The IRS And Bank Levies

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The IRS will resort to bank levies to deal with a difficult taxpayer. If you are negligent in paying your taxes, the IRS can request a levy on your bank account. An IRS bank levy will freeze the funds in your bank account and seize it. Levies are usually the result of poor or no communication between the taxpayer and the IRS.

An IRS bank levy is a tool the IRS uses in order to collect unpaid taxes from a delinquent taxpayer. An individual may be subject to a levy if they have money in the bank and owe taxes. The IRS has the authority to issue bank levies for taxpayers who have not responded to collection notices or phone calls. The IRS can also instill bank levies if an individual has defaulted on a payment plan or an Offer in Compromise. Once a levy has been issued, it is typically very difficult to resolved unless the debt is paid.

An Offer in Compromise is an agreement that allows individuals with delinquent tax debt to negotiate a settlement amount that is less than the total debt owed. This allows for settlements that make sense for the tax offender.

When a levy is initiated, the bank is required to provide bank balance information for all the taxpayer's accounts. If the taxpayer honors the IRS request for information for the levy, it protects the right to privacy that the taxpayer has, because the rights that the IRS gives pursuant to section 6333 are far less restrictive than those provided by general summons of section 7602. Faster reaction to a levy inquiry saves both the taxpayer and the bank time in dealing with a summons.

If you cooperate with the IRS, you will still be expected to pay the taxes due, but there may be some kind of time leniency towards you. They may be willing to reduce or waive certain fines and can work with you.

If the information requested is provided at the time the levy is served and the bank records indicate a small amount of funds available in the bank account to result in insufficient funds, the levy may not be processed.

Even if the bank does not provide the account balance, the levy will still be attached to the bank account at the time when the levy is served. When the IRS serves the levy, the bank is required to freeze the bank account immediately for all accounts containing funds to which the taxpayer is permitted to use.

Claims for funds that are not processed yet against the bank accounts, like an uncleared check and charges to the account, or loan payments owed to the bank not yet processed against the accounts, such as checks, account charges or loan payments owed to the bank, may not be considered until there are more deposits made by the taxpayer.

The entire bank balance is credited against the amount of delinquent taxes owed. The bank levy is usually not so immediate due to the provisions of code section 6332(c).
Section 6332(c) states that the bank must submit the proceeds of the levy to the IRS after 21 days from the date that the levy was issued.

This period of holding allows any checks outstanding to be cleared before the IRS takes the money and possibly cause the checks to bounce. With a partial release from the IRS, the bank will allow checks to clear the account.