Bank Levy Safety Deposit BoxAn IRS bank levy is the legal seizure of your property to satisfy a tax liability. The collection power of a levy is very serious and must not be confused with a lien which is used as security for a tax debt. A bank levy allows the federal government to actually take your financial and personal assets. A levy is placed against assets belonging to the taxpayer, known as a seizure, or it can levy assets from a third party such as a bank, a brokerage house, etc.

The most common types of levies are:

  • Bank account levy
  • Wage garnishment on salary, and social security
  • Asset seizure of personal property

Most Common Type – Bank Levies

A bank levy can be quickly generated if you default on any payment plan entered into with the IRS. Once the levy has been issued, it is very difficult to have it removed and may require help from a tax professional.

A bank levy can be attached to personal checking and savings accounts as well as business accounts. When the bank receives the levy notice, they are required to freeze current funds up to the amount owed. These funds must be held for 21 days before releasing them to the IRS.

A bank levy is a one-time levy. You are free to use your account in a normal fashion after the bank freezes the amount required by the levy. The bank is not allowed to hand over your money to the IRS right away. The money is frozen for 21 days. Once that holding period is concluded, the money is sent to the IRS and is irretrievable. Future deposits can be reached only with additional levy action by the IRS. However, if you do not resolve your outstanding tax debt with the first levy, the IRS may by their discretion levy your bank account again.

A levy will be issued after the following requirements are met:

  • The tax has been assessed
  • Notice and Demand for Payment has been sent
  • A Final Notice of Intent to Levy and Notice of Your Right to A Hearing have been issued
    • These notices are sent at least 30 days prior to generating the levy

If you do not respond or pay the tax after all these conditions have been met, the IRS can issue a levy. Many of the levies imposed by the IRS are automated and difficult to prevent. The IRS can also issue a levy if you renege on any previous agreement made with them.

Taxpayer actions that prompt levy assessment are:

  • Defaulting on an Installment Agreement
  • Failing to file past due tax returns on the promised date
  • Failure to pay the amount promised

Under all circumstances when the IRS threatens a levy, you must ensure you have adequate representation. The tax professionals at Instant Tax Solutions (ITS) are experts in IRS negotiations. Attempting to negotiate with the IRS on your own can lead to less than favorable results.

How to Release a Bank Levy

The 21-day holding period gives you the opportunity to convince the IRS to release the levy.

The IRS does not release bank levies under normal circumstances. However, there are conditions that may qualify for release:

  • You paid the full amount of the tax debt
  • You filed an amended tax return showing you do not owe the tax
  • Your monthly expenses exceed your monthly income
  • The bank levy was issued due to an IRS processing error
  • The bank account is shared and the funds are not yours
  • You are behind on your mortgage, rent or medical bills, etc.
  • The bank levy inhibits the full collection of the balance due

All your required tax returns must be filed before a review of your special circumstances can be considered.

Asset Seizure and What The IRS Can Take

Asset seizure allows the IRS to directly take your personal property to satisfy a tax liability. After the assets are seized, they are sold to reduce the outstanding tax debt. The US Constitution, on unreasonable searches and seizes, does not apply to IRS levies.  The IRS is not required to go to court prior to issuing a bank levy and seizing property. However the IRS must fulfill the following requirement before it can seize most property:

  • The tax must have been assessed
  • A Notice of Assessment has been sent to the taxpayer
  • It must demanded payment of the taxes owed
  • The taxpayer must have neglected or refused to pay the assessed tax  within 30 days after the notice and demand were sent

Assets Subject to Seizure in a Levy:

  • Cars, boats, airplanes, and luxury vehicles
  • Cash value life insurance
  • Accounts Receivable
  • Stocks and bonds
  • Your home and other real estate you own
  • IRAs, Keogh, and other retirement accounts
  • Pension or profit-sharing plans
  • State income tax refunds
  • Securities, contracts and promissory notes
  • Dividends and rental income
  • Licenses and franchises
  • Pending inheritances

Typically, asset seizure occurs only after your IRS case has been assigned to a Revenue Officer.

Assets Exempt from IRS Seizure:

  • Certain clothing (does not include mink coats or other luxury couture)
  • Fuel, provisions, furnishings, and personal effects worth up to $7,430 in total
  • Tools of your trade and books up to $3,710
  • Books for school
  • Benefits for unemployed individuals
  • Worker’s Compensation payouts
  • Certain funds received as public assistance
  • Benefits from job training
  • Child support as ruled by the court (if the judgment is dated prior to the levy)
  • Certain deposits made to the Special Treasury fund by members of the Armed Forces and Public Health Service employees
  • Some disability payments
  • Minimum exemption amount of wages, salary and other income
  • Welfare or SSI payments

Letters or Notices You May Receive

There are many different notices sent by the IRS informing taxpayers of a levy.

The IRS is required to notify the taxpayer, at least 30 days in advance, of its intent to levy on salary, wages and other property.

CP 501 – Reminder – Balance Due

The CP 501 is a reminder notice that is sent prior to the Notice of Intent to Levy. This notice informs the taxpayer of an unpaid balance still due on their account. The taxpayer is allowed 10 days to respond to the notice before the IRS pursues further collection action.

CP 503 – Second Notice – Balance Due

The CP 503 is a levy notice that follows the reminder notice stating the balance is still pending and full payment is due 10 days from the date of the notice.

CP 504 – Urgent Notice – Balance Due

The CP 504 is a notice stating the intent of the IRS to issue a levy. Immediate communication with the IRS is required to prevent a levy against your assets. There is no more grace period.

CP 90/CP- 297 – Final Notice of Intent to Levy

The CP 90/CP 297 notice informs the taxpayer the IRS intends to levy. Salary, wages, bank accounts and personal property are at risk. You are allowed 30 days from the date of the notice before the IRS issues the levy.

