Taxation & Estate Planning

?All about Tax, IRS Levy and your Bank Account status

By Darrin Mish

Prolonged refusal to pay your taxes will result in an IRS bank levy. This is a legal act in which the IRS freezes your bank accounts and deducts what you owe them from your bank balances. This is usually done only as a last resort after all other avenues have been fruitless. There are a few ways to get out of an IRS levy or bank account freeze, but you need to act fast.

The most common way to prevent a bank levy is to agree to a payment plan. Even if you cannot afford the payment plan required by the IRS, agreeing to it will do two things: It will buy you time and it will unfreeze your account. It does not matter if you can only afford the first few instalments, you should go along with the plan anyway. Perhaps within a short period of time your situation may change and you will have the means to pay off your tax debt sooner than you think.

Another way to avoid a bank levy is to apply for an Offer in Compromise. There are basically three types of Offers in Compromise so you will have to determine which one you fall under. The first is where it is impossible to pay your total tax debt because you do not have the means to do so before the deadline. The IRS will look at the total debt that you owe and determine how much they can reasonably expect you to pay and take that as full settlement. They determine this magic number by looking at how much income you have, how much you own in the way of assets and how much time until your payment deadline is here. Under certain circumstances, it is possible to get away with a substantial discount on your tax debt.

The second type of Offer in Compromise is where you can show that a bank levy will bring severe hardship on your family such that you are not able to meet basic needs. But it is important to know what the definition of 'basic needs' is. Credit card payments, maintaining your credit rating and your children's private school tuition are not considered 'basic needs' according to the IRS. Only things like life-saving medical bills or making child support payments would be considered basic needs.

The third type of Offer is where there is a mistake in the computation of the amount of tax you owe. This may be an error in calculation or where you are not solely liable for the entire tax debt. In these cases, you are allowed to pay a lower figure that reflects your correct amount of tax liability.

As you can see, the IRS levy and bank account freeze situation is extremely serious but it is important to remember why it is being done. It is to make you call the IRS immediately to have your situation resolved. Otherwise, you might lose all your savings when a bank levy is imposed on you.

?All about Tax, IRS Levy and your Bank Account status is a post from: IRS Tax Problem Solver Blog - IRS Help

Full post as published by IRS Problem Solver Blog on February 07, 2010 (boomark / email).