An IRS bank levy is a powerful tool used by the Internal Revenue Service (IRS) to collect unpaid taxes. Unlike other collection actions, such as liens or wage garnishments, a bank levy involves the direct seizure of funds from your bank account. When the IRS issues a bank levy, it legally requires your bank to hold the funds in your account and eventually transfer them to the IRS to cover your tax debt. This action can severely disrupt your financial situation, as it targets your liquid assets.
Initial Steps to Take
Stay Calm and Act Quickly
Facing an IRS bank levy can be alarming, but it is crucial to remain calm and act swiftly to address the situation. Panicking can lead to rash decisions, while taking prompt, well-informed action can help mitigate the impact on your finances. The sooner you begin to address the levy, the more options you will have to resolve it and protect your financial stability.
Review IRS Notice
The first step in dealing with an IRS bank levy is to thoroughly review the notice you received. This notice, often called a Notice of Intent to Levy, provides crucial information about the levy, including:
- Amount Owed: The total amount of tax debt that prompted the levy.
- Deadline for Action: The date by which you need to take action to prevent or release the levy.
- Reasons for Levy: Specific reasons why the IRS has decided to levy your bank account.
- Contact Information: Details on how to contact the IRS for further information or to discuss your situation.
Verify the Levy
Before taking any further steps, it is essential to verify the legitimacy of the levy to ensure you are not falling victim to a scam. Scammers often impersonate IRS agents to trick individuals into paying non-existent debts. Here are the steps to verify the levy:
- Check the Source: Verify that the notice came from the IRS. Legitimate IRS notices will have the official IRS letterhead, a notice number, and contact information. If you received the notice via email or phone call, be especially cautious, as the IRS typically communicates via mail.
- Contact the IRS Directly: Use the contact information provided in the notice to reach out to the IRS directly. Do not use any phone numbers or email addresses provided in suspicious communications. Instead, look up the official IRS contact numbers on their website to ensure you are speaking with a legitimate IRS representative.
- Consult Your Bank: Contact your bank to confirm whether a levy has been placed on your account. Banks are required to notify you when a levy is applied, and they can provide additional information about the process and timelines.
Contacting the IRS
Initiate Contact
When you receive notice of an IRS bank levy, it is imperative to contact the IRS immediately to discuss the levy and explore potential solutions. Here’s how to initiate contact effectively:
- Use Official Channels: Contact the IRS using the phone number provided in the notice. You can also find IRS contact information on the official IRS website. Avoid using any contact information from suspicious sources.
- Be Prompt: Time is of the essence when dealing with an IRS bank levy. Initiate contact as soon as possible to maximize your chances of resolving the issue before the IRS seizes funds from your account.
- Be Prepared: When you call, be ready to explain your situation clearly and concisely. Be polite and cooperative, as this can facilitate a more productive conversation with the IRS representative.
Gather Necessary Information
Before contacting the IRS, gather all the necessary information and documentation to discuss your case comprehensively. Here’s a list of what you should have on hand:
- IRS Notice: Have the Notice of Intent to Levy or any other related notices received from the IRS.
- Tax Returns: Gather copies of your most recent tax returns, as well as any previous returns that might be relevant to your current situation.
- Bank Statements: Have recent bank statements available to provide a clear picture of your financial situation.
- Financial Records: Collect documentation of your income, expenses, assets, and liabilities. This can include pay stubs, mortgage statements, utility bills, and other financial records.
- Payment History: If you have made any payments towards your tax debt, have records of these transactions ready to discuss.
Request a Levy Release
Once you have initiated contact and provided the necessary information, you can request a release of the levy. Here’s how to go about it:
- Explain Your Situation: Clearly explain why you need the levy released. Be honest about your financial situation and any hardships the levy has caused.
- Request Specific Relief: Ask the IRS representative about the different options available for releasing the levy, such as:
- Full Payment: If you can pay the full amount owed, the IRS will typically release the levy. This is the quickest way to resolve the situation.
- Installment Agreement: Propose an installment agreement to pay off your debt over time. If approved, the IRS may release the levy once the agreement is in place.
- Offer in Compromise: If you cannot pay the full amount, you might be eligible for an Offer in Compromise, where the IRS settles your debt for less than what you owe.
- Currently Not Collectible Status: If you are experiencing significant financial hardship, you can request that your account be placed in currently not collectible status. This temporarily halts collection efforts, including the levy, until your financial situation improves.
- Submit Necessary Forms: Depending on the type of relief you are requesting, you may need to submit additional forms, such as:
- Form 9465: Installment Agreement Request
- Form 433-A or 433-F: Collection Information Statement (for Offer in Compromise or currently not collectible status)
- Form 656: Offer in Compromise Application
- Follow Up: After your initial request, follow up regularly with the IRS to check on the status of your levy release. Persistence and timely communication are key to ensuring that your request is processed promptly.
Exploring Payment Options
Full Payment
One of the most straightforward ways to have an IRS bank levy released is by paying the tax debt in full. This involves settling the entire amount you owe to the IRS, including any interest and penalties. Here's what you need to know about this option:
- Immediate Release: Once the full payment is received and processed by the IRS, the levy on your bank account will be lifted. This allows you to regain full access to your funds.
- Lump Sum Payment: If you have the means to pay off the debt in one lump sum, this is the quickest and most effective solution. Consider liquidating non-essential assets or using savings to cover the amount due.
- Borrowing Options: If you don't have the funds readily available, you might consider borrowing from family or friends, taking out a personal loan, or using a home equity line of credit to make the payment.
Installment Agreement
If paying the full amount upfront is not feasible, setting up an installment agreement with the IRS can be a practical alternative. An installment agreement allows you to pay off your debt over time through monthly payments. Here’s how it works:
- Eligibility: Most taxpayers with a manageable amount of debt can qualify for an installment agreement. The IRS will evaluate your financial situation to determine a suitable payment plan.
