Things To Do If the IRS Threatens to Levy Your Bank Account

Tax Concept

If you’ve received an IRS notice saying that they intend to levy your bank accounts if you don’t pay up in 30 days, then it’s time to pay attention. Before the IRS actually issues a levy notice, they’ve usually made a few attempts at contacting you and trying to get a payment. If you’ve received an IRS levy notice, it means that the IRS hasn’t heard from you—they think you’ve been blowing them off (which in many cases is true). If you ignore the levy notice, they’ll just take your money and the law is on their side so you need to act now.

First, the responsible thing is to call them, or hire someone to deal with them for you. (I personally think that if you’ve reached this point, it’s best to hire someone—but remember, I do this for a living, so note that I’m biased.)

There are things you can do to prevent the IRS from going through with the levy. Let’s assume that you really do owe the money:

1. You can set up a payment arrangement–you pay off the IRS on a monthly bill schedule

2.Your situation might qualify you for an offer in compromise (the pennies on the dollar thing you see in TV commercials), or

3. Maybe you’re going through hard times and need to be put into the currently uncollectable status—you still owe, but the IRS quits hounding you until you get a job or your situation changes.

But maybe you don’t really owe the money. That’s the big kicker for me. Usually, if you’re getting IRS levy notices, you do owe them money—or at least part of it, but I have seen several cases where my clients don’t owe the IRS anything! A couple of times I have even gotten them refunds instead. If you didn’t do your taxes, and the IRS did them for you, don’t assume that the IRS did them right. When the IRS does your taxes for you, they automatically put you in the highest tax bracket they can justify and you get no deductions or tax credits that you might have qualified for. (Here’s a hint: if you’ve got kids, the IRS probably did your taxes wrong.) Even if you find that you don’t owe the IRS money—you still have to contact them, let them know the situation, and then you’re going to have to provide proof. Usually your proof is your corrected tax return.

Dealing with the IRS is the best way to get yourself out of levy trouble. But here are a few things that you also might want to consider doing while the threat of a levy is still hanging over your head:

1. Make sure your name is taken off of your kids’ and/or parents’ bank accounts. If you’re on someone else’s bank account, the IRS can and will levy that account too.

2. Don’t keep large amounts in your bank accounts. If you’ve got lots of cash, then maybe you can just pay your debt. But usually, this isn’t an option for most people. If your paycheck is going direct deposit into your bank account, get the money out immediately. You can put your cash onto a prepaid Visa debit card. Once the levy is in place, the IRS can only take the funds that are in your account at the time of the levy, if you get another deposit, that money is accessible. Transfer money in only as you need to make payments out of the account.

IRS levies are serious business. Don’t make the mistake of ignoring them.

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216 thoughts on “Things To Do If the IRS Threatens to Levy Your Bank Account

  1. Hi Rose,
    So here’s the deal – since you were not granted innocent spouse relief – this IRS holds you to be equally responsible for all of the 2011 IRS debt. Now, the good thing here is that your ex is paying the payment plan. Kudos to him! But, let’s say something happens to him and he quits paying – well then the IRS will still come after you!
    I once had a divorced client, he got an IRS letter saying he owed additional tax from a year he was still married. He owed the tax, not his wife. We sent a letter to the IRS saying that he owed the tax, not his wife and that he would pay. His wife filed a tax return and the IRS held her refund to collect on the tax, even though we told the IRS it was not her tax.
    So–you see how this could be an issue for you, right?
    So, I kind of want to go back to the innocent spouse relief. You say it was denied. Did you have a professional help you with that? I’m guessing that maybe the wrong category was used. If you just categorically deny any tax–that’s pretty hard to prove. But if you could show what part you actually owed, separate from him – or taxes under the divorced decree – you might have better luck. (And if you already did that then I apologize, I’m just trying to get you whatever we can.)
    Anyway, right now, as things stand, if your ex defaults on his payment plan, the IRS could go after you for the entire remaining balance due. Sorry.

  2. Hi Jan I am now going to speak to a professional. When I received the letter of preliminary determination it says I have 30 days to appeal. I also found out this whole case already went to tax court by petition from my ex without my knowledge. This is why I was denied. I had no idea he did this. Anything I can do there? Just trying to figure out how to do this appeal. Attorneys want $750 just to get started…is this something I can do on my own?

  3. Also my ex owned the business and his tax accountants and attorneys did all the taxes. I just signed the form every year. I have no clue how to do complicated taxes. Being single with no business mine take about 20 minutes to do online….

