Individuals who have failed to satisfy tax debts are at risk of facing Internal Revenue Service (IRS) bank levies. If the IRS decides to levy a bank account, they will seize assets from the account and use this money to pay off the tax debt. This is often an extremely stressful experience, however, taxpayers who have received notices of bank levies have options for resolving the matter before the levy goes into effect.
If the IRS has sent you a notice of a bank levy or has already levied your bank account, you can learn more about your options by contacting the experienced Mississippi tax attorneys at Damiens Law: call us today at (662) 442-4423.
What is a levy?
A levy allows the Internal Revenue Service to seize the property of individuals who owe them tax debts. Bank levies are the most common form of levy, but the IRS also assesses levies in the form of wage garnishments and on valuable personal property, such as vehicles and real estate. The IRS is entitled to levy any property or right to property that the taxpayer owns or has an interest in. This can include property that the taxpayer owns but is held or controlled by someone else, including:
- Bank accounts
- Retirement accounts
- Rental income
- Accounts receivables
- The cash loan value of a life insurance policy
Property held by the taxpayers (such as cars, homes, or boats) is sold and the proceeds are applied to the tax bill. The levy is one of several tools the IRS uses to compel taxpayers to remain in good tax standing. There are several other steps that they will take before resorting to a levy, such including sending notices and attempting to arrange payment plans. Individuals who owe delinquent taxes and do not make arrangements to pay off their debt, the IRS may issue a levy as the next step in the collections process.
What types of property are exempt from tax levies?
Internal Revenue Code (IRC) § 6334 lists several types of property that are exempt from IRS tax levies:
- Clothes and educational books necessary to the taxpayer and/or their family
- Personal items, fuel, furniture, and personal effects valued at less than $6,250
- Items, tools, and supplies related to the taxpayer’s business or profession that are necessary for generating income – cannot exceed $3,150 in value
- Unemployment benefits
- Workers’ compensation benefits
- Certain types of disability benefits
- Some types of public assistance payments, including welfare and public assistance
- Assistance covered by the Job Training and Partnership Act
- Undelivered mail
- Certain types of pension payments and annuities
- Funds that are necessary for complying court-ordered child support
- In small deficiency cases, residents are exempt.
- Primary residents and certain business assets may be exempt, barring special approval
When can the IRS issue a bank levy?
The IRS is extremely powerful and has many tools at their disposal during the collections process. However, this agency is legally required to meet three criteria before they issue a levy:
- A tax liability must be assessed, and a Notice of Demand for Payment must be sent to the taxpayer. Note that there is no requirement that the taxpayer receive the notice – it will be sent to the last address the IRS has on file. Taxpayers that have not updated their address with the IRS cannot use that as an excuse if they do not receive the notice in the mail.
- The taxpayer must have failed to pay the debt or make arrangements to do so.
- The IRS is required to send a Notice of Intent to Levy. If the taxpayer does not respond, the IRS must then send a Final Notice of Intent to Levy, which explains that the taxpayer has 30 days to appeal the levy or agree on a payment plan.
If the IRS assesses a levy without meeting all three of these criteria, the levy is legally invalid and could be reversed based on the error. Individuals who believe they have received unfair IRS bank levies can discuss their legal options with one of the Mississippi tax attorneys at Damiens Law.
The IRS bank levy process
The IRS initiates the bank levy process by sending a notice to the bank that is holding the taxpayer’s assets. The agency typically only assesses one bank levy at a time, but may eventually issue multiple notices to every bank that they believe is holding your assets.
After receiving the notice, the bank will hold the money for a 21-day waiting period, during which the taxpayer has the opportunity to contact the IRS and arrange for payment or to contest the validity of the levy. The funds held in the bank account are frozen during this waiting period. After 21 days, the bank is legally required to send the funds to the IRS. Most banks also charge administrative processing fees for handling the levy.
How can you stop an IRS bank levy?
Receiving an IRS bank levy can throw the taxpayer into financial turmoil, but there are actions the taxpayer can take to release the levy. The available options will depend on the taxpayer’s unique financial situation. Individuals who are looking to release an IRS bank levy can learn more about their options by speaking with an experienced tax attorney.
Pay the tax bill
If financially able to do so, paying the delinquent tax bill is the fastest and most painless way to remove an IRS bank levy. Taxpayers should keep accurate tax records and do their best to fulfill their full tax obligations to avoid a bank levy. If a mistake is made, the IRS will generally be forgiving as long as the taxpayer cooperates with them and works with them to satisfy the debt.
Arrange a payment plan
The IRS allows individuals who owe back taxes to gradually fulfill their debt through payment plans. The tax debt will continue to accrue interest and penalties until it is paid in full, but the IRS will stop escalating their collections process once an agreement has been made, as long as the taxpayer continues making payments. Taxpayers with IRS bank levies may be able to get the levy released by contacting the IRS and agreeing to a payment plan.
Request an offer in compromise
The Internal Revenue Service offer in compromise program allows certain taxpayers to reach a settlement on tax debt instead of paying the full amount. While this program can be a benefit for taxpayers who qualify, it is not easy to receive an offer in compromise. In 2019, the IRS only accepted about a third of the offers in compromise they received. Taxpayers are eligible to apply for an offer in compromise if they meet the following four requirements:
- Filed all prior tax returns and have made all required estimated payments
- Are not in an open bankruptcy proceeding
- Were issued a valid extension for the current year’s tax return, if applying for the current year
- Employers must have made tax deposits for the current and previous two quarters before they can apply
Eligibility is no guarantee that an offer in compromise will be accepted. The IRS considers the taxpayer’s unique circumstances when evaluating an offer in compromise, including their income, expenses, asset equity, and ability to pay the debt. This evaluation process will include a detailed investigation of all of the taxpayer’s assets, their lifestyle, financial situations, and numerous other factors. In general, the IRS will issue an offer in compromise if they believe one of the following three reasons apply:
- There is reason to question the amount or validity of the tax debt
- Paying the debt in full would create an economic hardship for the taxpayer
- The IRS has reason to doubt whether it will be able to collect the tax debt
File an appeal
Taxpayers who believe they have received an unjustified bank levy can turn to the appeals process, which involves three main steps:
- Request a collection due process hearing from the IRS Office of Appeals, during which the levy notice can be reviewed.
- For disputes about an IRS employee’s decision to issue a levy, taxpayers can request a conference with the employee’s manager.
- If the taxpayer disagrees with the manager, the taxpayer may request a review of their case from the Office of Appeals.
File for bankruptcy
Filing for bankruptcy should not be taken lightly but doing so can alleviate tax debt for certain taxpayers. This is a long and complicated process with a variety of factors to consider, so those who think bankruptcy may be an option should discuss the idea with a tax professional and attorney before filing.
Discuss your options with an experienced Mississippi tax lawyer
IRS bank levies can be extremely difficult to deal with, but taxpayers who receive them should carefully consider their next steps. Recovering from the levy and associated tax debt may not be easy, but taxpayers can get back on track and settle their tax debt. At Damiens Law, our team of dedicated Mississippi tax attorneys is prepared to help you respond to an IRS bank levy based on your unique situation.