IRS Bank Levy Process: How the IRS Garnishes a Bank Account
By the time the IRS freezes your bank account it should be no surprise to you. The IRS begins the whole collection process as soon as they realize you have unpaid taxes. They start by sending casual letters that assess you with an amount due and you must pay. The IRS has a serious of similar letters that they will continue to send if no resolution is made. The letters will continue to get more and more demanding. The final notice you will receive before the IRS places a levy on your bank account is a "Final Notice of Intent to Levy and Notice of Your Right to a Hearing". Once this letter is received the IRS can legally begin a levy within 30 days if no action is taken by the taxpayer or no behalf of the taxpayer.
When a Bank Levy Can go into Effect
The IRS states that they will typically only levy your assets after three basic requirements have been met. After these three basic requirements have been met the IRS can begin to levy. The levy method they choose depends upon your financial and work situation. Below are the three requirements:
- The IRS assessed you with a tax amount owed and sent a notice to demand payment
- You neglected or refused to pay the tax amount owed: and
- You were sent a "Final Notice of Intent to Levy and Notice of Your Right to a Hearing" 30 days prior to the levy
The "Final Notice of Intent to Levy and Notice of Your Right to a Hearing" will be given to you in person, left at your home or usual place of business, or sent to your last known address.
After the Receiving the Final Notice of Intent to Levy
After you receive a final notice of intent to levy the IRS will wait a minimum of 30 days prior to taking collection actions assuming no resolution has been made on your behalf. The levy method that the IRS chooses is based upon their assessment of your work and financial situation. The two most common forms of levy they choose between are bank levies and wage levies. In general, the IRS will garnish your wages if you are a W-2 employee and you have little funds in your bank account and they will garnish your bank account if you have a large enough amount of funds in your bank account for them to consider a bank levy. They are not suppose to use both forms of levies at the same time but it is not unheard of that they do.
The IRS will not let you know what form of levy they will be implementing on you once they decide since they do not want you to move assets or make it harder for them to seize money from you. With a bank levy, once the IRS contacts your bank and determines you have money in your account that they can seize they will require the bank to immediately freeze the bank account and they will issue a bank with a notice of levy. It is required that a bank wait 21 calendar days after the levy is served before sending the funds to the IRS. The bank must turn over the funds or the bank will be held liable for those funds. Even when the account is frozen it is highly unlikely that you will be notified of it and will have to find out by having a check bounce or trying to withdraw money and you will not be allowed to.
The funds subject to the bank levy will be the funds that are in the account at the time that the notice is served to the bank. If additional deposits are made during the holding period the IRS will not be able to seize these amounts without issuing a separate bank levy. If a levy is issued for an amount greater than the funds in the bank account then the IRS can seize the entire amount in the account. If the bank account has more than the levy the IRS can only seize the amount issued on the levy.
If the entire tax debt amount is not seized during the levy the IRS will continue to issue bank levies in the future when additional funds are deposited in order to seize the remainder of the amounts owed. The IRS will continue to do so until the tax amount is paid in full, a tax settlement is made, the taxpayer is considered under financial hardship or the statute of limitations has expired on the taxes.