When the IRS freezes your bank account, panic sets in fast. You discover the levy when a check bounces or your debit card gets declined at the store. Suddenly, you can’t access the money you need for rent, groceries, or other essential expenses.
An IRS bank levy gives the government legal power to seize funds directly from your account to satisfy unpaid tax debt. In fiscal year 2024, the IRS collected almost $77.6 billion through enforcement actions, representing a 13.6% increase from the previous year, according to the Internal Revenue Service.
The good news? You have legal options to stop the levy and protect your finances. Acting quickly is essential, as you typically have just 21 days before your bank transfers the frozen funds to the IRS.
Understanding IRS Bank Levies
An IRS levy is a type of collection action where the revenue service seizes your property to satisfy your tax debt. Unlike wage garnishments that continue until resolved, bank levies are one-time events. A levy on your bank account takes only what is in the account at the time your bank receives the levy. If more funds enter your account later, the IRS will have to issue another levy until the debt is fully paid.
When a levy is on your bank account, the Internal Revenue Code provides a 21-day waiting period for complying with the levy. The waiting period is intended to allow you time to contact the IRS and arrange to pay the tax or notify the IRS of errors in the levy.
New York Taxpayers Face Dual Collection Risks
New York residents face collection efforts from both federal and state authorities. While this article focuses on federal IRS levies, New York State also has aggressive collection powers. New York uses the term “tax levy” to refer to bank account levies, giving the bank a 90-day warning before seizing funds.
The state can also suspend your driver’s license if you owe $10,000 or more in back taxes, adding urgency to resolving tax problems quickly.
The Path to a Bank Levy
The IRS doesn’t levy accounts without warning. Understanding the process helps you recognize when action is needed:
Step 1: Assessment and Demand
The process begins when the IRS assesses your tax liability and sends a Notice and Demand for Payment. This isn’t a gentle reminder; it’s an official demand requiring immediate attention.
Step 2: Multiple Notices
If you don’t respond, the IRS sends additional notices over several months. Each notice becomes more urgent, warning of potential collection actions.
Step 3: Final Notice
The IRS sent you a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days before the levy, as written in the Internal Revenue Code. This is your last chance to act before the levy occurs.
Step 4: Levy Action
If you still don’t respond, the IRS issues Form 668-A to your bank, instructing them to turn over your bank funds to pay what you owe to the IRS. You will also get a copy of this form, notifying you of the levy.
Your Rights During the 21-Day Window
Once your bank receives the levy notice, you have exactly 21 days to take action. Here are your options to resolve the situation:
Immediately Contact and Clarify with the IRS
In some cases, levies can be erroneously issued on individuals who don’t owe taxes. If you believe you don’t have an IRS debt, call the number shown on your Form 668-A immediately. Have your Social Security number, the tax periods involved, and your financial information ready.
You can ask the service to clarify why your bank account was levied, and also request them to delay enforcement to give you time to build a dispute.
Request Economic Hardship Release
For many individuals, a levy creates economic hardship, meaning they’re unable to meet basic and reasonable living expenses. If your levy is causing you economic hardship, contact the IRS at the number on the levy or notice immediately, advises the Taxpayer Advocate Service.
The IRS uses Collection Financial Standards to determine what constitutes reasonable living expenses. You’ll need to prove that the levy prevents you from paying for housing, utilities, food, transportation, and medical expenses.
Set Up a Payment Plan
Agreeing to an installment agreement can often result in levy release. In fiscal year 2024, the IRS collected over $16 billion through installment agreements, which was 12% more than that in the prior fiscal year. This shows that installment plans are a popular and effective option for many taxpayers.
File for Collection Due Process Hearing
If you received a Final Notice of Intent to Levy, you have the right to request a Collection Due Process hearing with the IRS Office of Appeals. Use Form 12153 to request this hearing, which can temporarily suspend collection activities.
Legal Strategies to Stop Bank Levies
Offer in Compromise
An Offer in Compromise allows you to settle your tax debt for less than the full amount owed. In fiscal year 2024, taxpayers submitted 33,591 offers in compromise to settle their tax liabilities for a lower amount than they owed. The IRS accepted 7,199 of these offers, amounting to $163.4 million, according to IRS collection data.
While the acceptance rate is low, qualified taxpayers who can demonstrate they cannot pay the full amount may find this option viable.
Currently Not Collectible Status
If you’re facing genuine financial hardship, the IRS may place your account in Currently Not Collectible status. This temporarily suspends collection activities, including levies, while you get back on your feet financially.
Bankruptcy Protection
If you’re in bankruptcy, the IRS may not be able to levy your assets. Contact the IRS and provide information about your bankruptcy chapter, the filing date, the court where you filed, and the case number..
Bankruptcy provides an automatic stay that stops most collection activities, including IRS levies.
Innocent Spouse Relief
If the tax debt stems from a spouse’s actions and you had no knowledge of the tax issues, you may qualify for innocent spouse relief, which can eliminate your liability entirely.
New York-Specific Considerations
New York taxpayers must navigate both federal and state collection systems. Key differences include:
- Collection timeframes: While the IRS has 10 years to collect tax debts, New York State has 20 years, making state tax problems particularly persistent.
- Joint account protections: New York Civil Practice Law provides specific procedures for bank account levies, including a holding period and exemption claim processes, according to New York State law.
- Exempt income: Certain income types remain protected from levy, including Social Security benefits, disability payments, and unemployment compensation.
When to Seek Professional Help
Tax debt problems require immediate professional attention when:
- You owe more than $10,000 to the IRS
- You’ve received a Final Notice of Intent to Levy
- Your bank account has been frozen
- You’re facing both federal and state tax problems
- You can’t afford to pay the full amount owed.
Professional representation becomes essential because tax attorneys understand the complex procedures and can negotiate effectively with the IRS on your behalf.
How John D’Amato Can Help
John D’Amato has established a reputation as one of New York’s top-rated bankruptcy and IRS solutions attorneys. With 30 years of experience helping clients resolve complex tax problems, John D’Amato has successfully:
- Negotiated payment plans that stopped collection activities
- Reduced charges and penalties for clients facing financial hardship
- Settled money judgments without requiring court appearances or bankruptcy filings
- Converted Chapter 13 bankruptcies to Chapter 7 for better client outcomes.
Client testimonials demonstrate his effectiveness: “John D’Amato was extremely realistic and sincere. Within a few weeks my judgment was settled and I never had to step foot in court and I did not lose anything. No bankruptcy, no nothing,” shares one satisfied client.
Another client notes: “John and his employees handled my situation quickly. Kept in contact through everything and even got back more money than expected.”
Take Action Before It’s Too Late: Call John D’Amato
An IRS bank levy creates an immediate financial crisis, but solutions exist. The 21-day window provides a brief opportunity to resolve the matter before losing access to your funds permanently.
Don’t wait until your account is frozen. If you’ve received any IRS notices about unpaid taxes, contact a qualified tax attorney immediately. Early intervention often prevents levies and provides more resolution options.
Contact John D’Amato today at (716) 703-9099 for a consultation about your tax problems. As one of New York’s top-rated bankruptcy and IRS solutions attorneys, John D’Amato has the experience and track record to help you resolve IRS collection issues and protect your financial future.
Remember: The IRS has powerful collection tools, but you have rights and options. Professional representation ensures you understand all available strategies and choose the best path forward for your specific situation.