All IRS Back Tax Help comments are in blue. This post is about the IRS Notice of Levy (IRS Form 668) that is sent to your bank when the IRS wants to freeze your account(s). The questions below have been emailed to me. Since I’ve answered all of them, I thought I would post both the questions and answers I have about an IRS bank levy here for public consumption.
If you know you need to take action, read my thread about whether or not you should hire someone (You should not automatically) titled “Owe the IRS Back Taxes? When, Who, and How to Hire IRS Back Tax Help” Before you do anything else.
As usual, If you like the tone of these posts, contact me for consultation. I can be reached at firstname.lastname@example.org. Before you email me, please click on and read “About IRS BACK TAX HELP”.
Question: How to fight an IRS bank levy? What is the best way to fight an IRS bank levy?
1. First of all, if you have hired someone, they need a kick in the pants. An IRS bank levy should not happen when you have a tax attorney working on this. Your representation must respond to you on day one. If they don’t respond in the same day you contact them, you have the wrong representation for this kind of work. You must fight the IRS the same day the IRS bank levy occurs. As soon as you find out about it, call the Revenue Officer or the number for the Automated Collection System. They may release all or part of the the levy depending on how you present your case.
2. Prepare your proof. If you want an IRS bank levy returned, you will have to provide documentation to get the bank levy returned. If it is an IRS bank levy for 941 payroll tax, payroll is always the strongest reason to get it returned. After that, critical business needs and OSHA requirements can be excellent leverage. If the IRS bank levy for 1040 personal income tax the same ideas apply. You must show how the bank levy is a significant hardship on you.
3. Be prepared to go over the Revenue Officer’s head. If you don’t like the answer you get, you must keep going.
Question: What if I want the IRS to levy my 401k to pay past due taxes?
Answer: This question puzzled us and made us (well, me at least) angry. The puzzling part is why let the IRS collection process escalate property seizure? The IRS may decide to seize your home rather than your 401k. Don’t let them make decisions about how you will settle your tax debt. This also will pay your liability in full including all IRS penalty & interest. There is a cheaper and better way.
The angry part is about cashing in a 401k to pay your tax debt. that’s insane. You are sacrificing your future for a problem that can be solved another way. The idea of paying the early withdrawal penalty, paying the tax on the money you withdraw, and then using that money to pay back taxes is awful. If the IRS is urging you to do this email us or seek counsel immediately.
Question: If you get a IRS Notice of Levy from ACS support is it to late to set up a pay plan?
Answer: No. However, you must get moving. The IRS Notice of Levy means they have already seized your bank account. Which means you need to reread the answer above. If you have received an IRS Final Notice of Intent to Levy (IRS letter 1058) you still have time to protect your bank accounts and other assets from being seized by the IRS. In order to set up an IRS installment agreement, you must be current & compliant for two months. That’s it. If you are not sure what to do, or you do not have the time, hire someone to help. Follow the guidelines outlined in the first link of this post. “How to hire IRS back tax help?”
Question: Can the IRS take my entire bank balance for payment if I get an IRS business tax (941 payroll) levy?
Answer: Yes. I recently had this conversation with someone. They were holding funds for other businesses in their bank account. They owed $50,000, and $40,000 and change in the account. If they IRS can solve their problem by grabbing your bank account, they will and force you to sort out your relationships with your clients, employees, vendors, and anyone else that you have written a check. This happens all the time.
Question: May the IRS levy multi-member Llc bank account assets for personal past due taxes?
Answer: Yes. If all the members are named on the IRS Notice of Levy, then all the members can fight for those funds. If you are named on the IRS bank levy and no one else is, they are only entitled to your share of the account balance, but you must be able to prove it.
Question: What can I do about an IRS bank levy?
Answer: There’s a more broader question of “what should I do if I think the IRS is about to levy my bank account?” If you are fearful of using your bank account because you can’t afford to lose that money, you have multiple options.
When I first get hired in this scenario, I tell my clients to only leave enough money in their existing bank accounts to cover checks and debits that are already out there.
Then, while we get protections in place via IRS appeals etc… we have our clients open new accounts at a new bank. If the IRS asks, you must tell them about this account, no ifs, ands, or buts! It’s only intended to be short term fix until I know your legal protections are in place.
At the risk of sounding like a broken record, there is a point of no return where you should get someone involved. It is when you owe more than $50,000 and you are receiving the IRS Final Notice of Intent to Levy (IRS Letter 1058). It truly means things are getting out of control, and good representation can give you that control back.