IRS Bank Levy: Understanding IRS Letters and Tax Advocate Services

Bank Account Levy, Bank Levy

A bank levy, other than actual arrest, is the most serious IRS action. A levy is how the IRS takes money out of your bank account, seizes an asset, garnishes your wages, or dips into your Social Security Check. There are limitations on levies. The IRS does not take more than 15% of your Social Security Check and is supposed to leave you enough wages to survive.

However, unlike private companies, the IRS can levy you WITHOUT GOING TO COURT. This legal seizure process involves the IRS taking money from your bank account to satisfy a tax debt.

Usually, levies occur because taxpayers ignore IRS letters and do not get IRS Representation when they need it. Sometimes, taxpayers get lulled into a false sense of security by nasty IRS letters and levy threats, and then nothing happens. “What can they do to me? I don’t have the money to pay them” or “Let them do their worst. There is nothing I can do about it”. Then one day your bank account is gone. It is crucial to respond to a levy notice promptly to avoid severe consequences.

If you have IRS debt, do not ignore IRS letters. It is prudent to read and handle all IRS letters. But levies are the most serious. And the most serious include the words “YOUR RIGHT TO A HEARING”. If you receive a Notice of Intent to Levy and YOUR RIGHT TO A HEARING, they can take your bank account without further warning, and probably will when your period to request a hearing expires. During this period, the bank retains the funds for 21 days before releasing them to the IRS.

The words “Your Right to a Hearing” may sound innocuous, perhaps even comforting. But they mean the IRS plans to do something so bad that they must tell you your rights. It is analogous to being pulled over by the police. Not a big deal. But when the cop says “You have the right to remain silent. Anything you say can and will be used against you in a court of law. You have the right to an attorney…” you know it is serious. “Your right to a hearing” is IRS speak analogous to your Miranda rights!

An even worse levy is a wage levy (or garnishment). That’s when most of your paycheck goes to the IRS, and they don’t leave you enough to pay the bills, and this happens every week until the debt is paid. The IRS can also seize funds from a checking account, leaving you without access to your money.

If you are treated with a levy or have already been levied, contact Torchlight Tax and Accounting in Las Vegas immediately for a free consultation. You can fill out the free consultation form.

You can call us at 1-877-758-7797 or 702-463-1818 or email us at info@TorchlightTax.com. We can transfer your call to a branch office near you or help you directly from our central office.

Steps to Handle a Tax Levy Threat or Tax Debt Levy

• We sit down with you and do a free consultation (in-person, on-line, or over the phone or Zoom).
• We make a contract with you as to what we will do. This is our Engagement Letter.
• We have you sign an IRS Form 2848 IRS Power of Attorney and pay a reasonable fee. At this point you do not need to contact the IRS for immediate assistance. We will deal with them for you.
• Then we pull all your IRS Records with our special tax program.
• If a levy is threatened, we file a request for a Collection Due Process or Equivalent Hearing with the IRS. This stops the levy pending a Collection Due Process Hearing, if done timely. Refer to the Internal Revenue Code for legal guidelines.
• If a levy has already occurred, the money may still be in your bank account and may be recoverable if we act fast. A revenue officer may be involved in the levy process.
• If you have unfiled tax returns, we file them for you. This would be a separate fee. Banks may charge a processing fee for handling the levy.
• Once all required unfiled tax returns are done, we have you fill out a financial questionnaire. This comes to us, not the IRS. The IRS can levy accounts receivables to satisfy tax debt.
• Our advanced software marries up your transcript data with your financial data. We review it and may ask you additional questions.
• Based on the software and our expert analysis, we advise you on your best IRS Settlement Option. This completes your Tax Analysis.
• We can then handle the underlying tax situation that cause the levy.
• Maybe the IRS Statute of Limitations on collections is almost up, and your tax liability goes away on a certain date. This date is called the CSED (Collection Status Expiration Date). The IRS has 10 years to collect after a return is filed. I had a client who had $40,000 dollar in tax debt from years ago. I told her in six months her IRS debt would disappear If nothing else happened. Six months later the debt disappeared!
• Maybe you are eligible for an Offer in Compromise (OIC) where we make an offer to the IRS and if they accept it your tax debt is gone. You will have to keep filing and paying your taxes for five years, or the debt can come back. Still, not a bad deal!
• Maybe you are eligible for Penalty Abatement. We get some (or all) of your penalties cancelled and can then work out an affordable payment plan.
• Maybe we can get you onto a “full-pay” installment agreement. After we get all possible penalties abated, the IRS allows you to pay off your debt over several years. Penalties and interest accrue at a lower rate. It is called “full-pay” because the IRS calculates you will pay off the full amount before the Statute of Limitations expires. Often the IRS will accept 1/72 of your entire debt as a monthly payment amount. This is not guaranteed.
• Maybe we can get you a Partial Pay Installment Agreement (PPIA). In this scenario, the IRS accepts a payment amount that will not pay off the debt in full before the IRS Statute of Limitations on Collections expires. On the expiration date, the IRS forgives the debt and that is that. However, the IRS can review the agreement (and usually does if your income goes up). If your income does not go up, most likely your debt will fall off on the expiration date. One of my clients, age 78 had a $1.8 million dollar tax debt. The IRS eventually accepted him on a $75 dollars per month PPIA. (There were lots of phone calls with the IRS in the interim. This is not a representation cycle you would want to have done on your own.)
• Maybe we can get you approved for Currently Not Collectible (CNC) status. In this status, the IRS agrees you are not able to pay your back tax debt, and they put away your tax file and check back every couple years to see if you are making more money. Penalties and interest continue to accrue, but if nothing happens to change your CNC Status, the CSED eventually arrives, and your tax debt disappears.