The IRS can legally levy your bank account and other assets to satisfy a tax debt. When the IRS sends a tax levy to your bank, the levy attaches to all the funds in your account at the time. Your bank is required to give your money to the IRS once a 21 day period elapses.
IRS Actions Before Issuing a Levy
The IRS will not levy your bank account until its given you several notices of your obligation to pay your tax debt. First, the IRS must make a tax assessment against you and send you a Notice and Demand for Payment.
If you do not respond to this notice or refuse to pay the tax debt, the IRS may send additional notices before finally issuing you a Notice of Intent to Levy and Notice of Your Right to Hearing. This must be sent to you at least 30 days before the levy.
You have a right to this hearing, known as a Collection Due Process (CDP) hearing, if you respond to the notice within 30 days. If you request a hearing, the IRS cannot levy your bank account until after the hearing. This is why it is critical that you take action immediately if you have received a Notice of Intent to Levy.
At the CDP hearing, you can negotiate an Offer in Compromise or installment agreement. You can also dispute the amount if you believe the IRS has made a mistake in assessing the tax, provided that you haven’t had a prior opportunity for an appeal. If you are unable to negotiate a deal you can live with at the CDP hearing, you have the option of filing a petition in Tax Court
What to Do Once a Bank Levy Is Served
If you missed your chance to have a CDP hearing and the bank levy has been served, your bank must hold onto your funds for 21 days before handing them over to the IRS. This short delay gives you time to negotiate or otherwise stop the levy before the IRS takes your money. The levy freezes the funds in your account, so you will not be able to avoid the levy by withdrawing funds.
It is much better to negotiate with the IRS while your money is still in your possession. You may have several options for disputing your tax or negotiating a payment agreement, and they are all preferable to an IRS bank account levy.
If your bank account has been levied, contact a tax attorney immediately. You may be able to negotiate with the IRS and notify the IRS of an error that caused the levy.