Tax Levy: The IRS Process for Full or Partial Releases

If you owe unpaid taxes to the IRS there is a good chance you have either received a notice threating to levy your property or may already have had your bank account levied by the IRS. Levies on bank accounts are one of the most prodigious IRS collections tools. The IRS will initiate a levy on bank accounts not only as a means to collect the tax but also as an inducement to the taxpayer to make arrangements to pay the tax.

If the proper collection notices have been sent to the taxpayer and the tax remains unpaid, the IRS may issue a levy against a bank account by sending a Notice of Levy to the financial institution that is holding funds on behalf of the taxpayer. On the date the financial institution receives the Notice of Levy they are legally compelled to freeze the funds in the account for 21 days. At the end of those 21 days, if the levy has not been released by the IRS, then the financial institution is obligated to remit the funds to the IRS.

A bank levy is not a continuous levy. It is a one-time levy that is automatically extinguished when the financial institution either remits the funds to the IRS or responds to the IRS that there were no funds in the account. Furthermore, any funds that are deposited into the account after the levy is received, are not subject to the levy. For example, suppose your bank receives a levy on the 1st of the month to levy up to the $10,000 balance owed on your 2018 return and you had $1000 in the account at time the bank received the levy. Under these circumstances the bank would freeze the $1000 and remit those funds to the IRS after the 22nd of the month. If your paycheck for $2500 is direct deposited into the account on the 15th those funds would not be subject to the levy and the bank would still only remit the $1000 that was available in the account at the time the levy was received. The IRS would have to issue another bank levy to capture any more funds than the $1000 that was frozen on the 1st.

Because a bank levy is a one-time levy rather than a continuous levy, the criteria to get a bank levy released is more stringent than it is to release a continuous levy, such as a wage levy. In order to get the IRS to release a bank levy a taxpayer must demonstrate that based on their income and expenses the levy will create a financial hardship. If a taxpayer’s living expenses exceed their income on a monthly basis then the IRS would be required to release the bank levy in full. The IRS would also be required to partially release a bank levy to the extent that the amount being levied from the bank would cause the taxpayer to be unable to meet their monthly living expenses.

If you have been issued a Bank levy, contact the Tax Attorneys at J David Tax Law today. We have achieved thousands of successful outcomes for our clients in every State.