What it is all about
If you owe money for your taxes, a bank levy can be applied to your checking and/or savings accounts. A bank levy is the process through which the IRS has the ability to freeze the amount of money you owe, whether you are a member of a bank, savings and loans institution, thrift institution, or credit union. You cannot use any of the money the IRS freezes, which could cause your checks to bounce and get you into further financial trouble.
You will receive a bank levy only after you have been sent a Notice and Demand for Payment by the IRS, neglected or refused to pay the tax, have been sent a Final Notice of Intent to Levy and Notice of Your Right to a Hearing (sent 30 days before the levy is served), and failed to comply with the amount owed or did not figure out some other means of negotiation with a collector.
What happens next
From the day the IRS contacts your financial institution, the bank levy is applied and freezes the money owed for 21 days. Once the 21 days are up, your financial institution must comply with the bank levy and send the IRS the amount of money owed, or as much as is available in the account(s), plus any interest the money might have made in the holding period of the bank levy. However, financial institutions are not allowed to send more than the bank levy requests.
Some financial institutions apply a fee if a bank levy is served. So even if you have the amount requested by the bank levy, more money could be retrieved from your account(s) by your financial institution individually. Contacting your financial institution regarding the bank levy should help clear up any confusion.
Any deposits made after the initial notification of the bank levy will not be surrendered to the amount frozen, even deposits made during the holding period. However, another bank levy may be served if that money must be reached to fulfill the tax amount needed. Also, the bank levy only reaches deposits that have cleared and that the taxpayer would have been able to withdraw under normal circumstances.
If you are forced into economic hardship because of a bank levy, the IRS may release some of your funds. Sometimes a copy of a notification of foreclosure or a utility cut-off notice is needed in order to release part of the bank levy, and then, only the amount specified on the notification will be released.
What you should do
The 21 day holding time is meant to be a final warning and should be used wisely. Speaking to or hiring a professional consultant can be very beneficial and can help get the bank levy released. Discussing and working with your financial institution can also achieve release of the bank levy, or at least some kind of compromise. Postponing the problem will only make matters worse, so act quickly and work wisely to avoid any further complications.
By Monica Drusch