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.
Perhaps no other action taken by the IRS is more disruptive, surprising, and panic-inducing than an IRS bank levy on your checking or savings account or business bank accounts. With one notice sent to your bank, the IRS can seize every penny you’ve got, and apply it toward your tax bill. To make it worse, you may never realize it until the money is already gone. Whether you’re in line to purchase groceries, at your office opening correspondence that tells you your check for materials has bounced, or being told by an upset employee that her paycheck bounced, a bank levy can be a living nightmare.
How to Reverse an IRS Bank Levy
Many IRS employees with whom I’ve spoken have told me that they do not relish taking this action against a taxpayer. So obviously, the best way to handle this situation is to prevent it: Don’t let your IRS problem become so bad that they resort to this last-ditch effort. Engage with the IRS before the issue becomes this bad, and work out an Installment Agreement, Offer in Compromise, or file a Request for a Collection Due Process or Equivalent Hearing Appeal (Form 12153) in response to a “Final Notice” of intent to levy.
If you have what I would call a “significant tax problem,” I recommend engaging a qualified tax professional with experience handling tax collection cases early on. A good pro can often prevent levies from being issued or, in aggravated situations, at least be able to alert you that you are at high risk for a levy. A “significant tax problem” generally would involve liabilities of at least $10,000 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, 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?
Probably the first thing you will want to do is empty any 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 the IRS can get to it.
If withdrawing your money is not an option, you should first 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.
Written documentation regarding the amount held will be crucial to potentially securing a release of your funds. 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 levy or “freezes” the balance in your account. You still have the legal right to deposit funds in your account, and use the money deposited after the levy hits.
You should use these 21 days wisely. As noted above, figure out how much the IRS has frozen in your account. Then figure out how much you need. Using bills, invoices, or any other documentation you can find, gather up proof of crucial expenses that must be paid in order for you to provide for yourself and your family, or 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. Your 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 representative with some experience in such matters would improve your chances of success immensely. Time is short, and you may only get one shot at this.
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 an 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 near future. 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. In fact, if you don’t offer a long-term resolution, you may be a sitting duck for future levies. The IRS will frequently issue bank levies every 30 days or so in serious cases.
Above all, do not put your head in the sand, and assume all hope is lost. You or your representative 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.
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, and finally issue a “Final Notice” of their intent to seize your assets, and allow you a specific amount of time to respond. It is a good idea to engage a professional, preferably an attorney experienced in dealing with IRS collection cases, to research your case, and determine if the IRS levied properly. If the IRS did not follow proper procedure, a good professional will sniff this out and speak to a manager, or use the Appeals process to overturn the levy.
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.