A bank levy is one of several tools the IRS uses to recover what you owe. Among them are wage garnishments, your employer deducts repayment on behalf of the IRS. Another is a bank account levy, which freezes its contents for repayment of outstanding taxes. Finally, the IRS might impose a lien against any fixed property, which allows for collection when it is sold.
Here is more information about bank levies and how to avoid them:
IRS bank levy process
The IRS cannot impose a bank levy on your account without warning. There are processes that should be followed to ensure that your rights as a taxpayer are protected and that a levy is a last resort.
This process starts with a demand for payment of outstanding taxes, followed by notification of intent to impose a levy, and then notice of your right to a collection due process hearing. This is your platform to dispute a bank levy or reach an agreement on how to avoid it.
It is worth having a tax relief attorney represent you at such a hearing to ensure you get the best possible deal. Tax Fortress has lawyers who understand IRS tax laws’ complexities and procedures, providing quality representation when you need it most.
Extensions to settle outstanding taxes
You do not need to wait for your collection due process hearing to start remedying your potential bank levy problem. Instead, take a proactive approach and deal with the situation when you get a demand for payment of outstanding taxes. It will save a lot of time and inconvenience, allowing you to avoid a levy entirely. Waiting until after it is imposed only complicates matters and draws them out.
Contact your local IRS office and apply for an extension on your taxes. Before a bank levy, you have up to 120 days to come up with the money or find a solution to your problem.
After a levy has already been imposed, you should expect only 60 days. Use the extension granted to try and come up with the money you owe. Paying it within the stipulated extension will avoid a levy and place you back in good standing with the IRS.
Negotiations to repay monthly
You can avoid a bank levy by negotiating with the IRS to reach a compromise that suits both parties. For example, you can set up a monthly payment plan to pay monthly installments to the IRS until your debt is cleared.
This is a time-sensitive option, as your willingness to reach an agreement before the process goes any further indicates that you want to do so in good faith. This makes you look like a desirable prospect for a negotiated deal in the IRS’s eyes.
Any levy processes that have already started will be lifted when you sign an agreement. However, they will be reimposed if you fail to hold up your end of the bargain.
An offer in compromise as settlement
If you have most of what you owe the IRS, make an offer in compromise. Prove to the IRS that you do not have any means to pay monthly installments and cannot raise any additional money to clear your balance. Offer to pay this amount as a settlement even though it is less than what you owe. The IRS will consider your application and might well grant it.
You will need to have documentary proof of your inability to pay the difference between your offer and the outstanding balance. This will include evidence of your income and expenses. Have this paperwork ready to submit right away to speed up securing an offer in compromise agreement.