An individual with financial problems is in deep trouble. Not only does he have a dark cloud looming over his shoulder regarding where to get money to pay the bills, he also has more serious problems with unpaid back taxes. Furthermore, a tax debt can mean deeper trouble when an IRS bank levy is served.
So, what is an IRS bank levy?
A bank levy is used by the IRS to collect the back taxes that a taxpayer owes the government. The levy is only placed when the taxpayer ignores multiple notices and reminders about his back tax debts.
Is a levy just like a lien? No. An IRS bank levy is a legal procedure where a taxpayer's bank account is frozen as opposed to a lien which is just a legal claim as a form of security for any unpaid taxes accrued by a taxpayer.
When a bank levy is imposed, the IRS fixes the taxpayer's financial issues with the government in a span of 21 days. In the process, the taxpayer cannot access his funds nor withdraw money (except when the account balance is greater than the tax liability). Paying through debit cards will not be honored as well as checks made even before the levy was placed. After the 21-day period, the bank is expected to give the total amount of the taxpayer's back tax debt to the IRS from the taxpayer's account.
An IRS bank levy also allows the IRS to get all properties or assets that belong to the taxpayer to pay his back tax debts when the balance in the account cannot cover the full amount. In cases like this, the IRS has the capacity to seize the taxpayer's property and sell it to raise the amount needed to recover the entire unpaid back tax debt amount. A taxpayer's car, boat, house and other properties may be sold. Aside from these forms of properties, wages, retirement accounts, rental income, accounts receivable, commissions, and other assets may also be seized by the IRS just to get the tax debt.
How does an IRS bank levy get lifted or released?
A bank levy can be lifted when a taxpayer can convince the IRS that he has no way of paying back the full amount of what he owes the government. Usual reasons accepted by the IRS for cases like this are an eviction notice, a foreclosure notice, a utility disconnection notice, or a grave medical concern. In this case, the taxpayer belongs to the "currently not collectible" bracket, leading to the release of the levy on his bank account and allowing him full access of his funds.
In the event that the taxpayer manages to pay the full amount of his back tax debt, then the bank levy will be lifted as he does not owe the IRS anything anymore. He also gets a refund of the amount that was seized by the IRS. When a taxpayer can offer to pay the back tax debts in smaller sums through an offer in compromise, he can make a deal with the IRS to release the bank levy in exchange for the installments to pay what he owes. An offer in compromise is a written agreement between the taxpayer and the IRS and it is a great way to go to remove an IRS bank levy. The IRS welcomes any form of payment, no matter the amount, as long as money is recovered from unpaid taxes.
In a totally different manner, a bank levy can be released when the IRS has made an error in placing a bank levy on a certain taxpayer's bank account after meticulous checking and rechecking of records.