An IRS bank levy is a tool the IRS uses to collect unpaid taxes from delinquent taxpayers. You may be subject to a bank levy if you have money in the bank and taxes that you owe. The IRS has the authority to issue bank levys for taxpayers who have not paid their taxes and who have not responded to collection notices or phone calls. It can also spring bank levies on you at any moment if you default on a payment plan or Offer in Compromise (an agreement between you and the IRS that resolves your tax debt). Once the levy has been issued, it is often very difficult to get it removed unless you pay all the taxes you owe.
What happens when the IRS bank levy is issued
When a bank levy is issued, your bank account is locked down for 21 days, preventing you from accessing funds in your checkings and savings accounts. The bank levy stays in place until the tax is paid in full. The 21 days give you an opportunity to collect funds from other sources(i.e. other accounts, friends and family, etc.) to pay your taxes in full. If the tax is not paid in those 21 days, the funds in the account are taken by the IRS and used to pay off your taxes.
The upside is that, once your account is liquidated, your IRS debt (back-tax liability) will be reduced. However, the obvious downside is that your account balances will be wiped out. This means you may not be able to afford your bills (e.g. monthly mortgage, auto payments, and other expenses). Missed payments may negatively affect your credit rating. Outstanding checks may also bounce, which may lead to overdraft fees from your bank.
Options for releasing an IRS bank levy
Releasing an IRS bank levy is very difficult. The IRS is given wide latitude in determining whether to release a levy, and it rarely does. However, your best bet in getting the levy released is by making one of these three arguments: (1) the levy was issued in error (i.e. you are not the person who owes the taxes), (2) the levy caused an immediate and extreme financial hardship (e.g. the bank account holds payroll for your business of 10 employees), or, (3) the levy inhibits the full collection of the balance due.
How to release an IRS bank levy
Regardless of which argument you choose, follow these steps to release the IRS bank levy:
If the IRS agrees to a release, provide a bank representative's name, phone number, and fax number. Ask for the release to be faxed to the bank immediately. Follow up with your bank within 24 hours to ensure the release has been received and that the agreed-upon amount of money is actually available for withdrawal.
If you need help releasing an IRS levy
If you are not making progress, ask to speak with the IRS employee's immediate supervisor. If the supervisor also is unwilling to offer a full or partial release, it may be appropriate to apply for a Taxpayer Assistance Order by submitting Form 911 (http://www.irs.gov/pub/irs-pdf/f911.pdf) to the Taxpayer Advocate Office (http://www.irs.gov/advocate/). When completing the form, make sure to clearly indicate the following: (1) the immediacy of the threat of adverse action, and (2) the irreparable injury or long-standing adverse impact that will result. If the levy was issued in error and you are unable to get it released in time, you may complete IRS Form 8546 (http://www.irs.gov/pub/irs-pdf/f8546.pdf) within 1 year of the levy to claim reimbursement.
IRS Form 8546 (http://www.irs.gov/pub/irs-pdf/f8546.pdf)
The Difference Between a Tax Lien and a Tax Levy (http://www.irs.gov/businesses/small/article/0,,id=108341,00.html)
Taxpayer Advocate Service (http://www.irs.gov/advocate/article/0,,id=97402,00.html)
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