What is an IRS Levy, and How to Avoid It?

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Have you received a Notice of Intent to Levy, and you are unsure of the next steps? If you have unresolved tax issues and keep receiving letters from the IRS, you aren’t alone.

In 2019, the Internal Revenue Service issued 780,000 notices of levy to settle unpaid tax balances. If you currently face an IRS levy and need to know more about the process and your options, you came to the right place. This brief tax issues guide will cover all you need to know about this levy and who you can contact for more information.

What Is a Bank Levy?

An IRS levy, also known as a tax levy, is a seizure of the money in your bank account. The IRS has the right to seize all the funds in your bank account, up to the amount of money you owe in interest, penalties, and back taxes.

Once your bank receives this bank levy notice from the IRS, you won’t be able to withdraw money from your account. The only way to stop the levy is by negotiating an agreement with the IRS, and your safest option is having an experienced tax professional take the lead.

When Does the IRS Use Tax Levies?

Before the IRS issues a tax levy, they will first send you a notice and ask for payment. If you don’t respond to their many letters in the mail or pay the amount requested, the IRS will send you a Notice of Intent to Levy.

Notice of Intent to Levy Letter

This letter gives you 30 days to request a CDP hearing (Collection Due Process) in writing. You can try to avoid the levy process by having a tax attorney provide an offer in compromise or negotiate a payment plan during this hearing.

During those 30 days, the IRS won’t levy your bank account or other assets. They also won’t levy your assets during the CDP hearing.

If you or your attorney request a hearing and disagree with the court’s final determination, you can take your case to Tax Court. The IRS won’t attempt to levy until the Tax Court decides on your case or you withdraw your petition. If the CDP hearing is not requested, the IRS will issue the bank levy after the 30-day period expires.

How Does an IRS Levy Work?

The IRS will send your bank a notice about the levy, and your bank must comply. Your bank will freeze your account, and you won’t be able to withdraw any funds.

The levy attaches to the funds already in your bank account. Any deposits received after the levy are not subject to the levy because a bank levy is a one-time action.

If the IRS wants to seize funds from your account again, they will need to repeat the process. The IRS typically doesn’t issue these levies back-to-back, but they may go through that process if you still owe taxes.

The 21-Day Rule

Once your bank receives the levy from the IRS, they will freeze your account for 21 days before sending money to the IRS. On the 22nd day, they will levy money from your account.

The IRS may withdraw the levy if you can show that the levy is improper or can prove that the levy will cause financial hardship. 

Other reasons the IRS may withdraw the levy:

  • You agree to a monthly payment plan
  • You pay the tax liability in full

It is important to note that the IRS may levy your bank account without notice, but this happens rarely. This is considered an IRS jeopardy levy, and it usually only happens if you try to hide your assets or leave the country. The IRS typically provides a taxpayer with several notices before sending a notice to your bank.

Wrongful Bank Account Levies

If you believe that the IRS bank levy is improper or they did not follow the correct procedures, you may be able to stop the levy. For example, the IRS may levy funds in a joint account if you have the ability to withdraw funds from that account.

Let’s say you are the non-liable account owner, and you made a deposit into an account. You can contact the IRS to claim ownership of those funds, but you must provide proof that you own those funds. If the levy already occurred, your attorney can file an administrative wrongful levy claim for reimbursement on your behalf.

Erroneous Levies

Erroneous levies happen when the IRS doesn’t follow the correct procedures when completing the levy. Your tax attorney may be able to seek a levy release if you weren’t given proper notice before the levy or if the statute of limitations for collection expired.

Other reasons for a levy release:

  • The levy was premature
  • The IRS was considering your installment agreement when they issued the levy
  • The levy occurred during the Collection Due Process hearing
  • The levy occurred while your case was with the Tax Court
  • The levy happened after you paid all of your tax liability

You have the opportunity to dispute an erroneous levy under the Collection Appeal Program. If you had property erroneously levied, your attorney could submit a return by filing an administrative claim.

How to Release or Prevent a Bank Levy

There are several different tax resolution strategies to prevent a levy. If the IRS has already sent the levy to your bank, it can be more challenging to release the levy. However, you can still stop the levy if you act quickly. If you are unsure of your available options, you can reach out to a reputable tax attorney for further guidance.

Pay in Full

You also have the option to pay off your tax liability in full. When you pay in full, you minimize the interest and penalties on your tax liability.

