The Internal Revenue Service (IRS) must adhere to a strict procedure, however, that gives an adequate notice period before taking these measures. Knowledge of the procedure is necessary to allow taxpayers to take action to protect their rights and respond accordingly.
The IRS collection process
If the taxpayer has a tax debt, the IRS imposes a series of steps to collect the debt amount:
- Initial notice: The IRS sends the bill for the amount due plus penalties, interest, and tax.
- Follow-Up notices: In case there is no response from the taxpayer, follow-up notices are sent by the IRS.
- Notice of intent to levy (CP504): It is a final notice warning the taxpayer that the IRS intends to levy on the assets unless the debt is paid. The IRS says, “This notice is your Notice of Intent to Levy (Internal Revenue Code section 6331(d)). If you don’t pay the amount due immediately, the IRS can take your income and bank account, along with your property or your right to property including your state income tax refund to settle the debt you owe.”
- Final notice of intent to levy (Letter 1058 or LT11): Because the debt remains, the IRS sends a final notice, and the taxpayer has 30 days to settle the matter. The IRS says, “We haven’t received your payment for overdue taxes. We intend to seize your property or rights to property. You must contact us immediately.”
Legal requirements before levying a bank account
The IRS must statutorily provide notice before levying against a taxpayer’s bank account. Specifically, Internal Revenue Code § 6331(d) obligates the IRS to provide notice to the taxpayer at least 30 days before it sends out a levy. Notice of intention to levy and notice of rights of appeal are provided.
Role of bank in levy process
When the IRS places a levy on banks, banks are required to freeze funds in the taxpayer’s account as stated. The IRS explains, “When the levy is against a bank account, the Internal Revenue Code (IRC) provides a 21-day waiting period for responding to the levy. The waiting period is so you can call the IRS and arrange to pay the tax or notify the IRS of errors in the levy.”
Taxpayer rights and options
There are several taxpayer options that taxpayers may utilize to prevent or end a bank levy:
- Payment: Payment of the tax owed terminates the levy action.
- Installment agreement: An IRS installment arrangement halts collection activity in the future.
- Offer in compromise: Taxpayers can make an offer on the tax owed for less than the actual amount of tax owing under this program.
- Appeals: The taxpayer can appeal for a Collection Due Process hearing within 30 days of receipt of the final notice. IRS mentions, “You have 30 days from receipt of an LT11 or L-1058 to request a Collection Due Process hearing.”
Consequences of not replying to IRS notices
Non-replying to IRS notices may lead to severe consequences including:
- Asset seizure: Bank accounts are subject to seizure, wages to be garnished, and other personal assets to be seized by the IRS.
- Federal tax lien: A legitimate claim on the taxpayer’s property that impacts credit scores and saleability of assets.
- Additional penalties and interest: Charges pile up and can swell the debt further.
Preventative measures
In order to avoid a bank levy:
- Timely tax compliance: File tax returns and pay due taxes on time.
- Open communication: If experiencing financial difficulties, contact the IRS ahead of time to explore potential options.
- Seek professional help: Talking with a tax professional can give situation-specific guidance.
