One of the nastiest surprises our government can spring on an indebted taxpayer—whether a business or an individual–is to have the IRS levy their bank account. The levy comes seemingly out of the blue. Whatever was in the account at the time the bank received the levy is immediately frozen. The laundry list of horrific effects can include bounced rent or mortgage checks, declined debit/ATM transactions, the inability to put food on a family’s table, and a wide array of general financial chaos.
If it’s a business bank account, chances are good that the levy hit right before payroll. The IRS usually knows when a business does payroll, and they know that the bank account will have a relatively fat balance at that time, so that is when they love to strike. And the very last thing a struggling business needs is to have its employees’ paychecks bounce.
I won’t sugarcoat it. This is truly a bad, if not disastrous, situation. However, before you sink into despair, take a deep breath and read on. It may be possible to get some, or all of the bank levy released, especially if you act quickly. Here’s what you need to know.
THE CLOCK IS TICKING
The first thing you need to understand is the mechanics of an IRS bank levy. When an IRS bank levy occurs, banks are required to hold onto your levied funds for 21 days before they can legally release them to the IRS. This 21-day count begins on the day that the bank processes the IRS levy or “freezes” the balance in your account.
You can access funds deposited after your bank processes the levy and freezes what’s ever in the account at the time they process the levy. However, this can come as little consolation. Chances are good, you need the funds that were frozen.
HOW TO PREVENT A BANK LEVY
Yes, I will explain what to do if you’ve already been levied (below). However, I would be remiss not to mention that by far the best way to handle this situation is to prevent it from happening in the first place. It is much, much easier to prevent a bank levy than it is to reverse one after it’s been issued. The bottom-line is don’t let your IRS problem become so bad that it prompts the IRS to zap your bank account. Engage with the IRS before the issue becomes this bad and work out an Installment Agreement or an Offer in Compromise (tax settlement).
If you are in compliance with the tax laws, the IRS generally will not levy your bank account while a valid resolution proposal is pending (just be sure your proposal meets the legal criteria for valid). Thus, simply submitting a written proposal for an Installment Agreement or an Offer in Compromise (provided you do it correctly and you are in compliance), will normally prevent a bank levy while the proposal is pending. Once the IRS has approved an Installment Agreement or an Offer in Compromise, you will be safe from levies.
Also, the IRS will send you a Final Notice of Intent to Levy at least 30 days before levying your bank account. If you file a Request for a Collection Due Process Hearing (Form 12153) within 30 days of the date on the Final Notice, the IRS will not levy while you are awaiting your hearing. This could protect you from levies for many months–and your Appeals Officer might approve a resolution agreement for you if you propose one and include sufficient supporting documentation.
GET HELP IF YOU HAVE A SIGNIFICANT TAX PROBLEM
If you have what I would call a “significant tax problem,” I recommend engaging a qualified tax relief professional with experience handling tax collection cases early on. A good pro can very often prevent levies from being issued or, in aggravated situations, at least be able to alert you a levy maybe on its way. Then you can withdraw your funds before it hits. If you’ve already been levied, a good tax relief pro will give you a much better chance of getting the levy released.
A “significant tax problem” generally would involve liabilities of at least $15,000 that cannot readily be repaid. Other factors that would weigh in favor of seeking professional assistance include: needing time to prepare and file delinquent tax returns, being a business taxpayer, inability to begin complying with tax payment/deposit requirements, having significant monies in the bank that cannot be used to pay down the tax liability, receiving a Final Notice of Intent to Levy, defaulting on prior agreements with the IRS, and having a history of unpaid taxes or unfiled returns.
Preventing a levy is all well and good, but it’s no longer an option when the levy has already hit your bank. So, what do you do?
WHAT TO DO IMMEDIATELY WHEN YOUR BANK IS LEVIED
Probably the first thing you immediately will want to do is empty any other bank accounts you own that have not already been hit. In most cases, the IRS already knows where you bank, and they will send levies to every available source of money you own. Some banks are slower at processing a Notice of Levy (Form 668-A) from the IRS than others. This means that not every bank you work with may have been impacted (yet). Moreover, if you are aware that a levy has been sent by the IRS, but it has not yet affected any of your bank accounts, you’re in luck; you may be able to beat the IRS to the punch and clear out your cash before your bank freezes it.
PREPARE FOR REQUESTING A RELEASE OF LEVY
If the levy has been processed by your bank, it is too late to withdraw the funds. Your next step should be to determine how much money is being held by your bank. You can often determine this simply by looking at your online bank statement. Print out this statement and save it. You’ll need it. Alternatively, you may have to call your bank, and ask for a written confirmation of the amount of money being “held” by the bank.
