Can the IRS take money from my bank account?

What we’re talking about here is a bank levy and the short answer is yes, the IRS can seize money from your bank account under certain circumstances. There is no need for a court order but they must have previously sent a Final Notice of Intent to Levy. Now, the Final Notice of Intent to Levy is typically but not always issued on what’s called a letter 1058. It comes certified mail without a return receipt.

It’s interesting to note that the IRS only has to prove that they sent that letter to your last known address. And for most taxpayers, their last known address is the address on their last filed tax return. So if you have spent several years without filing a tax return and you’ve moved since the last tax return you’ve sent, you know, the IRS probably or there is a good chance that the IRS has sent this Final Notice of Intent to Levy to the wrong address. You cannot categorically depend on whether or not you’ve gotten this letter. However, if you know you have gotten this letter, then the chances are the IRS can levy you in this situation.

Now, what we’re not talking about is a letter number CP 504. CP 504 talks about their intent to levy certain assets. It also comes certified mail and if you look closely at the letter, it indicates that the IRS has the right to levy your state income tax refunds. In some states, that’s of no practical effect whatsoever because there isn’t any state income tax but in most states, there is. So the IRS will be entitled to your state income tax refund. Big deal. Chances are if you owe the IRS, you probably owe the state as well.

Now, what it also does is it raises the penalty percentage point when you get a CP 504 but it does not grant you appeal rights and it does not grant the IRS the right to levy anything other than your state income tax refund. If the IRS has not sent you, or sent to your last known address, a letter 1058 or a Final Notice of Intent to Levy, then the levy is invalid and it must be released.

I’ve seen this time and again, so if the IRS has improperly levied your account without giving you a Final Notice of Intent to Levy, it should be relatively easy to get them to raise that if you point that error out to them. If the answer is yes, they have sent out a Final Notice of Intent to Levy, then the bank has to turn over the money within 21 days of the processing date of the levy. Interesting to note, it’s not the date on the levy notice, it’s the date that the bank received it and processed the levy. So they have 21 days from the processing date of the levy before they have to turn the money over to the IRS. Now, you need to know that a bank levy is not a continuous levy.

What does that mean? Well, let me give you an example. A wage garnishment, or a wage levy, in the parlance of the IRS, is actually a continuous levy. What that means is if you owe the IRS a significant amount of money and they garnished your wages, that levy is going to be in place until the liability is paid. The bank levy is not the same. We like to say that the bank levy is a one shot deal. Does that meant that the IRS will only issue one bank levy ever and then leave you alone? No, not likely. But it’s not a continuous levy and they’re not supposed to issue concurrent bank levies where they hit you every 21 days.

There’s actually a language in the internal revenue manual that discourages this practice and I’ve never actually seen it. But it doesn’t mean that a revenue officer, for example, couldn’t levy you now and then issue a bank levy in six months. There is nothing against the law as far as that goes, but a bank levy is not a continuous levy; your bank account is not frozen. That’s what banks will often tell you that your account has been frozen but it’s not frozen; you can actually deposit money into the account the very next day and use it as if nothing had happened. Of course, you’re going to have to pay whatever charges and fees that the bank has charged you for processing the levy and any return check charges, et cetera.

Now the best practice is when you have a bank levy is if you have a tax problem and you know that they have sent a Final Notice of Intent to Levy, don’t keep a bunch of money in the bank. That seems pretty obvious but you’d be surprise at how many people that I come into contact that even though they know they are subject to levy, they keep lots of money in the bank. And this can be a real problem if you’ve deposited your paycheck, for example, and they just happen to hit it on the right day and they get all of your money and all the money that you had to set aside to pay your rent, or your mortgage or your food or whatever, your bills, then the IRS is going to get it and you’re going to have a hard time getting it back.

Just today, as a matter of fact, a client came in today and said that he had had $260,000 levied from his bank account! He acknowledged that I had told him not to keep that much money in the bank but he said he was trying to do some kind of transfer or whatnot and the IRS just happened to get the timing exactly right. Now we don’t know if we’re going to get that money back or not.

It’s also important to know that you can file an IRS appeal form a Final Notice of Intent to Levy. It’s called a request for a collection due process hearing and you use form 12153. You need to appeal within 30 days of the date of the Final Notice of Intent to Levy. The practical effect of that is that there is a collection hold until your hearing is completed. So it can be a really nice preventative measure if you get a Final Notice of Intent to Levy, it’s probably not a bad idea to go ahead and file the appeal.

What do you do, if you’ve already had a bank levy? The first thing that you need to do is you need to get a copy of the levy from the bank. Then you’re going to call the phone number on the levy notice and you’re going to speak to the IRS about whether or not that they would be inclined to give you some or all of your bank money back. All your tax returns must be filed. That means you can’t have any outstanding tax returns. For example, if the returns are due on April 15th and now it’s March 20th, well, that’s not a return that’s due because it hasn’t come due yet, but all prior years returns that you got a filing requirement need to be filed before you can discuss with the IRS the release of a bank levy.

You need to have a good reason for the release of the funds. For example, if I don’t get that money from the bank account or back from the bank levy, then I’m not going to be able to pay my mortgage and I’m going to have a foreclosure… I’m not going to be able to pay my rent and they’re going to evict me… I’m not going to be able to pay for my medicine. I’m not going to be able to pay for my kids’ tuition, daycare or something like that. There’s any number of good reasons but you have to have a good reason. You just can’t call up and say I want my bank levy released and I want all the money back because I don’t want to pay you guys, I’d rather pay my other bills; you need to have a good reason.

Remember, the bank holds the money through 21 days and then gives it to the IRS. So you have about three weeks to deal with this but you need to get on it and you need to have a good reason for why the IRS should release your money.

There’s a couple other things that come to mind, you’re probably going to have to provide financials to the IRS and they’re going to probably want you to enter into some collection alternatives like an installment agreement. They might ask you to file an Offer in Compromise or they might go ahead and go through your financials and put you in hardship status.