It is panic inducing for a business owner to learn that the Internal Revenue Service has taken all the money out of their business bank account. The hardest part is not knowing how or why it happened, nor what to expect going forward. One bank levy and all of the sudden it feels like you have just lost your business and will never recover. Emotions run high at that moment, understandably.
However, there is something you can do. First off, if you are in this position with the IRS then you really should consider hiring a professional to help you resolve your tax balance. The tax attorneys at Fortress Financial Services Inc. have a combined 60+ years of experience negotiating with the IRS and advocating for businesses in this position. With their measured approach, as opposed to the highly emotional state of the business owner in this situation, they can work to both fight the levy and try to resolve the complete case so levies do not happen in the future.
That said, let’s have a look at why business bank account levies happen, what to expect when they do occur, and what you might do to try to get your money back, if at all possible.
Why Was Your Business Bank Account Levied?
The IRS cannot simply take money out of the bank account of just any business, any time, for any reason or no reason at all. That would violate due process. To be subject to bank levies, a business must owe the IRS money, the IRS must have issued all the prior due process notices, and the business must not have a formal resolution in place for that balance.
If you owe the IRS money for back taxes, there are a few things you need to ask yourself. How much do you owe? Is it an amount you could pay off in full right now? If so, get it paid and put the problem behind you. If not, though, you need to find a way to resolve the debt. Fortress Financial Services Inc. can work with you to find the best possible solution for your business.
To get formal resolution of some kind, you must first be in compliance with the IRS. Compliance means that you have all of your tax returns filed and you have made your most recent federal payroll tax deposits on time and in full. Payroll tax deposits are the most likely problem. It is quite common for the IRS to levy a business when they have not been making their federal tax deposits.
This may seem counter-intuitive. If you cannot afford to make your federal tax deposit on time, how does taking your money from you make it any easier? It doesn’t, and that is not the point. From the perspective of the IRS, nothing gets the attention of a business owner like a bank levy (or an accounts receivable levy, but that is a different topic). They wanted your attention (and your money) and they got it. If you are not in compliance with current tax deposits being made, and/or you have returns that are delinquent, you are at a much greater risk of getting levied.
Another reason you may have been levied is that you have been asked to meet certain demands of the IRS. When they set deadlines, they expect those deadlines to be met. If they are not met, again, they will use levies to get your attention and to force you to take those deadlines more seriously.
How Did The IRS Manage to Do This?
As I said, the IRS has due process requirements to meet before they can issue levies. When a business does not pay its taxes, the IRS will issue a series of notices over the course of a few months. Those notices first let the taxpayer know that a particular period has a balance due.
If the balance is not paid, the IRS will then issue a Notice of Intent to Levy, which puts the business on notice that if the balance is not paid within a particular time frame, they can be levied.
Finally, the IRS will issue the Final Notice of Intent to Levy. This Final Notice essentially tells the business that if the balance is not paid in full then the IRS can begin levying thirty days later without any further notice to the business. After that, the IRS issues a Notice of Levy to the bank, seizing the money in the account, and sends a copy of the Notice to the business after the fact.
This is critical to understand. Some business owners wonder why they did not get the Notice of Levy before the bank did. The answer is that the business was given all those other notices to get the balance resolved. The Notice of Levy issued to the bank came after the business had plenty of opportunities to take care of the problem. If the IRS were to issue the Notice of Levy to the business owner first, they know the business would simply go withdraw all their money. The point of the bank levy is to: 1. Get the balance paid off by seizing money, and 2. Get the attention of the business owner. All those other notices did not get their attention so losing money will.
What Should You Do When You Get Levied?
You owe the IRS and have not resolved the matter. The IRS has levied your bank account and you need to know what to do next. Time is now of the essence.
First of all, you need to determine:
- When did the bank actually process the levy?
- How much was in your account at the time the levy hit?
- How much was taken from your account?
- How much was the levy for?
It is important to understand that an IRS bank levy is essentially a 21-day freeze, hence the title of this article. That twenty-one days starts the day the money actually becomes frozen. If you manage to get a levy release from the IRS, it must be sent to your bank before that 21 days is up.