Recall that your bank will hold the funds for 21 days from the date they process the levy. It is critically important to use these 21 days wisely. As noted above, figure out how much the IRS has frozen in your account. Using bills, invoices, or any other documentation you can find, gather up proof of crucial expenses that must be paid to provide the necessities for yourself and your family, or to keep your business running.
If your business account has been levied, you may want to include proof of what’s owed on your next payroll (including federal tax deposits). Think of your pitch to the IRS as a trial. The first 7 or so of the 21 days prior to the money being gone forever is your period of trial preparation. You want to gather as much evidence as possible to prove your case.
In that sense, having a trained tax relief attorney with experience in such matters could improve your chances of success immensely. At a minimum, contact a reputable tax professional ASAP after you learn of the levy so that you can discuss your options with someone who knows the ropes. This is especially important if the effects of the levy will be devastating. This should be among your very first steps after learning of the levy. If you choose to retain professional help, you want to give your tax pro as much time as possible to prepare a case, present it, and appeal the IRS’s initial decision if it is not favorable.
Keep in mind that it may take a couple of business days or more for the IRS to respond to you. On top of that, you may need an additional 5 business days if you want to bring your objection to appeals. If you get to appeals after the 21 days has elapsed, the money is gone and, short of demonstrating that the levy was illegal (very rare), you will not be getting your money back. Time is short, and you may only get one shot at this, so get moving immediately.
DO YOUR BEST TO CURE THE ROOT CAUSE OF THE LEVY
Remember, too, that the IRS probably levied your bank account for a reason. One of those reasons could be that the IRS views your tax problem as an ongoing issue. In other words, you are delinquent with quarterly self-employment income tax payments, your business is delinquent with federal payroll tax deposits, you are delinquent with personal income taxes, or you or your business are delinquent with one or more tax returns. Another common reason for levies is that you failed to meet a deadline set by the Collection Division of the IRS.
Be prepared to either cure whatever deficiency that caused the levy immediately or, at a minimum, present the IRS with a viable plan as to how you will cure this deficiency (or deficiencies) in the very near future. If you can cure some of the deficiencies, do so (for missed deposits, catch up the most recent one you missed and work your way backwards from there).
A good tax professional can not only help you solve your tax problem, but perhaps work out a concession on the part of the IRS to release the levy as part of that resolution.
FIX THE PROBLEM OR BE READY FOR MORE BANK LEVIES
I cannot overemphasize the importance of tackling your IRS tax problem head on once they’ve issued the first levy. If you do nothing, there is a very strong chance you will be a sitting duck for future levies. The IRS will frequently issue bank levies every 30 days or so in serious cases.
To minimize the chance of future levies while maximizing the chance of getting the current levy released, I strongly recommend that you offer a long-term resolution (such as a proposal for an Installment Agreement and a demonstration that you have rectified whatever it was that made you fall behind with your taxes to begin with).
Above all, do not put your head in the sand and assume all hope is lost. You or your tax professional will want to engage with the Revenue Officer, or IRS Collections Representative, and discuss the problem. Contrary to many rumors, IRS representatives are not paid a commission based on the funds they collect. They do not have a personal, vested interest in making sure the levy seizes your funds forever. If the Revenue Officer is not responsive to your requests, you can summon his or her supervisor, and perhaps file a Collection Appeal Request to seek redress with the IRS Office of Appeals.
DETERMINE IF THE LEVY WAS LEGAL
Finally, you may also want to look into the legality of the levy. The IRS must follow certain guidelines before they have the right to take your assets. They must issue certain notices in succession, they must issue a “Final Notice” of their intent to levy, and they must allow you a specific amount of time to respond. Having an experienced tax relief attorney in your corner can greatly improve your chances of getting the levy released, preventing future levies, and negotiating terms that you can live with, and that the IRS will accept.
An experienced tax relief attorney will also research your case and determine if the IRS levied properly. If the IRS did not follow proper procedure, a good tax relief attorney will get the levy overturned either on the spot with a collection representative, by barking up the chain of command to a collection manager, or by bringing your case before an IRS Appeals Officer.
An IRS bank levy can lower your bottom line, raise your blood pressure, and ruin your day. But with the right strategy, and with a good representative, a bank levy doesn’t necessarily have to ruin your life.
If you are concerned about a levy or the potential for a levy, pick up the phone and give Fortress Tax Relief a call. We have caring and knowledgeable representatives on staff who can answer any questions that you might have and outline a solution tailored to your specific needs and circumstances. There is no cost for a telephone consultation, so pick up the phone and call us today!
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