The Internal Revenue Service can and will freeze assets if necessary. The only reason the IRS needs to levy assets is because of unpaid taxes. Whether you failed to file a tax return, owe money from a tax error or stopped making payment on an agreement plan, the IRS will take action to collect the money you owe.
If the IRS files a levy with your bank, it freezes all of your bank accounts, even joint account with another party who does not owe the IRS. As long as a levy is in effect, you cannot access the funds for any reason until it is lifted. Checks that have not yet been cleared by the bank will be returned for insufficient funds. The bank is required to hold all account funds up to the amount you owe, for 21 days. The waiting period gives you the opportunity to resolve any issues, such as account ownership. After the 21-day period expires, the bank sends the money along with interest to the IRS.
Reasons for Levy
The IRS may choose to impose a levy after exhausting other collection methods and attempting to resolve the tax issue. The reasons are numerous why you may owe the IRS money. For example, failing to pay or report the proper tax amount. The IRS attempts to resolve the tax issue before freezing assets. A levy is not limited to your bank accounts. Levies can also be issued against your income from your employer, and federal and state income tax refunds.
The IRS will not freeze your accounts without following the required procedure. The IRS will first assess the tax and send you a Notice and Demand for Payment. If you did not pay the tax within the specified amount of time or did not contact the IRS to make payment arrangements, a Final Notice of Intent to Levy and Notice of Your Right to A Hearing is sent at least 30 days before the levy. The IRS may give you the notice in person at your home or your place of business or mail it via certified or registered mail to your last known address.
You can file an appeal if you do not agree with the debt or request a hearing to request removal within 30 days of receiving the notice of Intent to Levy. The IRS does not consider money that is placed in a bank account necessary for immediate needs. To have the levy released, you must prove it causes an undue economic hardship. For instance, you will need to provide a utility disconnection notice or eviction notice. You may be able to delay the levy for months or even years if you are able to show severe financial struggle. You may also remove a levy by entering into a repayment plan. You will need to show you are able to make monthly installment payments to satisfy the debt. In some cases, the IRS levies accounts in error. If this has happened to you, contact the IRS immediately. You may be entitled to reimbursement for bank charges.
- IRS Release Help: They Can Get My Bank, Too
- Colonial Tax Consultants: How to Get an IRS Levy Released
- IRS.gov: Levy
- Taxation Law Firms: What are the Most Common Reasons the IRS Will Levy a Tax Penalty?
- Internal Revenue Service. "What is a Levy?" Accessed April 26, 2020.
- Consumer Financial Protection Bureau. "Can a debt collector garnish my bank account or my wages?" Accessed April 26, 2020.
- Consumer Financial Protection Bureau. "Can a debt collector take my Social Security or VA benefits?" Accessed April 28, 2020.
- GovInfo. "TITLE 26—INTERNAL REVENUE CODE," Pages 3303-3304. Accessed April 26, 2020.
- USA.gov. "Credit Reports and Scores." Accessed April 26, 2020.
- Internal Revenue Service. "Understanding a Federal Tax Lien." Accessed April 26, 2020.
- Internal Revenue Service. "5.17.2 Federal Tax Liens." Accessed April 26, 2020.
- Internal Revenue Service. "5.7.9 Federal Contractors." Accessed April 26, 2020.
- Federal Trade Commission. "Garnishing Federal Benefits." Accessed April 28, 2020.
- Internal Revenue Service. "Additional Information on Payment Plans." Accessed April 28, 2020.
- Internal Revenue Service. "Examples of General Tax Fraud Investigations - Fiscal Year 2015." Accessed April 28, 2020.
- Internal Revenue Service. "IRS Offers Options to Help Taxpayers Who Can't Pay." Accessed April 28, 2020.
- Internal Revenue Service. "How Do I Avoid a Levy?" Accessed April 28, 2020.
- Internal Revenue Service. "Collection Due Process (CDP) FAQs." Accessed April 28, 2020.
- Internal Revenue Service. "Let Us Help You." Accessed April 28, 2020.
- Internal Revenue Service. "Information About Bank Levies." Accessed April 28, 2020.
Jeannine Mancini, a Florida native, has been writing business and personal finance articles since 2003. Her articles have been published in the Florida Today and Orlando Sentinel. She earned a Bachelor of Science in Interdisciplinary Studies from the University of Central Florida.