An Internal Revenue Service (IRS) bank levy is a seizure of funds from a taxpayer's account to satisfy an unpaid tax bill. This is a legal action of last resort for the IRS, as it prefers to collect taxes voluntarily if at all possible. The only way to lift the levy is to pay the tax bill, make an agreement with the IRS, or wait for the collection period to expire. People who have an IRS bank levy on their accounts are usually advised to consult a tax lawyer to get specific advice and assistance.
Before the IRS can seize funds, several steps must be completed. A taxpayer must fail to pay taxes and be served with a notice and demand for payment, an IRS publication alerting to the taxpayer to the overdue tax bill and requesting payment. If the taxpayer does not respond, the IRS can send out a warning informing the tax payer that a tax levy will be filed and providing information about legal options. Finally, the IRS will levy the funds in any known bank accounts. The bank initially holds the funds, and then submits them to the IRS.
Paying all taxes fully will eliminate the risk of an IRS bank levy. If someone has a problem paying taxes, contacting the IRS as soon as possible to ask about options will reduce the risks, as the agency is usually willing to cooperate with taxpayers who are operating in good faith. People served with a notice and demand for payment shouldn't ignore it, even if they can't pay their taxes; instead, they should contact the agent listed on the document and ask to meet to discuss options. Agents are allowed considerable leeway in the negotiation of tax payment plans and can also file paperwork indicating that the tax bill is “noncollectible” in cases where the tax debt cannot be paid.
People who suspect the IRS is in error should respond to these documents to correct the matter. The warning letter about an IRS bank levy also includes a notice about appealing the decision in court, and people can attend court to show how the IRS is making a mistake and to demand that the levy not be put in place. Documentation will be needed, and it can be very helpful to bring an attorney, rather than trying to personally represent the case. Appeals are also possible after an IRS bank levy has gone through.
If an IRS bank levy is used to collect funds for the IRS, it is advisable to keep track of the funds transferred to the agency. Once the tax bill is satisfied, the agency can no longer seize funds and the account must be unfrozen. If there are errors in the recordkeeping, they should be immediately addressed to get the levy lifted in a timely fashion.