What happens at the bank is that the day they receive the levy in the mail they process it and take all the money out of your account, up to the amount on the Notice of Levy. The bank then sets that money aside (not yet sending it to the IRS) and holds on to it for 21 days. The bank will then wait to see if they receive a Release of Levy from the IRS within that 21 days. If so, they put the money back into your account. If not, then after that 21 days has passed they mail a check to the IRS for the amount that came out of your account.
Once you understand the amount that was taken out of your account and the amount of time you have to recover it, you will want the necessary bank information to assist in expediting a Release of Levy, should you manage to obtain one. Normally, when a Release of Levy is issued it gets mailed. If the bank does not receive and process it within the 21 days, then it will be too late and the check will already have been mailed to the IRS. If you can help get that Release of Levy to the bank more quickly, then you should.
To potentially expedite a Release of Levy, should you get one, you will want to call your bank and ask them who the person or department is at your bank that handles “tax levy releases” and what their fax number is. Their phone number is not helpful here. You are getting the fax number so you can give it to the IRS to fax the Release of Levy directly to the proper person or department to process it right away.
What Is The Best Argument To Try To Get The Levy Released?
The IRS does not simply issue a Release of Levy just because you ask. They have their hands on your money, see a way to get your balance paid down, and are intent to keep those funds. You must make a very persuasive argument to get that money released. Based on years of experience, I can tell you the most successful arguments are:
1. You cannot pay your employees the payroll that is now due;
2. The compliance problem that caused the IRS to levy has been resolved;
3. You will use the funds to get into compliance with current tax deposits; or
4. You will rectify whatever deadline the IRS set that you missed.
By far, the strongest argument you can make is that of the “payroll hardship.” While the IRS is aiming to collect their money, they generally do not wish to see innocent employees harmed in the process. If the business bank account is levied and employees are due to be paid in the next few days, you should aim to make this argument first.
What you will want to collect in order to support your “payroll hardship” argument is:
- The name and fax number of the person or department at the bank that handles tax levy releases (from the prior section of this article);
- A copy of a bank statement showing how much came out of your account; and
- A copy of the upcoming payroll summary showing how much your employees are due to be paid.
Providing this documented information will help the IRS to see that your employees are not going to get paid due to the levy.
Aside from the “payroll hardship” argument, if the IRS levied you because they say you did not file a particular return or did not make a federal tax deposit, you can provide them proof that the return was filed or the deposit was made. Rectifying the basis of the levy may cause them to release it.
Similarly, you may make the argument that if the IRS issues a Release of Levy that you will use the funds to make a federal tax deposit for the most recent payroll. You will want a copy of the last payroll summary, including a breakdown of taxes due, in order to make this point.
If the IRS says they levied your accounts because you failed to meet a deadline they had set, you might offer to meet the demands of that deadline immediately. If they asked for financial documents, offer to provide those documents. If they asked to have an appointment with you, offer to meet with them immediately.
Finally, in severe cases such as those where the business has made few or no tax deposits whatsoever for many consecutive quarters, it may be necessary to convince the IRS that the business is viable and capable of making its future tax deposits in full and on time. If the IRS is convinced that the business is not viable, they may simply wish to use levies to force the business to shut its doors; to “stop the bleeding,” so to speak. Do your best to prove that revenues have increased, expenses have gone down or there has been a combination of increased revenues and decreased expenses such that there is now an economic reality to the ability of the business to start paying its current taxes on time.
If all of these arguments fail with the Officer or department that issued the levy, you should know that you have appeals rights. Advise the Officer that you disagree with their determination to keep the funds and ask them how you go about filing an appeal to take your argument to an Appeals Officer.
How do you avoid future levies?
File all your returns on time. Make all your federal payroll tax deposits on time. Stay compliant with all tax laws. Ultimately, being in compliance is the most important thing you can do to avoid levies.
Additionally, you need to make sure you are meeting any deadlines set by the IRS to resolve your back-tax balance. Short of paying your balance in full, you have a major task ahead of you to get your balance set up on some kind of agreement. As I said earlier, if you are in a position where you are at risk of getting levied then you should really consider having a focused professional, such as the attorneys at Fortress Financial Services Inc., handling your case.
“I had hired a different tax resolution firm before Fortress. The IRS continued harassing me and I got no results. Within 24 hours of hiring Fortress, the IRS stopped harassing me. Fortress is the only firm you should go to if you have a back tax problem.”
– Rob Williams, Cashiers, NC