CP 91/CP-298 – Final Notice Before Levy on Social Security Benefits

This CP 91/CP-298 is a notice that tells you the IRS intends to issue a levy against fifteen (15) percent of your Social Security benefits because you still have a balance due on your tax account. You have 30 days from the date of the notice to contact the IRS.

CP 523 – Notice of Intent to Levy – You Defaulted on Your Installment Agreement

This CP 523 levy notice is sent when a taxpayer defaults on their Installment Agreement. Either you missed a payment, have a new balance due or you did not file your tax return. You have 30 days to respond to this notice before the IRS levies your assets.

Form 668-W – Notice of Levy

Form 668-W informs you that the IRS has issued a levy to collect back taxes. This notice will also be sent to a third party such as your payroll or bank. The notice requires your payroll department or your bank to withhold funds and send them directly to the IRS.

Once the levy is issued, it is imperative you call the IRS immediately to try to get it released. The IRS does not release a levy easily; however there are certain circumstances when they will.

Form 668-D – Release of Levy

If the levy is released, the IRS will mail and/or fax Form 668-D to your bank or payroll. This notice releases all wages, salary, or other income that was previously levied. Occasionally, the IRS will agree to a partial release of the levy.

Tired and frustrated with your tax problems? Start a worry-free day and get tax relief assistance from a tax attorney.

Having Your Wages Garnished, and Other Forms of Employee Levies

Once the IRS becomes unwilling to wait any longer to collect the taxes you owe, they can levy your wages by issuing a wage garnishment. The most common types of IRS wage garnishments are:

  • Employee Garnishments
  • 1099 Garnishments
  • Federal Payment Levy Program (FPLP)

A Notice of Levy informing you of the IRS wage garnishment will be mailed to you.

Employee Garnishments

The IRS can demand of your employer that a portion of your wages be withheld from your paycheck and sent directly to the IRS. Keep in mind, although there is a small exempt amount that cannot be levied, this amount is often not enough to cover regular living expenses. A garnishment upon wages is a continuous levy. It is issued only once and remains applicable to all future wages until either it is released by the IRS for cause or the debt is fully paid.

1099 Wage Garnishments

This type of garnishment applies to payments owed to non-salaried subcontractors not on the regular payroll. A garnishment of 1099 wages is a one-time levy as opposed to a continuous levy. The employer is required to hold up to the amount owed to the IRS. This levy attaches to 100% of the funds not yet paid to the sub-contractor at the time the garnishment is received. The levy does not apply to future 1099 payouts. Electronic Federal Payment Levy Program (FPLP) This type of wage garnishment applies to government employees and recipients of Social Security payments. This program electronically levies your federal payments paid through the Department of Treasury, Financial Management Service. Under the Federal Payment Levy Program, the government generally withholds 15% of the wages/payments to reduce past due tax liabilities. It takes longer to release this type of garnishment. The levy can remain in effect for several weeks after the IRS agrees to release it due to lengthy government processing.

Releasing a Wage Garnishment

Negotiation with the IRS is required to obtain a wage garnishment release. Possible qualifying reasons for release are:

  • You set up an Installment Agreement
  • You promise to pay the total tax debt within a certain time frame (i.e. 60 days)
  • You already paid the entire tax liability
  • You filed an amended tax return showing you do not owe the tax
  • Your monthly expenses exceed your monthly income
  • You are behind on your mortgage, rent or medical bills, etc.
  • The levy was issued due to an IRS processing error
  • The levy inhibits the full collection of the balance due

Frequently Asked Questions about Levies

How am I notified about a bank levy?

The IRS will mail you a copy of the original Notice of Levy that was sent to your employer or financial institution. Many taxpayers find out about a bank levy first either from their bank or employer.

What should I do after my bank account is levied?

You should immediately get proper representation prior to any contact. The tax professionals at Instant Tax Solutions are experts in negotiations with the revenue service. Attempting to deal with them on your own can lead to less than favorable results.

How long does it take to release a levy?

It depends on the situation. Most bank levies can be released in 1-2 business days. Exceptions are:

  • Your case has been assigned to a Revenue Officer
  • Your case has been placed in the Large Dollar Unit for balances over $100,000
  • You are not compliant in the filing of past due tax returns
Do I get a warning before a levy is issued?

Yes. They are required to send a Final Notice of Intent to Levy to your last known address. If you no longer live there, you may not receive it.

Can the IRS levy Social Security?

Yes, up to 15% of each payment.

Can the IRS levy state tax refunds?

Yes, if your state participates in the State Income Tax Levy Program (SITLP).

How do they know what bank accounts I have?

They are aware of only those bank accounts that earned interest in previous tax years. Banks are legally obligated to report any interest paid to their account holders. Your bank will send you a copy of the 1099 Interest Income report at the beginning of the year. Therefore, if your bank account does not earn interest, the IRS probably does not know about it.

If you have submitted a financial statement to the IRS when entering into an Installment Agreement, all bank accounts listed will be known and subject to a bank levy.

Are joint accounts subject to bank levies?

Yes, a bank levy can be issued to any account attached to the tax debtor’s social security number, even if the funds are not theirs.

They will release the levy if the delinquent taxpayer can prove that the funds are not theirs, and that the funds in the account are not commingled.

Are my IRAs protected?

No. However, the government will only levy IRA’s as a last resort since liquidating the IRA early will create a taxable event.

What is the difference between a tax levy and a tax lien?

A tax levy allows the government to actually take your wages, bank accounts and personal property to pay the taxes owed. A federal tax lien is a claim against your assets and will show up on your credit report.