What if the IRS has Levied Your Bank Account?
An IRS levy is a legal seizure of your property to satisfy a tax debt.
Levies are different from liens. A lien is a claim used as security for the tax debt, while a levy actually takes the property to satisfy the tax debt.
If you do not pay your taxes (or make arrangements to settle your debt), the IRS may seize and sell any type of real or personal property that you own or have an interest in. For instance:
- The IRS could seize and sell property that you hold (such as your car, boat, or house), or
The IRS could levy property that is yours but is held by someone else (such as your wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, or commissions).
The IRS usually levies only after these three requirements are met:
1. The IRS assessed the tax and sent you a Notice and Demand for Payment;
2. You neglected or refused to pay the tax; and
3. The IRS sent you a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy. The IRS may give you this notice in person, leave it at your home or your usual place of business, or send it to your last known address by certified or registered mail, return receipt requested. Please note: if the IRS levies your state tax refund, you may receive a Notice of Levy on Your State Tax Refund, Notice of Your Right to Hearing after the levy.
What can be done if IRS attempts to levy against your property?
Suits against IRS or its employees over IRS levy actions are available only in limited situations. But, there are three less restrictive ways to contest levies by administrative appeals within IRS.
One way to appeal a levy within IRS is by using the Collection Appeals Program (CAP). Under the CAP, a taxpayer may appeal liens, levies, seizures, and proposed denials or terminations of installment agreements. When the taxpayer appeals his case IRS will normally stop collection action until the appeal is settled, unless it has reason to believe the collection of the tax is in jeopardy. Once a decision is made in the case, the decision is binding on both the taxpayer and IRS.
A second method of administrative appeal is by use of the Collection Due Process (CDP) program. A CDP hearing before levy is available in levy cases where the taxpayer has received a notice of intent to levy. A notice of intent to levy is accompanied by a notification in writing of the taxpayer's right to a hearing before levy. If the taxpayer requests a hearing, the hearing will be conducted by an officer or employee in IRS's Office of Appeals who was not previously involved as to the unpaid tax at issue. IRS doesn't have to send a notice of intent to levy if it finds that collection of tax is in jeopardy or before levying on a state to collect a federal tax liability from a state tax refund. However, in such cases a post-levy CDP hearing is available. Like CAP hearings, CDP hearings are informal. They do not require a face-to-face meeting, although the taxpayer can get one if he insists on it.
Filing an application with the office of the Taxpayer Advocate is a third method of administrative appeal of a proposed levy. The Taxpayer Advocate or his designee can issue a Taxpayer Assistance Order (TAO) based on a determination that the taxpayer is suffering or is about to suffer a significant hardship as a result of the way in which the tax laws are being administered by IRS. Relief can include suspension of collection actions and release of a levy.
There are many differences to be considered in determining which of these methods of administrative appeal to use. One of the most important differences concerns the right of review. A determination in a CDP hearing may be appealed to the Tax Court or a district court, depending on which court has jurisdiction over the underlying tax liability, but there is no right to judicial review in the CAP or TAO process.
An important disadvantage of the CDP is that the taxpayer must request a hearing within the 30-day period beginning on the day after the date he receives notice of his right to a hearing. This time limit cannot be waived and a taxpayer who fails to meet it cannot get a CDP hearing. He can get an “equivalent hearing” but this procedure does not suspend any collection action against him and no judicial review of the hearing determination is available. In contrast, both the TAO and CAP are not subject to a time limit tied to the notice of levy and are available both before and after a levy is imposed on property. Both the TAO and CAP are also generally quicker procedures than the CDP.There are also significant differences in the types of problems that can be considered under each process. Under the CDP process, a taxpayer may contest the underlying tax liability if certain conditions are met, while such a contest is not possible in the CAP or the TAO. On the other hand, the CDP process is not available to nominees of, persons holding property of, or persons holding property with respect to, the taxpayer, but such persons may use the TAO or CAP. Another distinction is that IRS will not consider trust fund recovery penalties, offers in compromise, or penalty abatement appeals under CAP procedures.