  4. My boyfriend got a letter from the irs threatening to seize my bank account. His name is not on my account, but some of his payroll is direct deposited in my account.
    I also use this account for my payroll direct deposits. Since his name is not on my account, can they still take it?

  5. Hi Christina,
    I’m a little concerned about that letter. Usually, the IRS doesn’t tell you which bank account they’re going after until after they’ve already attacked it. For example: you could get a letter saying that they will levy your bank, but they don’t tell you which bank they’re going to levy until the levy’s already in place. So, my guess is – they’ve already put the levy on.
    Here’s the thing – normally I would say the IRS cannot levy your bank account if his name isn’t on there. BUT- and this is big, he’s direct depositing funds into your bank account. I’m guessing that he also is allowed to make withdrawals from your bank account – so he has some sort of legal right to your account somehow. So – yes, I’m saying the IRS can do it.
    I once had a client with an adult son, the IRS levied the son’s bank account for the father’s debt. The account had been set up back when the son was a child, but he kept the same bank account into adulthood and never changed it. I managed to successfully argue that they couldn’t levy the son’s account since the father had no more access and was just on the account in name only. The IRS accepted that position.
    But, they had also levied my client’s adult daughter’s account as well. In that case, the father had been putting money into her account and the IRS could prove that he was actively using it. (Actively using it to help her – but still he had access to the funds.) So the IRS took her money and I couldn’t stop that one.
    So, I’m thinking that your account is in trouble. You may be able to talk to the IRS and unfreeze some of the assets if you can prove that your boyfriend can’t access your account or isn’t on there, but I think it’s going to be a tough sell. I would set up a new account in your name only without him. No direct deposit, not access, no nothin’! Until he gets his IRS issues taken care of, you don’t want any of your funds co-mingled with his. It’s too dangerous for you.

  6. My wife took out her 401k because the doctors where she was work at where retried. So this was 2yrs ago and they have been taking are income taxes we get back. We own 14,196.25 we need help. Please jim

  7. This is my question, How can the IRS (ACS support) of Kansas City, Missouri, initiate a Notice of Levy, against someone who has never lived in that state?

  8. Hi James,
    I’m not sure I understand your question. You owe $14,000 to the IRS and they are are holding your refund? Or did they garnish your wife’s 401K? I’m sorry. You might need to go see someone in person. You can find an enrolled agent at: http://www.NAEA.org. You can type in your zip code and they will find someone in your area to call.

  9. Hi. I was recently told the IRS can levy prepaid cards as well (i.e. Amex Serve card) because they are tied to an account with my name & info. Is that BS?

    Thanks for this forum. I appreciate it.

  10. Hi Chaun,
    I don’t think it is BS. If the card is tied to an account, then there is the possibility that the card could be traced to you. I believe that the occurrence is rare it is possible. I think you’d have to tell the IRS that you have a pre-paid debit card for them to place a garnishment on it.

  11. Hi Negative,
    My IT guy didn’t want me to approve your comment so I’m responding without posting your question. I hope this post makes sense.

    Okay, just for argument’s sake-you get a 30 day notice that the IRS will levy your account-they haven’t levied yet. You open a new bank account, and take all the money out of your old bank account. How long will it take the IRS to figure out you’ve got a new bank account?
    It’s time for my standard accounting answer: It Depends!
    For example: let’s say you open the new account at the same bank, the IRS sends the levy notice to the bank, the bank might just go ahead and attach the levy to the new account anyway. (I know a guy who got audited, the IRS issued a subpoena for his account statements only-the bank turned over his bank account info, plus all sorts of other stuff the IRS never asked for creating a major problem for the guy.) So, I’m saying that even if the IRS says they are going to levy account XYZ, if it goes to a bank and someone there sees you have account ABC – they might just levy it anyway – because they now know about it.
    But say you open the account at another bank and the IRS has not record of you dealing with that bank eveer – then they probably would not know you have an account until after the next reporting period, – February of the next year.
    Plus, if they can’t access the bank account, then they could garnish your payroll if you are a W2 employee. And while I don’t think it’s common, I did see them garnish 1099 payments once. I don’t know how often that actually happens, but I did see that one time.

