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The Truth About Bank Levies
A bank levy is a seizure of liquid assets from a financial account by the IRS on an individual who has either ignored their tax debt or is delinquent with a formal payment agreement. The amount seized can be up to the full amount of the debt owed and can be taken from any financial account that has the debtor’s name on it. If, for instance, the taxpayer’s name is on a parent’s bank account used to help manage bills and expenses, the IRS can take every penny. The term “bank levy” is a general designation that can describe the action taken against mortgage escrow accounts, school bank accounts, CDs, 401Ks, and IRAs.
Bank Levy Notification
A bank levy usually takes place after months of receiving notices in the mail. There are several steps taken before a seizure is enacted. First, tax debt is assessed and a Notice and Demand for Payment is mailed to the latest known address on file for that person. Second, that person either does not pay their tax debt in full or enters into an IRS payment agreement and defaults. Third, the IRS mails a Final Notice of Intent to Levy and they do not pay the debt in full or establish a formal agreement within 30 days.
Bank Levies & Correspondence Requirements
Regardless of the warnings and time provided, a bank levy often comes as a shock for many individuals. Some taxpayers claim they never received any communication regarding the tax debt or warning that a bank levy would occur. This could actually be the case, since the IRS only sends mail to the latest known address on file for that person, whether or not it’s current. Also, some correspondence from the IRS, especially regarding bank levies, comes in the form of certified mail; those who owe the IRS may not realize they have pressing notices waiting for them at the post office.
Tick, tock. The Clock is Ticking!
When a bank account is levied, a number of steps are taken. First, the financial establishment will freeze the number of funds intended to be taken by the IRS. The funds remain in the account, though inaccessible, for 21 days. During this time period, the individual may choose to pay the debt in full or enter into a formal agreement with the IRS to prevent the levy from proceeding. If nothing is done during those three weeks, the financial institution must send the seized funds to the IRS, including any accrued interest. If the levy doesn’t fully satisfy the debt, there will likely be additional action taken by the IRS. Anyone faced with a bank levy should contact a reputable tax professional who can communicate with the IRS on their behalf.