How To Help Yourself (This is what Tax Practitioners do):
You may ask an IRS manager to review your case and provide some guidance, most managers will try to help you if you are not yelling at them (remember they don't work on commission, they are not your enemy) or you may request a Collection Due Process hearing with the Office of Appeals by filing a request for a Collection Due Process hearing with the IRS office listed on your notice. You must file your request within 30 days of the date on your notice. Some of the issues you may discuss include:
You paid all you owed before the IRS sent the levy notice,
The IRS assessed the tax and sent the levy notice when you were in bankruptcy, and subject to the automatic stay during bankruptcy,
The IRS made a procedural error in an assessment,
The time to collect the tax (called the statute of limitations) expired before the IRS sent the levy notice,
You did not have an opportunity to dispute the assessed liability,
You wish to discuss the collection options, or
You wish to make a spousal defense.
At the conclusion of your hearing, the Office of Appeals will issue a determination. You will have 30 days after the determination date to bring a suit to contest the determination.
Levying your wages, federal payments, state refunds, or your bank account.
If the IRS levies your wages, salary, or federal payments, the IRS levy will end when:
The levy is released,
You pay your tax debt, or
The time expires for legally collecting the tax.
If the IRS levies your bank account, your bank must hold funds you have on deposit, up to the amount you owe, for 21 days. This period allows you time to solve any problems from the levy. After 21 days, the bank must send the money plus interest, if it applies, to the IRS. To discuss your case, call the IRS employee whose name is shown on the Notice of IRS Levy.
Filing a claim for reimbursement when the IRS made a mistake in levying your bank account.
If you paid bank charges because of a mistake the IRS made when the IRS levied your account, you may be entitled to a reimbursement.
Releasing an IRS levy
The IRS must release your levy if any of the following occur:
You pay the tax, penalty, and interest you owe.
The IRS discovers that the time for collection (the statute of limitations) ended before the levy was served.
You provide documentation proving that releasing the levy will help IRS collect the tax.
You have an installment agreement, or enter into one, unless the agreement says the levy does not have to be released.
The IRS determines that the levy is creating a significant economic hardship for you.
The expense of selling the property would be greater than the fair market value of the property.
Releasing your property
Before the sale date, the IRS may release the property if:
You pay the amount of the government's interest in the property,
You enter into an escrow arrangement,
You furnish an acceptable bond,
You make an acceptable agreement for paying the tax, or
The expense of selling your property would be greater than the fair market value of the property.
Returning levied property
The IRS can consider returning levied property if:
The IRS levies before the IRS sends you the two required notices, or before your time for responding to them has passed (10 days for the Notice and Demand; 30 days for the Notice of Intent to Levy and the Notice of Right to a Hearing).
The IRS did not follow its own procedures.
The IRS agrees to let you pay in installments, but the IRS still levies, and the agreement does not say that the IRS can do so.
Returning the property will help you pay your taxes.
Returning the property is in yours and the government's best interest.
Selling Your Property
The IRS will post a public notice of a pending sale, usually in local newspapers or flyers. The IRS will deliver the original notice of sale to you, or send it to you by certified mail.
After placing the notice, the IRS must wait at least ten days before conducting the sale, unless the property is perishable, and must be sold immediately.
Before the sale, the IRS will compute a minimum bid price. This bid is usually 80% or more of the forced sale value of the property, after subtracting any liens.
If you disagree with this price, you can appeal it; and ask that either an IRS or private appraiser compute the price again.
You may also ask that the IRS sell the seized property within 60 days. For information about how to do so, call the IRS employee who made the seizure. The IRS will grant your request, unless it is in the government's best interest to keep the property. The IRS will send you a letter telling you of its decision about your request. After the sale, the IRS first uses the proceeds to pay the expenses of the levy and sale. Then the IRS uses any remaining amount to pay the tax bill.
If the proceeds of the sale are less than the total of the tax bill and the expenses of levy and sale, you will still have to pay the unpaid tax.
If the proceeds of the sale are more than the total of the tax bill and the expenses of the levy and sale, the IRS will notify you about the surplus money and will tell you how to ask for a refund. However, if someone, such as a mortgagee or other lienholder, makes a claim that is superior to yours, the IRS will pay that claim before the IRS refund any money to you.
You may apply for an IRS Offer in Compromise.
The Internal Revenue Service (IRS) may accept an Offer in
Compromise to settle unpaid tax accounts for less than the
full amount of the balance due. This applies to all taxes,
including any interest, penalties, or additional amounts
arising under the internal revenue laws.
To be considered for an IRS Offer in Compromise:
You must file all of your returns
that are due and,
if applicable, be current with all Federal
Tax Deposits for the last two quarters.