Several years ago, I met with a taxpayer who owed the IRS a substantial amount in federal taxes. Like many taxpayers facing IRS collection problems, he had received several IRS notices but had not taken any action. During our meeting, he looked at me with genuine concern and asked, “Can the IRS take the money out of my bank account?”
It is a question I have heard many times over the years.
For many people, a bank account contains the money they rely on to pay the mortgage or rent, buy groceries, cover utility bills, and meet other monthly financial obligations. The thought of the IRS taking money from a bank account can be frightening.
The short answer is yes. Under certain circumstances, the IRS has the legal authority to levy a taxpayer’s bank account. However, the IRS does not simply take money from a bank account without first following the collection process required by law.
In most cases, the process begins with a series of IRS notices informing the taxpayer that taxes are owed and requesting payment. Because nothing immediately happens after the first few notices, many taxpayers do not realize how serious the situation has become. Some never open the letters, while others set them aside, intending to deal with them later. Unfortunately, delaying action allows the collection process to continue.
If the tax debt remains unresolved, the IRS may eventually issue a Final Notice of Intent to Levy and Notice of Your Right to a Hearing.
Many taxpayers receive this notice without fully understanding what it means. Some assume it is simply another IRS letter requesting payment, when in fact it warns that the IRS may soon begin taking collection action, including levying a bank account, if the tax debt is not resolved.
If no action is taken after the required notice period, the IRS may levy the taxpayer’s bank account. Once the bank receives the levy, it freezes the funds in the account up to the amount of the tax debt. The bank then holds those funds for 21 days before sending them to the IRS.
That 21-day holding period can be extremely important. Depending on the circumstances, taxpayers may still have opportunities to resolve the matter before the funds are sent to the IRS. Those options may include paying the balance in full, entering into an installment agreement, demonstrating financial hardship, or pursuing another appropriate collection alternative.
An IRS bank levy can have immediate and serious financial consequences. Once the bank sends the levied funds to the IRS, getting that money back can be extremely difficult. A taxpayer who thought the IRS was simply sending letters may suddenly discover that the money needed to meet monthly financial obligations is no longer available.
The best time to address an IRS tax debt is long before a bank levy becomes a possibility. Taxpayers who respond to IRS notices early usually have more options available than those who wait until collection action has already begun.
The Taxpayer Times 
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