Understanding Bank Levies
Many people know that the IRS can be very aggressive in the pursuit of back taxes owed, yet most won’t do the things necessary to prevent any escalation in the pursuit. Gone are the days when the IRS took years to catch up with delinquent tax payers; today it’s all about speed and getting to that money by whatever means possible.
When the phone calls and letters fail to get the job done, the IRS usually turns to the garnishing and one of their favorite tools these days is the bank levy or bank account levy. In very plain terms, this is where the IRS goes directly into your bank account and takes any money that is owed to them. When this happens it hurts – literally, and can sometimes lead to hardship. If you are faced with that possibility or have already felt the effects of garnishing, there’s hope.
The Good News And Bad News About Bank Levies
Custom dictates that we start with the bad news first, so here goes:
- Bank levies once enacted are handled between your bank and the IRS
- Very little consideration, if any, will be made towards your personal financial circumstances
- Garnishing is rarely one-off and will continue until the IRS has recovered all the funds owed plus penalties and interest
The Good News Is That:
- There’s usually time given before the first deduction is made (more on that below)
- Once your bank has been served a notice to remit funds to the IRS, it will hold those funds for 21 days from the date of the request (time for you to sort things out)
- There are remedies available to you even if garnishing has begun and funds are leaving your bank account
- The IRS won’t touch your bank account unless it is feasible to do so
First Steps In Dealing With An IRS Bank Levy
When it comes to dealing with the IRS, the more you know about a process the better you are able to mount challenges and get the agency off your back. Dealing with bank levies therefore, start with understanding their process of execution.
Before the IRS actually sends a demand letter to your bank it has to do three things:
- Make a tax assessment: this will involve looking at your tax return and making an assessment based on your income, how much tax money in taxes is owed. The IRS has then has to make a formal request to you for payment
- Exhaust all standard means of collecting that money: the IRS now operates with a lighter hand than times gone by. These days the IRS is willing to work with tax payers and this ‘working’ threshold is very extensive. The IRS for instance has an online payment agreement system setup to help people pay their taxes over time. It is only after these standard collection methods fail that things escalate.
- Notice of intent to levy is served: 30 days before the demand letter is sent to the bank, a letter of intent to levy is sent to the targeted tax payer. Sometime during this period, the IRS would have contacted the bank to ascertain the availability of funds; once this is established, the process really picks up steam and you have to act fast.
Stopping Or Delaying A Bank Levy
Despite the fact that a move by the IRS to garnish funds from your bank is quite an advanced stage of the collections process, there are still things that you can do to fix things with the IRS.
Come up with some other funding source: This of course may not be easily done if the IRS has already started the garnishing process but provided you can demonstrate a readily available source of funds other than money in your bank, the IRS might look at calling off the levy. You must be forthright in your dealings with the IRS though and in most cases only payment of the taxes will do. If the amount of money owed can be borrowed from say a bank, or put on your credit card, this might be a viable solution in getting control of the money in your regular bank account.
Lodge an appeal: If the IRS hasn’t started direct bank deductions you can lodge an appeal against the impending bank levy. This appeal will be handled by an independent adjudicator and provided you can show that the assessment of tax is incorrect, or that the IRS has breached some fundamental part of the collections procedure, you may be able to get a stay of execution. If the IRS has actually started garnishing, you may still file an appeal, but it won’t be handled in the courts since the 30 days ‘right of appeal’ through that channel would have already passed.