When the IRS Freezes Your Bank Account: Your Complete Guide to Understanding and Stopping Bank Levies

Waking up to find your bank account frozen by the IRS can be one of the most terrifying financial experiences you’ll ever face. In the case of a bank levy, funds in the account are frozen as of the date and time the levy is received, and if the IRS levies your bank, funds in the account are held and after 21 days sent to the IRS. However, understanding your rights and taking immediate action can help you protect your assets and potentially release the freeze.

What Is an IRS Bank Levy?

An IRS levy permits the legal seizure of your property to satisfy a tax debt. It can garnish wages, take money in your bank or other financial account, seize and sell your vehicle(s), real estate and other personal property. Unlike a tax lien, which is simply a legal claim against your property, a levy involves direct enforcement.

When the bank receives the levy notice from the IRS, it will freeze all of the funds in your account up to the amount of your tax liability including penalties and interest. The freeze doesn’t affect your entire banking relationship—an IRS tax levy does not freeze your entire bank account. It only freezes some or all of the funds in your account. Although you will not be able to access the frozen funds, you will be able to use your account in general.

The Warning Signs: IRS Notices Before a Bank Levy

The IRS doesn’t freeze bank accounts without warning. Generally, there are at least five notices that come before your account is actually frozen. These include: Notice CP14, a general notice regarding unpaid taxes; Notice CP501, a follow-up to CP14 that reminds you of your unpaid tax debt; Notice CP503, a second follow-up reminder with an updated amount you owe; Notice CP504, Notice of Intent to Levy—official notice that the IRS intends to levy your assets if you do not pay in full or make other payment arrangements; Letter 1058 or LT11, Notice of Intent to Levy and Notice of Rights to Appeal—The final notice you’ll receive before the IRS moves forward with a levy.

The IRS can also levy your account without first getting a court order. But you should get advanced notice — with a document called a Final Notice of Intent To Levy — at least 30 days before the IRS serves a tax levy on a bank.

Your 21-Day Window: Critical Actions to Take

Once your bank account is frozen, time is of the essence. If an account is frozen, the taxpayer has 21 days to respond before the funds are sent to the IRS. During this crucial window, you have several options:

• Contact the IRS immediately: Contact the IRS immediately to resolve your tax liability and request a levy release.
• Demonstrate financial hardship: The IRS can also release a levy if it determines that the levy is causing an immediate economic hardship.
• Prove exempt funds: The IRS is not allowed to seize unemployment benefits, certain types of annuity or pension payments, unemployment benefits, workman’s comp, certain service-related disability payments, court-ordered child support, and some other select payments.
• Set up payment arrangements: The IRS may agree to satisfy your tax debt through an installment agreement, which basically allows you to make monthly payments over time until the balance is paid. If approved, the IRS will release its tax levy on your property.

How to Get Your Bank Levy Released

The IRS is required to release a levy if it determines that: You enter into an Installment Agreement and the terms of the agreement don’t allow for the levy to continue, The levy creates an economic hardship, meaning the IRS has determined the levy prevents you from meeting basic, reasonable living expenses.

Several strategies can help you secure a levy release:

• Pay in full: Pay in Full: If you can afford it, pay the total amount of your tax debt. The bank levy will immediately cease once the IRS receives the full payment.
• Offer in Compromise: You can negotiate with the IRS to settle your current tax debt for a lower amount through an Offer in Compromise (OIC). Just keep in mind that you’ll be required to pay off the agreed-upon amount within a specified time frame. Once your debt is paid, the levy will be released.
• Appeal the levy: If the IRS denies your request to release the levy, you may appeal this decision. You may appeal before or after the IRS places a levy on your wages, bank account, or other property.

Protecting Your Assets: Prevention Is Key

The best defense against a bank levy is early action. First, to avoid levies: don’t ignore IRS notices. They contain important information on how to prevent levy actions, and who to contact if you have questions. Call the number on the notice as soon as possible to avoid enforced collection.

If you’ve received a Notice of Intent to Levy, you should plan on responding immediately. You may have already ignored several notices from the IRS, but you’re now quickly running out of time to respond before you risk asset seizure. You still have time, so it’s crucial to make the most of it by talking to a tax professional. There are many other options available to you beyond having your bank account frozen, but you have to learn about them, figure out which ones are best for you, and work through the application process.

The Ongoing Threat: Multiple Levies

It’s important to understand that if the IRS empties your bank account and it isn’t enough to cover your debt, they can issue another levy for the next account or asset. In addition to levying bank accounts, the IRS can claim vehicles, properties, land, and other assets under your control. Some levies have a “one-time” effect, where the IRS takes an asset all at once. A levy on your bank account takes only what is in the account at the time your bank receives the levy. The IRS must issue another levy if there are more funds in your account later.

Professional Help: When to Seek Expert Assistance

Dealing with an IRS bank levy requires expertise and quick action. Professional tax resolution services can provide invaluable assistance during this stressful time. Companies like cornerstone tax resolution specialists understand the complexities of IRS procedures and can work on your behalf to negotiate with the agency.

Whether you’re an individual or a business with IRS and State tax problems; like a levy, lien or an audit, call for your free consultation. Call today and let us give the peace of mind that your case is going to be resolved and at an affordable fee. Professional tax resolution firms have the experience to navigate the complex world of IRS negotiations and can often achieve better outcomes than individuals attempting to handle these matters alone.

Your Rights and Protections

While a frozen bank account can be distressing, taxpayers possess rights and options. The IRS allows for a release of the bank account freeze under specific circumstances, such as demonstrating financial hardship or arranging a payment plan to settle the debt gradually.

Remember that the release of a levy does not mean you don’t have to pay the balance due. You must still make arrangements with the IRS to resolve your tax debt or a levy may be reissued.

Take Action Now

An IRS bank levy is a serious matter that requires immediate attention. If the IRS is threatening you with a tax levy, don’t wait. Take action today to protect your assets. The 21-day window after a bank levy is issued is your critical opportunity to respond and potentially save your funds from seizure.

Don’t let fear or procrastination cost you your hard-earned money. Contact a qualified tax professional immediately if you’re facing IRS collection actions. With proper representation and swift action, you can protect your assets and work toward a resolution that gets your financial life back on track.