A bank levy by the IRS is imposed on people to recover the total amount due, while adjusting the amount to the tax due. When you fail to pay your taxes even after you have been served a legal notice, your bank will recover the amount from your checking account and send it back to the IRS. In Case your account has insufficient funds to cover your debt to the IRS, your bank reserves the right to freeze your account and recover the entire amount. This process is known as a bank levy. In other words, a bank levy is imposed on you following your inability to respond to the notice and pay the outstanding taxes to the IRS within 21 days.
In Case you are unable to pay your debts on time, the tax department has the right to initiate legal action against you by imposing a bank levy on your checking account. A bank levy can be devastating, making normal day-to-day living impossible. If you receive a notice of a bank levy from the IRS, you need to act quickly. Once you receive the "intent to levy" letter, you must act quickly if you intend to stop the process.
Ways to Stop a Bank Levy
Once you receive the dreaded letter, here are some steps you can take to prevent further trouble--
Submit a Form 12153 to request a "Collection Due Process Hearing." This can give you a cushion of 30 days to negotiate with an IRS officer for an alternate mode of payment of your dues. The modes can include an Installment Agreement, an Offer in Compromise, or a Penalty Abatement. The IRS on their part will normally suspend any collection activity during this 30 day period, provided the IRS does not believe the collection of the tax is in jeopardy.
At the close of the CDP hearing, Appeals will issue a determination letter. After which you may request a judicial review by petitioning the United States Tax Court, on or before the 30th day after the determination.
There is another IRS appeals process, called the Collection Appeals Program, or CAP, that is available under more circumstances than a CDP hearing. Unlike CDP, you cannot challenge the existence or amount of your tax liability under CAP. Also, you cannot proceed to court if you do not agree with the Appeals' decision in your CAP Case.
You may represent yourself at CDP, CAP and other Appeals proceedings. Or, you may be represented by an attorney, certified public accountant, or a person enrolled to practice before the IRS, such as an enrolled agent. The enrolled agent EA designation is earned by those who demonstrate expertise in representing taxpayers by passing a federal enrolled agent exam, or equivalent experience with an IRS job. Some of these professionals held IRS jobs in the past and can be a great asset. Also, you may be represented by a member of your immediate family, or in the case of a business, by regular full-time employees, general partners or bona fide officers.
Another alternative is to prove to the IRS authorities that a bank levy would cause you undue hardship. If you can prove that you cannot sustain yourself and your living situation would be jeopardized in the 21-day period, the IRS may allow you to withdraw whatever is necessary to meet your daily living expenses. The onus is on you to submit thorough financial statements and details about your day-to-day financial health. This step is usually your last ditch effort in negotiating with the IRS.
Do not let a bank levy happen to you. The problems you are likely to face range from complex legal tangles to bankruptcy. The tax department or your creditors can seize and sell all your immovable and movable property, such as house, car, furniture, etc., to recover IRS debts, rendering you homeless. The underlying moral - do not be intimidated by the IRS, and more importantly, do not make the mistake of assuming that the IRS only makes idle threats. If you do receive notice of an "intent to levy" you should deal with it immediately.
IRS Circular 230 Disclosure - Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.
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