Sam Brotman, JD, LLM, MBA October 2, 2020 11 min read

What Are IRS Bank Levies? [Definition & Examples]

When you owe a balance due to the IRS and fail to resolve that balance in a timely manner through one of the approved resolution methods, the IRS takes increasingly stern action to try and force compliance on your part. One of these avenues is through an IRS bank levy. 

An IRS levy is defined as, “a legal seizure of your property to satisfy a tax debt.”[1] In the case of an IRS bank levy, the IRS takes money from your checking or savings account in order to satisfy your outstanding tax liability. Although the IRS is required to send notice of its intent to levy under statute, it usually does not tell you when it plans to seize money out of your checking account. 

Sometimes this puts taxpayers in a precarious position because they count on funds being in these accounts that are no longer available due to the IRS levy.

The IRS bank levy process is initiated by a notice sent from the IRS to the bank that is holding your assets. Usually, the IRS will only send one levy notice at a time, but they will eventually get around to sending notices to every bank where they have reason to believe that you are holding assets in. 

From this point, the bank retains the money for 21 days prior to releasing the funds to the IRS. After this 21-day period, the bank, by law, must release the funds to the IRS. No further action is required on the part of the IRS to receive funds. Taxpayers will not have access to any funds levied during this period.[1] 

To add insult to injury, banks will usually charge an administrative processing fee to your account for handling the levy. Even if the levy is erroneous, getting this processing fee back from the IRS is not usually worth the time expended. 

Also, it is important to be aware that the IRS is not just limited to levying one source of assets. Taxpayers should be aware that the IRS can also go after wages, accounts receivables, merchant accounts, or almost any other asset in possession of the taxpayer to satisfy the liability.

Requirements of a Valid IRS Bank Levy

First, IRS bank levies cannot occur for any amount greater than the amount needed for the IRS to satisfy the liability in question. Furthermore, there are three procedural requirements that the IRS must follow in order to execute any levy. These are:

  1. The IRS must have assessed the taxes underlying the basis for the levy and have sent a Notice and Demand for Payment to the taxpayer. Keep in mind that receipt of this notice, or any IRS notice, by the taxpayer is not required. All that is required under statute is that the IRS sends its notice to the last address it has on file.
  2. The taxpayer must have neglected to pay the stated tax underlying the assessment. This includes penalties and interest.
  3. The IRS must send two more notices to the taxpayer: a Notice of Intent to Levy and a Final Notice of Intent to Levy. The Final Notice of Intent to Levy must be sent at least 30 days prior to an IRS levy in order to give the taxpayer time to work out a resolution and/or appeal the IRS levy. 

Generally, levies will not occur immediately after the 30-day period has expired because of the administrative approval that the IRS needs internally to begin the levy process. Taxpayers can generally count on being levied between two-to-three weeks after this 30-day period has expired. 

However, it is critical to note that all allowable taxpayer assets are subject to levy after this period has expired. Levies can and do occur immediately after, especially if the taxpayer has been assigned to a revenue officer or other senior collections agent.

Property Exempt From Tax Levies

This list of property is codified under Internal Revenue Code (IRC) § 6334. Here is a comprehensive list of the items that are exempt from tax levies:

  1. Clothes and educational books that are of necessity to the taxpayer and/or the taxpayer’s family
  2. Personal items, personal care items, fuel, furniture, and personal effects. Note that these items cannot exceed $6,250 in value
  3. Business and professional items, tools, or supplies including books and other tools of the trade that are necessary for the taxpayer’s production of income. Note that these items cannot exceed $3150 in value.
  4. Unemployment benefits, including those portions that allocated toward the taxpayer’s dependents
  5. Mail that remains undelivered
  6. Certain types of annuity and pension payments.[1]
  7. Workmens’ compensation
  8. Any portion of the taxpayer’s income or salary that is necessary for the taxpayer to comply with a court order or judgment granting support for children under the age of 18.
  9. Minimum exemption for wages, salary, and other income that is further governed by § 6334
  10. Certain disability payments, which are considered service connected.
  11. Certain public assistance payments including public assistance and public welfare payments from a government agency.
  12. Assistance that comes under the Job Training and Partnership Act.
  13. Residences are exempt from levy in small deficiency cases. Primary residences and certain business assets are also exempt, except barring special approval or in certain instances of jeopardy that is documented by the IRS.[2]

It is important to note that the dollar amount limits placed on the totals of certain items are subject to fluctuate from year-to-year. Furthermore, it is my professional opinion that a taxpayer should contact a tax professional immediately for assistance if any of the above items are levied or tax levies by the IRS threaten the economic stability of the taxpayer.

While it is possible to get tax levies released prior to them becoming final (the taxpayer usually has a 21-day window to get them released), doing so is fairly difficult and can require a fairly proactive approach when dealing with IRS collections. 

Furthermore, even if the property that you have is on the above list, it is nevertheless important to be vigilant when dealing with your collection issues. Quick and decisive action on the part of the taxpayer can help stop tax levies even before they are initiated by the IRS.

For help with tax levies or, if I can answer any additional questions, please contact me through the contact information listed on this website.

[1] For a full list of exempt annuity and pension payments, please see IRC § 6334(a): http://www.law.cornell.edu/uscode/text/26/6334

[2] Taken from IRC § 6334(a): http://www.law.cornell.edu/uscode/text/26/6334

The Best Way to Deal With a Bank Levy

The best approach to dealing with an IRS bank levy is to deal with the problem as soon as possible. If you discover the levy within the 21-day holding period, you may be able to convince the IRS to release it. The IRS will be generally reluctant to do so, absent compelling reason, but once those funds are gone, there is basically no chance the IRS will surrender them.[1]

As with most IRS problems, the best defense is a good offense. Contacting the IRS, even if it is just to buy yourself time to resolve the issue, goes a long way towards preventing IRS bank levies or other adverse actions. If you have been already levied, you should be aware that they will keep coming after you until the liability has been satisfied in full. 

Once the steps outlined above have been completed, the IRS is not required to go through them again to initiate another bank levy. If you run into trouble or believe you have been levied erroneously, then you should contact a tax professional immediately to step in and handle the situation.

[1] Here is information from the IRS regarding levies, including some information on a bank levy.

Receive the Best of
Brotman Law

Get this topic delivered straight to your inbox.

Book an Action Plan
avatar

Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law

COMMENTS

BECOME AN INSIDER

Our best stuff: secrets, tax saving tools, and tax defense strategies from the braintrust at Brotman Law.

  • Expanded benefits during your first consultation with the firm.
  • Priority appointment scheduling and appointment times.
  • Complementary access to our firm’s concierge services.
  • Receive updates and “insider only” tax strategies and tactics.
  • And many more benefits.

Not Sure Where to Start?

Step 1 Start Here

Start Here

These ten big ideas will change the way you think about your taxes and your business.

Start Here

Step 2 Learn About Your Situation

Learn About Your Situation

Find the articles and videos you need to make the right tax decisions in the learning center.

Visit the Learning Center

Step 3 Explore Our Services

Explore Our Services

It is not just about what we do, but who we are, why we do it, and how that benefits you.

View All Services

Step 4 Get Your Game Plan

Get Your Game Plan

Meet with us to outline your strategy. No further obligation, 100% money-back guarantee.

Book an Action Plan