can stay in place, even if you do have a payment agreement.
You might be able to get a loan from family or friends to pay your debt and lift the levy, but your funds are still frozen for 21 days. The IRS generally does not release the funds before those days are up.
Maybe you owe just a little. Or your bank account balance is relatively healthy. The levy may capture only part of the account, leaving the rest of the funds alone. You'll still spend a lot of time negotiating a payment agreement that requires them to release the levy.
A tax levy or “bank account freeze” is one tool in the IRS arsenal that helps them convince you to pay. Really, a levy, lien, or other action is more to get your attention. It’s more efficient all the way around if you could just pay the taxes, penalties, and interest.
The IRS doesn’t like being in the property or asset selling business. It’s quicker for them if you give them money or promise to do so monthly until the debt is paid.
If you have a bank account freeze and would like experienced hands to help you resolve it, contact Top Tax Defenders. We know what to do.