Taxation & Estate Planning

IRS bank levy - how safe is my account?

By howardlevy

An IRS levy on your bank account can be disastrous - checks not clearing, bank service charges, and concern over paying basic living expenses from the lost funds.  

The good news is that tax law gives you a 21 day window to get the money back into your account before your bank sends it to the IRS.  After the money is deducted, the bank holds it for this 21 day period. This waiting period, mandated by Internal Revenue Code 6332(c), provides a valuable opportunity to contact the IRS, negotiate a release of the levy, and have the money returned to your account.

Equally important is that an IRS levy on your bank account is not a continuing action with every dollar you deposit deducted from your account on an ongoing basis and sent to the IRS. Rather, an IRS bank levy is a one time only deduction from your bank account.  See Internal Revenue Manual 5.11.4.3.

Here is how it works: when your bank receives and processes the levy, it takes only the money on deposit at that time.  If the bank processes the levy on Wednesday when there is $500 is in the account, that money will be deducted from your account.  If you then put $500 in the account on Thursday, that money is yours and is not sent to the IRS.  The money deducted on Wednesday is held for 21 days, then sent to the IRS if not released.

The IRS generally refrains from making successive levies on the same source. Once the levy is sent, successive levies sent out in rapid fashion are unlikely in most cases.

IRS bank levies provide time for release and return of the funds, an advantage that should not be squandered.  Timely response and proper negotiation can recover the funds back into your account.

Full post as published by IRS and the Law on April 08, 2009 (boomark / email).