What Is an IRS Bank Levy?

Make sure you understand -- and respond to -- required warnings and notices from the IRS to avoid an IRS levy against your bank account.

When you owe money to the Internal Revenue Service (IRS) and sufficient time passes, the IRS has the right to issue a levy against your bank account. An IRS bank levy is a very serious matter in which the IRS will reach into the bank account and take out all of the funds necessary to satisfy the tax debt.

The IRS does not care if the money was going to be used to pay rent, medical bills, or other necessities. The way the IRS sees it is that the money is in your account and therefore, it is fair game.

What Authority Does the IRS Have to Issue a Bank Levy?

Under Internal Revenue Code (IRC) Section 6331, when a person owes a debt to the IRS but fails to pay it within 10 days after the IRS sends a notice and demand to taxpayer, the IRS may begin the process of issuing a levy against the property.

Due to the harsh nature of an IRS bank levy, the IRS cannot just levy a bank account. As a matter of law, the IRS must issue several warnings and satisfy numerous “notice” requirements before issuing a bank levy.

Notice of Demand Letter

The “Notice of Demand” is used to inform you of your IRS debt and make a demand for payment. The notice must be left at either your home or business, or if the current address is unknown, then at your last known address. This notice places you on notice that a tax debt is due and owing.

Despite the fact that a notice of demand was sent to a taxpayer, many times the taxpayer will not respond to the notice. This is usually because IRS notices tend to travel directly from the mailbox into the trashcan in hopes that by not opening the mail, it will make the debt somehow disappear.

As a side note, this is why it is always important to open any mail you receive from the IRS. All too often, a bank levy could have been easily avoided had the taxpayer engaged the IRS earlier in the debt collection process.

The Initial Notice of Intent to Levy: CP-504 Letter

After enough time has passed and you still have not paid your outstanding tax debt (or made arrangements such as an Offer-in-Compromise or Installment Agreement), the next letter you will receive is an IRS CP-504 letter, which is a “Notice of Intent to Levy” letter.

The purpose of this letter is to both inform and scare you - and it is not uncommon to receive multiple CP-504 letters over the span of a few months. The CP-504 letter is a warning that the IRS is slowly but surely working its way towards issuing a Notice of Levy on your bank account. Even though this is not a final notice, it is still very serious and you should be doing everything in your power to try to resolve the IRS debt.

The Final Notice of Intent to Levy: CP-1058 Letter

It may take more than just a few Notice of Intent to Levy letters from the IRS to make you take notice. This will lead to the IRS issuing a final notice of intent to levy letter (CP-1058), which is a very serious letter that requires immediate action. The IRS will not provide you with any more notices before it attempts to levy your bank account and drain its contents.

When you receive this letter, it is important to do everything in your power to try to negotiate a resolution of your tax debt or timely seek a Collection Due Process (see below).

What Do You Do If the IRS Tax Debt is Inaccurate?

If you believe that the tax debt is inaccurate, there are various steps you can take. The most important step is to file a request for Collection Due Process Hearing, which is made on a Form 12153. (For more information, see Nolo's article, What Is a Collection Due Process Hearing With the IRS?) You only have 30 days from the date of the letter to request the collection due process hearing, but if you file the form timely, then it should stop the pursuit and/or enforcement of the levy at this time.

Otherwise, you may try to negotiate an Offer In Compromise (OIC) Letter, wherein the IRS agrees to reduce the tax debt. Please keep in mind, that the IRS is very strict when it comes to OICs and if you have any assets, accounts (bank, investment, or retirement) or equity in your home, the IRS is less than likely to agree to the OIC.

You can also seek to enter into an installment agreement with the IRS. This is when you enter into an agreement to pay the IRS a set monthly payment over a multi-year period until the debt is satisfied.

There is a reason why the IRS is known as the world’s greatest collection agency. They have the power and the right to go after a majority of your money and assets in to order to satisfy your tax debt.

Don't make it too easy for them, and always be sure to open up any mail you receive from the IRS!

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