  12. I have a couple of questions…my husband has a rather large balance that is owed to the IRS. He was self employed for several yrs and when business picked up during the later yrs, he didn’t file quarterly returns. He thought he would be able to pay in one lump sum, needless to say, he was wrong and that started a dominoe effect, if you will. He was making payments, but stopped awhile ago because business slowed to the point that he basically had no income. (He’s in construction…)He is currently employed by a local construction company and I have urged him to call the IRS and set up a payment plan again, rather than wait for them to garnish his wages, but my concern is this. He wants his checks direct deposited into my checking acct so I can handle the finances, but I’m terrified to have them in there because I don’t want my acct frozen or seized. His name is not on my acct anymore, but we did file jointly the first yr that this debt started. (Since then I have filed separate). I was thinking if his father opened an acct and listed me as an authorized user that that would safeguard his money. He fully intends to pay back his debt, it’s just that we are your basic struggling middle class family and need to utilize as much of our pay checks as possible for our month to month survival and the thought of one day going to access our accounts just to find out that the monies aren’t there, and well, we’re just trying to avoid that route. If we set up an acct this way, could the IRS go after it because my name would be on it and we filed jointly that one yr? Any insight would be appreciated. Thank you very much.

  13. Hi Jenn,
    As long as you are on a return with a balance due – the IRS can garnish your account. And you’re right, if he keeps letting the domino effect go – it will only be worse.
    Here’s my quick and dirty advice. 1. Get your current year taxes caught up. If 2016 is a lost cause, then make darn certain that you get 2017 estimated payments started. Forget quarterly payments. Do it monthly! You get your phone bill, you pay your IRS estimated taxes. (The phone company never forgets to send you a bill, they’re really good about that.)
    Then, either file for an offer in compromise or an installment agreement, depending upon what your income is. I’m currently working on an online class to help people do their own offers. (Why pay a company thousands of dollars when you could use the money to pay off your debt, right?) I’ll be posting information about the class soon.
    One thing – and this might not apply, but – if money is really that tight, you could try to get into the “currently uncollectable” status. But, if your husband is making so much that you’ve got a big tax bill every year – you probably won’t qualify for that. Good luck.

  14. My significant other is getting levy notices on a 1099 that was filed incorrectly with his social 2 years ago. The accountant filed a 1099 for his father, with my significant others social. He submitted a corrected 1099 months ago (so he says) but they are still threatening. We have even sent them letters stating the income was not his, and the accountant has submitted the corrected forms. Now they have ceased our current payment arrangement we have made for our 2015 federal taxes, and demand the full amount of both sums or they will levy. His father has offered to pay the taxes that should have been his, but we fear if he pays that while they still show it in JR’s name, the IRS will question why we had to make payment arrangements on the 2015 taxes and still try to take the funds…I’m in the process of getting a physical copy of the corrected 1099 from the accountant, but he is rather incompetent and slow. He says the only way he can help is if my spouse signs POA to HIM so he can deal with the IRS for us…Should hand delivering this corrected 1099 to the local IRS fix the solution?

  15. Hi Amanda,
    I’m seeing a couple of things here. Forgive me for doing a numbered list here, but I want to keep my thoughts straight.

    1. It does take the IRS awhile to process those 1099s. (But, I would think they’ve been processed by now!)

    2. If the corrected 1099 was prepared and submitted, why didn’t your SO receive a copy then?

    3. It would be okay to pay the amount due under protest, until the situation was resolved. But you are right, once the matter was resolved, the IRS would keep that payment for your 2015 taxes.

    4. Once you receive the corrected 1099 you can hand deliver it to the IRS – but it won’t correct the situation unless the accountant submits the corrected 1099 to the IRS. I had this problem before. I had a 1099 for a client that showed $2,500 was actually paid in federal withholding taxes. Two years later she got an IRS notice demanding the $2500. I sent the 1099 showing the withholding. The IRS wouldn’t accept it. We went round and round. The problem was with the issuing company because they hadn’t submitted the 1099 to the IRS. (They shouldn’t have withheld the $2500 in the first place but that’s another nightmare.) Anyway, I see how annoyed you must be. It took months to settle that problem.

    5. If you could trust the accountant, I would sign the POA, but you don’t trust the accountant and I don’t blame you.

    6. If you don’t feel comfortable with signing a POA, be with him in his office when he calls the IRS. Then, together you can talk to the collection agent and he can fax the corrected 1099 along with the signed 1096 (that’s the transmittal copy – you never see those) to the IRS agent, and the IRS agent can receive that paperwork and acknowledge it while you are in the room. This is probably what you need to do. More than you just taking your copy to the IRS.

    7. Here’s the tough question. Do you trust the dad? Think about it. Why did the accountant prepare a 1099 for the father using the son’s social security number? Where’d he get the number in the first place? Something smells fishy here.

    8. And if nothing else works, I would file an amended tax return. Have your SO claim the income. And then have him issue a 1099 you his dad! So your tax return for that year is not change except for the and and out of whatever that 1099 income was.

    7. Keep talking to the IRS. Maybe get your own accountant to represent you.

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