What Happens When The IRS Issues A Bank Levy For Owed Taxes?

If you owe back taxes to the Internal Revenue Service, or IRS, there is a possibility that the agency could issue a levy on your bank account. When this occurs, the agency has the right to take all of the funds from your account and apply them towards the taxes owed. If you have been notified that a levy is going to be issued, here is what you need to know. 

When Is the Levy Issued?

A bank levy is usually not issued until the IRS attempts to collect the debt from you. During that time, the agency is open to negotiate on the amount owed and willing to accept a payment plan to take care of the back taxes. 

The IRS CP-504 notice is the first notice you will receive that the agency intends to issue a levy. It is likely you will receive several of these notices. If you have not taken care of the taxes within a time outlined in the notices, you will receive a CP-1058 notice. The notice is considered a final notice. At that point, the agency has issued the levy and is notifying you of this action.

What Can You Do?

Ideally, when you receive the CP-504, you should contact the IRS. It is possible that the agency might still be open to negotiating on what is owed. You might even be able to set up a payment plan to pay off the taxes owed. It is important that you keep up with the payments. A missed payment could trigger action from the IRS. 

You can also request a Collection Due Process, or CDP, hearing. 

What Is a CDP Hearing?

The CDP hearing is conducted by an impartial officer. During the hearing, you can present the case for why the IRS should not be allowed to issue a bank levy. To request the hearing, you must submit IRS Form 12153

When the request is received, all actions by the IRS are temporarily placed on hold until the hearing is held. It is imperative that the form is completed correctly. If not, it could be rejected and the IRS could still take action against you. 

Consult with a tax attorney to explore your options for dealing with a back owed debt before the IRS takes action. If you have already received notice of a levy, the attorney can help you negotiate with the IRS and even attend the CDP hearing with you if your case reaches that point.