An IRS Bank Levy: Why You Don’t Want One and How to Avoid it
By Laura McElroy

If you find yourself on the wrong side of the IRS after a tax assessment, the service has several options for getting what it’s owed out of you, making the old saying that only two things are inevitable in life, one of them being taxes wholly accurate. 

You need to tackle any issues with the IRS head-on to avoid actions that can have long-lasting repercussions.

The IRS bank levy explained

One of the easiest routes for the IRS to take is to impose a bank levy on your accounts. This is as serious as it sounds. When the IRS issues a bank levy instruction, your accounts and any funds in them are frozen. Then the service seizes what you owe according to your tax assessment. 

If there isn’t enough money in the account to service that debt, the IRS maintains control over your bank account, seizing any incoming funds until the balance you owe is settled.

The bank levy process

Fortunately, the IRS cannot summarily impose a bank levy without following due process. After your tax assessment, you receive a notification from the IRS informing you that you have an outstanding balance. 

The balance will include the difference between what you paid and what you should have paid, as well as any penalties the IRS imposes due to non-compliance with regulations, and outstanding interest on an unpaid balance.

If you fail to pay the IRS in full, it will issue a notification of its intent to impose a bank levy. You are also given the right to a hearing with the IRS where you can plead your case for tax relief or attempt to arrange a payment plan. 

Failure to come to an agreement with the IRS about your unpaid taxes during those 30 days results in the bank levy being imposed. Once that happens, you have 21 days until the bank gives the IRS the go-ahead to withdraw funds from the account. This is your last chance to avoid the bank levy, and you should make the most of it.

The best options if you receive a bank levy notification from the IRS

Upon receipt of this notification of intent to impose a bank levy from the IRS, you have 30 days to resolve the matter before the service takes further action. Take advantage of your right to a hearing. Be prepared with the necessary information and documentation to substantiate your plea for the IRS to cancel the bank levy order against you. 

Alternatively, if you have the funds available, settle your debt to the IRS without delay. The bank levy process is then effectively stopped in its tracks, and you have no further need to worry.

Common resolutions to avoid an IRS bank levy

As mentioned before, you can enter an IRS repayment plan, which gives you time to pay the debt back and places you back in good standing with the service. However, if you fail to stick to the terms of the agreement, the whole bank levy process could start again.

You also have the right to try and prove that the taxes you owe are essentially uncollectible due to financial hardship. The burden of proof is on you, and the IRS will want to see supporting documentation.

Your final offer is what the IRS calls an offer in compromise. This is what happens when you and the IRS reach an agreement that allows you to settle the tax amount for less than the required balance. This is a selective process, so don’t assume you’re automatically entitled to it.

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