How Often Can the IRS Levy My Bank Account? Everything You Need to KnowPersonal Taxes
Federal tax debts don’t go away. On the contrary, they grow bigger and bigger if you neglect them.
How often can the IRS levy your bank account? There are no restrictions regarding the number of levies the IRS can place on a single bank account, so theoretically, the agency can issue one levy after another until it collects the entire outstanding debt.
However, this rarely happens due to the complexity of the process because the IRS must meet specific requirements for the levy to be valid.
If you’re concerned that the IRS may place more than one levy on your bank account, here’s everything you need to know.
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The Steps the IRS Must Take to Issue a Bank Account Levy
Taxpayers who fail to file tax returns or pay their tax liabilities receive tax bills that usually include civil penalties from the IRS.
Whether or not the IRS opts to levy a bank account depends on the balance due, the debt’s expiration date, and the taxpayer’s will to work with the IRS on repaying the debt.
The moment you receive a tax bill marks the beginning of the collection process, during which you’ll have opportunities to settle the debt, appeal the due balance or enter into an installment agreement.
You’ll get Notice CP504 Final Notice of Intent to Levy and Notice of Your Right to a Hearing from the IRS if all other efforts to pay off the debt fail.
According to the IRS, a levy is a ‘legal seizure of your property to satisfy a tax debt.’ In other words, a levy means that the IRS intends to take funds from your bank account or other assets and use them to settle an outstanding debt.
Besides seizing funds in your checking or savings account, the IRS might garnish your social security or wages. A bank levy allows the IRS to take funds in your saving or checking accounts up to the amount you owe.
Criteria for Valid Bank Levies
The agency won’t initially go after all taxpayer’s bank accounts. Still, suppose the funds seized from one account don’t satisfy the tax liability. In that case, the IRS might contact all banks where a taxpayer has accounts.
However, the IRS must first send Notice CP501 Notice and Demand for Payment, followed by a Notice of Intent to Levy and the Final Notice of Intent to Levy that establish a basis for a levy. A taxpayer has thirty days to respond to the final notice and appeal the levy.
The IRS will initiate an internal procedure after the one-month grace period expires if a taxpayer ignores these notices and levy their bank account two to three weeks after the deadline.
The bank levy process starts when the IRS sends a notice to a bank and requests a seizure of funds held in a specific account.
Besides savings or checking accounts, the IRS might levy merchant accounts, accounts receivable, or any other assets in the taxpayer’s possession without issuing multiple levies.
The bank will freeze the taxpayer’s account after receiving Form 668-A(C)DO Notice of Levy on Wages, Salary, and Other Income from the IRS and hold the funds for three weeks.
All funds from the account are transferred to the IRS after three weeks if the taxpayer ignores the levy.
What Happens After the IRS Levies a Bank Account?
You won’t be able to access the funds you had in a bank account after the levy is issued. The bank will freeze the funds for three weeks to give the IRS time to determine the ownership of the account.
The money will be transferred to the IRS if no ownership issues are detected during this time and you don’t attempt to stop the seizure of your assets. Nonetheless, you can still deposit new funds to that account and use them without restriction.
The IRS must issue another levy to seize the funds you deposit after the original levy becomes effective.
How Often Can the IRS Levy Your Bank Account?
The IRS can continue to issue levies and seize your assets until they collect the amount you owe. In most cases, the IRS will only issue one levy that gives them the power to take funds from multiple bank accounts.
The complexity of the procedural steps the IRS needs to take to issue a bank levy is the reason the agency rarely uses multiple levies to collect tax debts from a taxpayer. The IRS could issue a second levy in the following scenario.
- A levy is placed on a bank account, but the seized funds aren’t sufficient to cover the entire debt. A taxpayer deposits a significant amount that would satisfy the balance due to that account after the levy went into effect.
Under these circumstances, the IRS might issue another bank levy to collect the additional funds to clear the existing federal tax debt. The IRS can continue to levy a bank account until the debt is paid in full or until a taxpayer has nothing left the IRS can collect.
The agency might decide to garnish the taxpayer’s wages or use some other collection method instead of levying a bank account multiple times.
Bank Levy Limitations
The IRS uses bank account levies as the last resort after all other attempts to collect an outstanding debt fail. Taxpayers can contact the IRS and negotiate an installment plan or offer-in-compromise even after their bank accounts were levied.
The worth of assets the IRS can seize cannot exceed a taxpayer’s outstanding debt, so if your account were levied, the bank would only transfer the amount required to cover the tax liability.
It’s also worth noting that the agency doesn’t have to provide a 30-day to a taxpayer under these conditions:
- Disqualified Employment Tax Levy was issued previously.
- The ten-year debt collection period expires soon.
- The IRS considers a taxpayer a flight risk.
- Collection of a state refund.
Removing a Levy from a Bank Account
Banks must transfer the funds to the IRS on the 22nd day after the levy goes into effect.
You can continue using the bank account normally as soon as the transaction is completed. If the IRS wants to levy the same bank account again, they must go through the process from the beginning.
The following options are available to you after the IRS levies your bank account:
- You can stop the levy before your money goes to the IRS by requesting a payment extension that lets you pay off the debt within 120 days.
- You can negotiate a payment plan or apply for the currently non-collectible status.
- The IRS will lift a levy from a bank account if you reach out to them while your account is still frozen and explain that it will cause financial hardship.
Once the bank takes the funds from your account and gives them to the IRS, you can apply for reimbursement only if the seized amount exceeds the balance due.
Bank fees charged due to an erroneous levy are reimbursable. You should file Form 8546 if the bank charged you a fee for processing a levy even though you paid the tax debt and met all reimbursement requirements.
Frequently Asked Questions
You’ll have 21 days to stop the IRS from seizing your funds, so you’re unlikely to get your money back if you don’t reach out to the IRS within this time.
If the debt expires soon or you receive a state tax refund, the IRS can levy your bank account without notice. In all other cases, the levy is considered invalid if it was issued without prior notice.
If you’re a signatory on a bank account and not its holder, the IRS can levy it to collect a debt. The account holder or their legal representative can call the number on Form 668-A(C)DO and provide evidence that the funds in the account don’t belong to you to stop the levy.
A bank levy is a one-time seizure of funds in a bank account. If the first levy isn’t sufficient to erase the tax debt, the IRS can levy a bank monthly until it collects the full amount.
Learning to Manage Tax Debts and Avoid Bank Account Levies
Filing tax returns and paying taxes on time is all you need to do to avoid tax debts. Neglecting your tax obligations and allowing your tax debt to run amok is the worst thing you can do if you find yourself in a situation where you cannot afford to fulfill your tax obligations.
It would help if you didn’t wait for the IRS to levy your bank account. Once the levy is in effect, you’ll have limited time to respond and prevent the IRS from seizing your funds.
Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.