IRS Law Blog

You don’t want the IRS to levy your bank account. It’s what keeps you going from month to month – your wages, and the money in your bank account.

You need it to pay your bills, provide for your family, keep a roof over your head, food on the table, make your car payment.

But at the same time, you owe back taxes to the IRS, and are looking over your shoulder, concerned that the IRS may strike and clean you out.

If any of these 5 signs are true, then your fears are real, and you are indeed at risk for the IRS to levy your bank account or wages:

1.     Has the IRS sent you a Final Notice of Intent to Levy and Notice of Rights to an Appeals Hearing?  This is the grandaddy of all IRS collection notices, and is identified in the upper left hand corner as an LT11 letter.  By law the IRS has to send the Final Notice to you before they can levy.  After they send you the Final Notice, tax laws then make the IRS wait 30 days to levy. During this 30 day period, you have the right to stop the levy action by requesting that the IRS office of appeals review the case.  This is called a Collection Due Process Appeal.

But if the IRS sent you the Final Notice and you did not appeal, they can now levy you at anytime.

If you are unsure if the IRS has sent you the Final Notice of Intent to Levy, we can secure their internal records and transcripts that can tell us how real the risk is that they will levy your bank account.

2.     Has the IRS given you a deadline, and the deadline has passed?  Like any good debt collector, the IRS likes putting taxpayers on deadlines.  It can be a deadline to get an unfiled tax return in, or to provide the IRS a financial statement on their Form 433A, 433B or 433F. Either way, missed deadlines raises the ire of the IRS.  And that, in turn, significantly increases the chance that they will take it out on you with a levy on your wages or bank account.  But we can get the IRS the information they are missing.

3.     Have you been contacted by an IRS Revenue Officer, but not responded by communicating back in kind?  IRS Revenue Officers are the top dogs in IRS collection enforcement.  They are local, they and work where you live and work, and have your case because the IRS wants to pay really close attention to you and your tax debt.  Ignoring them is done at your peril – don’t do it.  If a Revenue Officer has dropped a card off at your house, we need to call her and move the case to resolution.  If the Revenue Officer has requested financial records or tax returns, they need to be provided.  Remember, when your head is in the mouth of the bear, say nice bear.

4.     Do you continue to owe the IRS year after year?  The IRS calls this “pyramiding” – every year, the pyramid of your tax debts grows bigger.  The IRS can work with us if we stop the problem – what’s done is done.  But not getting into compliance and paying taxes going forward results in little mercy from the IRS.  Simply put, there is no negotiating to stop them when the problem has not stopped.

If you are self-employed, that means making estimated tax payments.  To do that, I recommend that we open up a new, separate bank account, and name it your estimated tax account.  Every time you get paid from a customer, we want to take a percent of that payment off the top and escrow it in your estimated tax account.  That percent is simple:  It is calculated on the ratio of your gross income to your taxes.  For example, you are paid $100,000 gross in a year, and that results in a $10,000 in taxes owed to the IRS, your tax rate is 10% of your gross income.

So every time you get paid, 10% of that check would get set aside for the IRS in the estimated tax account.  You pay as you go, pay as you get paid. Demonstrating to the IRS that you are setting money aside in an estimated tax account truly can take the sting out of past mistakes.

5.     If you have unfiled tax returns, the IRS will not hold back until you get in compliance. This is like not paying year after year.  An end has to be put on the problem to negotiate out of it.  If you have unfiled tax returns, the IRS will not relent until you get them filed.  And how does the IRS get your attention to get those returns filed?  They will levy your wages and bank accounts.

Even worse, if you do not file the returns, the IRS has the law on its side in being able to start an investigation and prepare the returns for you.  The IRS calls this a Substitute for Return.  It is an IRS estimate of your tax liability, and usually result in you owing much, much more than if you filed the return on your own.  The good news is that in most circumstances the IRS will still accept the original return after they have filed a Substitute for Return.  But problems with getting your returns in is a sure-fire way to provoke the IRS into levying you.

If you have the risk factors for an IRS levy, they can be reduced or eliminated.  Even if the IRS sent a Final Notice of Intent to Levy, in most cases they will allow up to a year to file a collection due process appeal late, which will stop the levies. Missed deadlines can sometimes be renegotiated, the sooner the contact after the deadline the better.  And if you are going to miss a deadline, call and ask for more time – good faith requests for extensions are usually granted. Revenue Officers need contact, and want what you want – to close a case file.

We need to help the IRS do their job, not restrict it or make it harder.  And regardless of past mistakes, escrowing current taxes can be done, and unfiled returns can be prepared to place you in compliance.

Remember, the IRS levies for a reason.  With the proper steps, the risk factors of levy can be taken away from the IRS, and an account in the IRS’s active collection enforcement inventory can be put to rest, giving you peace from having to look over your shoulder.

Trying to protect your small business from an IRS levy? Learn what you need to do here.