Can the IRS Take Money Out of Your Bank Account? Bank Levies Explained!
The IRS can take money out of your bank account if you owe it money — or if it thinks you owe it money. In IRS parlance, this is known as a bank levy.
However, there is a process that the IRS has to go through in order to actually take the money out of your account, there is a hold period during which you can contest the bank levy, and there are steps you can take to prevent the IRS from levying your bank account again.
And I have said this before and I will say it again: You cannot lie to the IRS, but unless they’ve issued you a legal summons, you do not have to reveal your assets to them. You do not have to tell them about your new bank account even if they ask for it. You do not have to tell them anything apart from a legal summons. It is perfectly legal to not provide information to the IRS even if asked in an administrative capacity. Now, sometimes it is in your best interest to inform the IRS about certain assets you own, and through public records the IRS knows or can know about certain assets like real estate you own, but you certainly do not have to provide information about your financial situation even if asked, and sometimes taxpayers come to us because they tried to work with the IRS on their own and they spilled too many beans over the phone with the IRS and they showed their cards in a way that ended up not being in their best interest. And they can’t take it back because otherwise they would have admitted to lying to the IRS, which is not a good look.
So along those lines, there is nothing illegal about changing your bank account to an account the IRS doesn’t know about. The IRS is not notified when a taxpayers opens a new bank account. Of course, if the account is interest-bearing, the IRS is going to get a copy of the 1099-INT that would tip them off. But if you just keep your money in a checking account the IRS doesn’t know about, more power to you.
Anyway, let’s talk about IRS taking money out of your bank account.
Table of Contents
Can the IRS Take Money Out of Your Bank Account?
Yes, the IRS can take money out of your bank account.
And the IRS can likewise levy a joint bank account, even if only one of the account owners owes the IRS.
This is part of a broader process of the IRS seizing a taxpayer’s property to satisfy any debt that the IRS believes the taxpayer owes to it. And like I said, this seizing of a taxpayer’s property is generally referred to as a levy, not to be confused with a lien, which is simply the government’s legal right to your assets.
Now, one silver lining with bank levies is that Section 6332(c) of the Internal Revenue Code requires that banks wait 21 days — and these are calendar days, not business days — after the IRS serves it a bank levy before surrendering the depositor in question’s funds to the IRS.
Important: Don’t assume that if you are hit with a state tax levy on your bank account that the rules are the same as for an IRS tax levy on your bank account. If you’re hit with a California tax levy, for example, the freeze period is only 10 days!
IRS Levy Rules
And there are other rules the IRS must strictly follow before levying any of your income or assets, bank accounts or otherwise. For you tax code nerds out there, these rules are found in Internal Revenue Code Sections 6303, 6330 and 6331.
That first code section, 6303, simply states that within 60 days of assessing a tax against you, the IRS must give you notice of the amount of the tax and in that notice demand payment of that tax. And the most common way the IRS accomplishes this requirement as far as individual taxpayers are concerned is by sending them a CP14 Notice.
These other two code sections state that, no less than 30 days prior to when the IRS intends to levy you unless it’s a jeopardy assessment which is a topic for another time, you must be given sufficient notice of both the levy itself under §6331(a) — and this notice is often accomplished by the IRS using the CP504 Notice — as well as your right to a Collection Due Process (CDP) hearing under §6330(a)(1) — and this notice of your right to a hearing is often accomplished by the IRS using the LT11 if your account is in the IRS Automated Collection System (ACS), though you may get a CP90 or a Letter 1058 if it’s from a revenue officer.
The tax code says that these notices have to either be delivered in person or to your home or sent by registered or certified mail to your last-known address, and obviously the IRS typically ops for the latter — so if you receive certified mail from the IRS, it’s probably either the CP504 or the LT11. Previous notices like the CP14, the CP501, and the CP503 are not the notices referred to in §6330 and §6331 so those are generally not sent via certified mail.
So can the IRS take money out of your bank account without notice? No, the IRS cannot take money out of your bank account without notice. Giving you proper notice is a legal requirement that the IRS must comply with before they take money out of your bank account.
And, with some rare exceptions such as jeopardy assessments, this all goes for all tax levies. If the IRS doesn’t give proper notice before levying, then under Internal Revenue Code §6343, they have to give what they took back because the levy was not “in accordance with the [proper] administrative procedures” under §6343(d)(2)(A).
So there’s a lot to say about these notices and CDP hearings and the rules surrounding levies and jeopardy assessments, so I don’t want to get sidetracked there, but suffice it to say the IRS usually jumps through these hoops appropriately before actually levying your income or your assets, but sometimes they don’t.
But let’s get back to bank levies and talking about how those work.
How Does the IRS Take Money Out of Your Bank Account?
So if you’ve received that Final Notice of Intent to Levy, the LT11, and within 30 days of that notice you do not either pay off the balance on the notice, reach some kind of resolution with the IRS, or request a CDP hearing, the IRS then has the legal right to levy you, and that includes levying your bank account. Now, there is kind of an exception here in that if you miss the 30-day CDP hearing deadline you can request what’s called an equivalent hearing and while during the pendency of an equivalent hearing the IRS does have the right to levy you but they often don’t. But assuming you haven’t done all this because most people don’t in our experience at least on their own, once 30 days have passed, you’re looking at IRS levies.