- Application Process: To apply, you can submit Form 9465 (Installment Agreement Request) along with a Collection Information Statement (Form 433-A or 433-F). These forms provide the IRS with details about your income, expenses, and assets.
- Monthly Payments: The IRS will calculate a monthly payment amount based on your financial information. Once the agreement is in place and the first payment is made, the IRS may release the bank levy.
- Fees and Interest: While an installment agreement allows for more manageable payments, be aware that interest and penalties will continue to accrue on the unpaid balance until the debt is fully paid.
Offer in Compromise
An Offer in Compromise (OIC) is an agreement between the taxpayer and the IRS to settle the tax debt for less than the full amount owed. This option is available to taxpayers who cannot pay their full tax liability or would face financial hardship if required to do so. Here’s what you need to know:
- Eligibility: To qualify for an OIC, you must demonstrate that paying the full amount would create a significant financial burden. The IRS considers factors such as your income, expenses, asset equity, and future earning potential.
- Application Process: Submit Form 656 (Offer in Compromise) along with the appropriate application fee and initial payment. You will also need to provide a detailed Collection Information Statement (Form 433-A or 433-B) to support your claim of financial hardship.
- Evaluation Criteria: The IRS evaluates OIC applications based on three criteria: doubt as to liability, doubt as to collectability, and effective tax administration. If your offer is accepted, the remaining tax debt is forgiven, and the levy will be released.
- Payment Terms: If the IRS accepts your offer, you can choose to pay the agreed amount in a lump sum or through periodic payments.
Currently Not Collectible Status
If you are experiencing severe financial hardship, you may be eligible for the IRS to classify your account as currently not collectible (CNC). This status temporarily halts all collection activities, including levies. Here’s how it works:
- Eligibility: To qualify for CNC status, you must demonstrate that paying your tax debt would prevent you from meeting necessary living expenses. The IRS will review your financial situation in detail.
- Application Process: Submit a Collection Information Statement (Form 433-A or 433-F) to provide the IRS with a comprehensive overview of your financial situation, including income, expenses, and assets.
- Impact of CNC Status: While in CNC status, the IRS will not take any collection actions against you, including levies or wage garnishments. However, interest and penalties will continue to accrue on your unpaid balance.
- Periodic Review: The IRS will periodically review your financial situation to determine if you remain eligible for CNC status. If your financial circumstances improve, you may be required to resume payments or establish a payment plan.
Protecting Your Finances
Budget Adjustment
When dealing with an IRS bank levy, it’s crucial to adjust your budget to manage your finances effectively. Here are some tips to help you navigate this challenging period:
- Prioritize Essential Expenses: Focus on covering essential living expenses first, such as rent or mortgage payments, utilities, groceries, and medical costs. Cut back on non-essential spending to free up funds.
- Create a New Budget: Develop a revised budget that reflects your current financial situation. Track all sources of income and list your expenses to identify areas where you can reduce costs.
- Reduce Discretionary Spending: Limit spending on non-essential items such as dining out, entertainment, and luxury purchases. Every dollar saved can help you manage your essential expenses more effectively.
- Negotiate Bills: Contact service providers, such as utility companies, lenders, and credit card issuers, to explain your situation and negotiate temporary reductions or payment plans.
Alternative Funds
Accessing alternative funds can provide immediate relief while you work to resolve the levy. Consider these sources:
- Emergency Savings: If you have an emergency savings fund, now is the time to use it. These funds are designed to help you manage unexpected financial challenges.
- Borrow from Family or Friends: Reach out to trusted family members or friends who may be willing to lend you money temporarily. Be sure to agree on repayment terms to avoid any misunderstandings.
- Personal Loans: Consider applying for a personal loan from a bank or credit union. While this option may involve interest costs, it can provide the necessary funds to cover essential expenses and resolve the levy.
- Retirement Accounts: As a last resort, you might consider withdrawing from your retirement accounts, such as a 401(k) or IRA. Be aware of potential penalties and tax implications before taking this step.
Preventing Future Levies
To prevent future levies and ensure you remain in good standing with the IRS, follow these steps:
- Stay Compliant with Tax Obligations: File your tax returns on time and pay any taxes owed by the due date. If you cannot pay the full amount, communicate with the IRS to set up a payment plan.
- Set Up Payment Plans: If you have outstanding tax debt, establish a payment plan with the IRS. This demonstrates your commitment to resolving your tax issues and can prevent future collection actions.
- Regularly Review Your Finances: Periodically review your financial situation to ensure you are staying on track with your tax obligations. Adjust your budget and savings goals as needed to maintain financial stability.
- Keep Accurate Records: Maintain detailed records of your income, expenses, and tax payments. This documentation can help you stay organized and provide evidence if you need to negotiate with the IRS.
- Seek Professional Advice: Consult with a tax professional to ensure you are taking the right steps to stay compliant and manage your tax obligations effectively. Professional guidance can help you avoid future issues and make informed financial decisions.
Good News Tax Relief
If you are facing an IRS bank levy, it is crucial to take immediate steps to address the situation. Don’t delay in contacting the IRS to discuss your options and explore potential solutions. For personalized assistance and expert guidance, reach out to Good News Tax Relief. Our team of experienced tax professionals can help you navigate the complexities of an IRS bank levy, negotiate with the IRS on your behalf, and protect your financial well-being.
Good News Tax Relief,
LLC143 Cady Centre #145
Northville, Michigan 48167
Email: roberts@goodnewstaxrelief.com
Website: https://www.goodnewstaxrelief.com/
Contact us: https://www.goodnewstaxrelief.com/contact-us
Toll Free 1-800-255-7500