Being in debt to the IRS is a stressful position to be in. In the worst-case scenario, you may be wondering, ‘Can the IRS take money from your bank account?’ This is an important issue to understand, so read on for a discussion on the topic.
Can the IRS take money directly from your bank account? It may be hard for some to imagine that the government is legally able to take money directly from your bank account. However, it does happen in certain situations. The Internal Revenue Service (IRS) is the government agency responsible for collecting U.S. tax dollars and enforcing tax laws. In the case that an individual has not paid their taxes and is unresponsive to the IRS’s requests, the IRS may take extreme measures– such as taking the money from your bank account in order to satisfy the debt.
Can the IRS take money from your bank account without notice? The IRS can no longer simply take your bank account, automobile, or business, or garnish your wages without giving you written notice and an opportunity to challenge its claims. When you challenge an IRS collection action, all collection activity must come to a halt during your administrative appeal.
What is a Levy?
A tax levy is a process that a tax authority uses to forcibly collect tax debts. In the United States, the federal tax authority is the Internal Revenue Service (IRS). When a taxpayer owes money, the IRS can recover that money by selling that person’s belongings or taking the money directly from their bank account, wages, or other income. This is called levying.
The IRS is more likely to levy bank accounts, wages, and other cash-based assets than fixed assets. This is because seizing and selling non-cash assets such as buildings, vehicles or equipment is more difficult and takes longer, so it is a less effective use of time for the agency.
Can The IRS Take Money From Your Bank Account?
There is a set procedure that the IRS must follow before it can levy your assets. The main requirement is that you must owe back taxes. If you are not in debt to the IRS, then the agency cannot take money directly from your bank account.
However, if you do have income tax debt, the IRS can start the process of seizing money from your bank account 30 days after sending you to notice thereof. During those 30 days, you have the opportunity to resolve the issue. After that, the IRS has the right to seize the contents of your bank account.
When Does the IRS Seize Bank Accounts?
Even seizing cash from your bank account requires some effort by the IRS, so the agency prefers taxpayers to make voluntary arrangements for tax debts. In other words, before levying your assets, the IRS will repeatedly try to contact you and encourage you to pay your tax debts or arrange a payment plan.
If the IRS is unable to reach an agreement with you, the agency will send a legal notice informing you of its intention to levy your assets to pay your tax debt. This notice is called a ‘Final Notice of Intent to Levy and Notice of Your Right to A Hearing’.
From the day the IRS issues this notice, you have 30 days to clear your tax debt. After that, the IRS will have the right to contact your bank and seize your money.
What Happens When The IRS Takes Money From My Bank Account?
After the 30-day grace period from the date of issue of the intention to levy notice, the following happens:
- IRS instructs the bank to freeze your account for 21 days
- IRS figures out the ownership of the account
- If there are no conflicts of ownership of the account, the process continues
- After 21 days, the bank sends the levied amount from your account to the IRS.
How Does Your Bank Respond to IRS Levies?
First, the IRS instructs your bank to stop all transactions on your account for 21 days. You will still technically have the money, but the bank will not allow you to withdraw or spend any of it.
The purpose of the 21-day holding period is to give the IRS time to figure out the ownership of the accounts it believes are yours. If no issues are found with ownership, the bank will send the requested amount to the IRS.
The bank is required to send any levied amount, up to the entire value of money in the account. Contacting the bank will not stop the process.
What Can You Do About IRS Levies?
The only way to prevent an IRS levy after the notice has been issued is to contact the agency to reach an agreement on how you will clear your tax debt.
If the 30-day grace period has already passed, there are still some things you can do. At this stage, the levy will only be lifted if you can prove to the IRS that holding the funds in your account would cause serious financial problems for you. You can do this by directly contacting the IRS, or you can hire a licensed tax professional to do this for you.
In addition to proving that the levy is causing financial hardship, you will also agree to a plan to pay the outstanding tax debt.
Finally, if the money has already been sent to the IRS, you contact the agency and can claim reimbursement. However, you will only be reimbursed if there was a mistake and too much money was levied.
Things to Remember When You Owe the IRS in 2022
The IRS Restructuring and Reform Act of 1998 was a landmark law that forced the IRS to change the way it treated taxpayers. The legislation required the IRS to more fully communicate with the public and grant taxpayers “due process” rights. In other words, the IRS could no longer take action to collect unpaid taxes without hearing the taxpayer’s side of the story.
While those rights will ensure that you have a fair hearing, if you are still found to have unpaid taxes the IRS will take action to collect what is owed. If you owe money to the IRS, here are ten things to remember:
1. Don’t ignore any IRS notices.
Many people make their tax problems worse by ignoring the IRS notices they receive by standard or certified mail. Some people think they can avoid IRS notices sent by certified mail by not answering their door or picking them up at the post office, but they are mistaken.
The IRS sends notices by certified mail so that you can’t claim you were denied an opportunity for a hearing. The IRS only needs to show it attempted to give you notice of your rights by certified mail delivered to your last known address. It does not need to show that you accepted the delivery. Refusing to accept the mail only deprives you of your right to contest your tax bill.
2. The IRS must treat you courteously.
The IRS publication entitled “The IRS Collection Process,” revised in 2018, says that you have a right to representation by an attorney, CPA, or enrolled agent and to be treated in a professional, courteous manner. If you do not like the way you are being treated by an IRS representative, you can stop the interview and ask to speak with a supervisor.
3. Before you go to the IRS, spend an hour with a tax expert.
This is usually a worthwhile investment of your time and money. The tax expert will tell you how to prepare for your interview, how to conduct yourself, and how to recognize situations where the IRS revenue officer may have overstepped his or her authority. The IRS is essentially a bill collector for the government and you need to be clear on your rights and obligations before you meet with an IRS representative.
4. Never meet the IRS alone.
If you have been summoned to an IRS interview, it is usually a good idea to have a tax attorney represent you. If you are nervous about speaking to a revenue agent, you may have your attorney answer all questions on your behalf. Additionally, a tax attorney will be familiar with the common questions asked during an interview so you have the necessary documents and explanations prepared beforehand.
5. The IRS is not infallible.
The IRS sometimes has trouble keeping track of your income and how much you owe. This is especially common if you have been making payments under a payment plan. The IRS makes mistakes, so always request and review the relevant documentation to make sure it is correct.
6. You have due process rights.
The IRS can no longer simply take your bank account, automobile, or business, or garnish your wages without giving you written notice and an opportunity to challenge its claims. When you challenge an IRS collection action, all collection activity must come to a halt during your administrative appeal.
If you challenge an IRS deficiency finding in the U.S. Tax Court, the IRS cannot collect from you until the court has issued a decision. Tax Court cases can take a long time to resolve and may keep the IRS from collecting for years. However, before taking your challenge to court, it is usually best to meet with a tax attorney to assess whether you really have a case and the correct steps to take. The Tax Court has the power to impose additional penalties if it finds you are wasting its time with frivolous arguments.