So what does that look like when it comes to a bank levy? That looks like the IRS sending your bank a Form 668-A(c)(DO), sometimes just referred to as a 668-A. And on this form it has your information at the top, including your Social Security number next to where it says “identifying number.” And then in the table on the form it will list out your balance by year and next to “Total Amount Due” it will indicate the total amount the IRS has assessed against you and is seeking to levy you for.
And in the bottom half of this form the IRS gives instructions to your bank as to what to do. It says:
“This levy requires you to turn over to us this person’s property and rights to property (such as money, credits, and bank deposits) that you have or which you are already obligated to pay this person. However, don’t send us more than the ‘Total Amount Due.'”
So the IRS is basically telling your bank that they have to give you whatever is in your bank account up to the total amount due indicated on the notice. Now, something that may not be obvious here is that the only amount that is actually being levied is the available amount in the taxpayer’s bank account when the levy hits the bank. If you deposit money the next day, that money is not subject to levy, and it does not get frozen. Now, if your case has a revenue officer assigned and he’s really peeved at you, he could theoretically issue a levy against you every day, they generally don’t, and if your case is in ACS you probably don’t need to worry about that.
The 21-Day Rule
So back to the 668-A, then in big bold letters it talks about the 21-day hold that I mentioned earlier where it says:
“Money in banks, credit unions, savings and loans, and similar institutions … must be held for 21 calendar days from the day you receive this levy before you send us the money.”
And this is important. Because it’s not like the bank gets the levy and immediately sends your money over to the IRS. 21 days have to pass first, and then on the next business day, the bank has to send the levied funds to the IRS. This 21-day window is crucial for you to get your levy released before your money goes to the IRS for good. So what does this look like? What should you do if you get hit with a bank levy?
What to Do If the IRS Freezes Money in Your Bank Account
If you’ve been hit with a bank levy, and you’re still in that 21-day period, here is what you should do.
Step 1: Figure out how much was actually levied.
If when the levy hit your bank, you only had $7.50 in your account, you don’t really have to freak out.
You should deal with your tax issue as quickly as possible because the IRS could certainly levy you again, but if there’s no continuous levy going on right now, the IRS is going to get that $7.50 after those 21 days, but there’s not this sense of urgency in fixing this issue within the 21 days because if you don’t reach a resolution with the IRS within the 21 days, all the levy would grab is just $7.50.
Step 2: Get your bank’s fax number.
Assuming that there’s a material amount in your bank account on the date the bank was hit with the levy, you want to move quickly with getting the levy released.
And before you actually interface with the IRS, I would recommend that you get the fax number of your bank — if it’s a big bank, figure out what the appropriate department is in your bank that handles IRS levies and ideally a specific person at your bank who can be your point of contact here and get their phone number and their fax number.
And the fax number is important because once you get the levy released by the IRS — assuming you get it released — I want you to be able to give the IRS the fax number of this individual so that instead of mailing the release, they can fax it directly to them.
Step 3: Determine your plan of action.
Now, figure out how you’re going to get the levy released. Read on for how to do that.
6 Ways to Get an IRS Bank Levy Released
Here are the six ways you can get an IRS bank levy released within the 21-day hold period:
- Pay off your balance.
- Request a little more time to pay off your balance. The IRS doesn’t always grant informal requests like this, but if you come up with some kind of game plan for how you are going to pay off your balance in the near future, the IRS may buy it and release the levy.
- Set up an installment agreement — and make sure the terms of the agreement don’t permit a levy.
- Prove that the levy is creating an economic hardship for you. This doesn’t just mean that the levy is inconvenient — it means that the levy is preventing you from meeting your basic, non-luxury living expenses. This is commonly done by getting into CNC status, but you can also take a more informal approach based on a conversation with the IRS employee who issued the levy. If you are really about to lose your shirt due to the levy, and the IRS employee who issued the levy is being unreasonable, speak with that individual’s manager. If the manager is being unreasonable, reach to the Taxpayer Advocate Service for help.
- Submit an offer in compromise. An offer in compromise is an agreement with the IRS to settle your tax debt for less than you owe. Although 21 days is a very short time period to prepare and submit an offer in compromise, this could work if your offer actually has a good chance of being accepted based on the offer in compromise formula and is not a frivolous attempt to delay collections activities.
- Prove that the levy was not administered according to proper procedures. This can be tough since usually the IRS does follow proper procedures before levying a taxpayer’s bank account.
Realistically, with most of our clients, we either set up an installment agreement or plead hardship within the 21-day period to get the levy released.
Then, after that bleeding has stopped — or, rather, we prevented the bleeding with the metaphor here referring to the bank levy — we consider a longer-term solution to the client’s issue.
Maybe it’s looking at the liability the IRS claims that they owe and digging into whether they really owe that much money.
Or maybe it’s submitting an offer in compromise because like I said, that would be tough to do within a 21-day span.