Installment Agreement

As mentioned earlier, a tax professional can negotiate an installment agreement with the IRS on your behalf. There are flexible terms available, and you may receive several years to pay off your balance. Keep in mind that you must pay off your balance before the statute of limitation expires.

Hardship Claim

You might be able to stop the levy if you show the IRS that it will cause immediate hardship. For example, if the levy will cause you to miss your mortgage payment, the IRS may consider releasing the levy.

You have the opportunity to request the IRS to classify your account as “currently not collectible” due to financial hardship. This status will temporarily stop enforced collection actions by the IRS.

Identity Theft

If someone used your social security number for employment, a tax professional could help you seek a levy due to identity theft. The IRS will request for documentation to show proof that supports your claim before they will accept your request. You or your attorney can also ask for the IRS to return levied property.

Can the IRS Levy Independent Contractors?

If you are self-employed, the IRS can levy your independent contractor income. Although it may be harder to trace the payment, unlike paychecks from an employer, the IRS has several different ways to seize your income. They can notify your clients and order them to pay the IRS instead.

Should I Hire a Tax Attorney?

A tax attorney is a lawyer who specializes in all things that have to do with taxes. This includes helping clients who face their assets being frozen by an IRS levy.

Although you could go against the IRS on your own, you may not want to. When you partner with a reputable attorney, they will advise you on the right course of action.

What to Look For in an Attorney

The quality of service provided by an attorney can vary, so finding an experienced and well-qualified attorney to solve your IRS levy will require some work. When hiring a tax attorney, be sure to check out their law license.

Attorneys must have their license to practice law in your state. You can check out your state’s bar association to make sure they are legit.

Check Their Reviews

Before you partner with an attorney, you should take a look at their reviews. Take a look at the testimonials on their website and Google Business page. You can also check out the Better Business Bureau to see if they have accreditation by the BBB.

On there, you can see what clients did or did not like about the law firm. The best way to find out if the attorney is the right match for you is to call them. Most attorneys offer free, no-obligation evaluations before they take on your case.

When you speak with an attorney, pay attention to how they make you feel. Do you feel comfortable with them? How does the office staff make you feel?

When Should I Hire a Tax Attorney?

If you receive a Notice of Intent to Levy letter, you should reach out to an attorney right away. The sooner you speak with an attorney, the more time they have to create a defense for you.

You also don’t want the IRS to proceed with their levy, especially if it is erroneous. There is no need for the IRS to seize your property if you were not at fault.

How Much Does a Tax Attorney Cost?

Attorneys can charge anywhere from $100 to $500 an hour, depending on their experience. How much you will end up spending also depends on the complexity of your case.

Most attorneys charge by the hour, but some work based on a contingency fee. If you find an attorney that works on contingency, the attorney will deduct their service fees from your financial award.

Most attorneys are willing to work with you, and the only way to know how much one costs is to reach out to them. When interviewing different attorneys, be sure to take note of how much they charge for their services so you can compare later.

Look Out for Tax Debt Relief Companies

It isn’t uncommon for you to receive numerous letters from companies offering you their services to solve your tax debt. Many of these companies make big claims and promises to erase your debt and get you off, but don’t fall for it.

Several dishonest tax resolution companies will prey on your desperation and charge you outrageous fees for things not related to resolving your tax liability. Make sure that you do your research on a law firm or tax resolution company before you sign any paperwork. If it sounds too good to be true, it probably is.

Tax Attorney vs. CPA

Naturally, your first instinct may be to reach out to a CPA for your IRS levy issue, but they won’t be able to help you. Although CPAs work on various tax-related matters, they don’t handle IRS levy situations. CPAs are excellent for tax returns and financial record preparations, but a tax attorney is more equipped to handle IRS levy situations.

Help With IRS Levies

If you’ve received a Notice of Intent to Levy, you only have a short amount of time before the IRS will levy your bank account. Before this happens, you should explore all of your available solutions, including hiring a tax attorney.

Although you could handle your IRS levy independently, it may not serve you to go at it alone. Instead, employ the help of a reputable attorney to create the best defense for you.

Contact us now if you are looking for a tax attorney to help you sort through your IRS levy. Our team is prepared to answer any questions or concerns you have about the process, and our case evaluation is free.

Additional Resources on Bank Levies

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