Protecting Your Assets: How to Stop an IRS Bank Levy

by Susan Paige on July 31, 2019 · 0 comments

Taxpayers that are behind in their taxes owe $131 billion in back taxes and penalties to the IRS. This loss of revenue means the IRS will seek whatever means they can to retrieve the money.

In some circumstances, retrieval of back taxes means placing an IRS bank levy or other asset levies on individuals or businesses. Of all the possibilities, a bank levy is the one that causes the most economic hardship.

The good news is, you do have some options to stop a bank levy.

What Is an IRS Bank Levy?

A bank levy occurs when the IRS freezes your bank accounts to retrieve back taxes owed. This includes any checking or savings accounts in your name.

Unlike a lien, which lays claim to your property, a levy is a seizure of your assets. if the IRS places a bank levy, they can wipe out your bank account to collect their money. They can do this as many times as they need to recover what you owe.

A levy is a last resort to recover back taxes. You will receive notices from the IRS before they take this step, with instructions on how to work with the IRS to pay. If you ignore these notices, you’ll receive a final notice of intent to levy your property.

Once you receive the notice, you have 21 days to contact the IRS so you can contest the decision or set up another payment option.

How to Stop an IRS Levy

If you let an IRS bank levy stand, you can spend months unable to access your money. A levy can also destroy your credit. Instead of letting this happen, you need to contact the IRS immediately if you receive a levy notice.

The notice will have the contact number so you can set up another option. Depending on your financial situation, you have three options available.

Payment Plans

Your easiest option is to set-up a payment plan with the IRS. You can do a short-term or long-term installment plan, depending on how much you owe. Interest and penalties are still added for either option until you’ve paid the debt in full.

A short-term plan allows you to pay your tax debt in four months or less. You can set up a direct withdrawal, pay by credit card, or send a monthly check or money order. As long as you make your payments on time, no other action is taken by the IRS.

A long-term installment plan allows you to set-up an extended payment plan past the four months. You’re also required to pay a set-up fee unless you can prove low-income status. The same payment options as short-term plans exist for these long-term installments.

Hardship Plan

You can also contact the IRS with proof that a bank levy will create financial hardship for you. Hardship means you’re unable to meet basic living expenses. This is a good option if the regular payment plans are more than you can handle.

To qualify, you must prove that these payment requirements make it impossible to meet your basic needs. If you prove hardship, the IRS will work with you to make the payments necessary to pay off your tax debt.

You can work with them to create a payment plan that works for your current situation. In some circumstances, you can work with them to remove penalties and fees as well.

Offer-in-Compromise

If your financial situation makes it impossible to pay the amount you owe before the 10-year recovery limit, you can work with the IRS to set-up an offer-in-compromise. This option allows you to settle your tax debt for less than you owe.

To qualify for an offer-in-compromise, you must prove you can’t pay more than the amount you offer. These qualifications include

  • No open bankruptcy proceedings
  • All tax returns up-to-date and filed
  • Insufficient assets to cover the full debt

You’re required to file the offer-in-compromise form along with the application fee and an initial payment towards the amount you can pay. If the IRS accepts your application, you can set-up your payment options.

You can choose to pay the offer amount in one lump sum if you have the funds to cover this. If not, you can pay the amount in installments. The IRS may keep liens on your assets until you pay the reduced debt in full.

Work with a Tax Expert

Before you decide which option to use to remove a tax levy, it helps to contact a tax expert. You can reach out to your accountant or a tax relief expert like quickbooks service Warren oh to help you determine which options you qualify for.

A tax expert can help you determine how much each option will cost and which option will work best for you. They can also help you determine what forms you need to complete and what documentation you need to send with your applications.

A tax expert can also help you start negotiations with the IRS. This ensures you get the best payment option. You can discover more here about how a tax expert can help.

Before you contact a tax expert, make sure they know what they’re doing. Check out their credentials and reviews from other clients before you contact them. Don’t pay for any tax relief services unless you’re sure about the person helping you.

Get Your Finances in Order

Before you get to the point where you have an IRS bank levy, you should work with the IRS to pay down your debt. You should also work on understanding your financial situation.

Take time to organize your finances and fix problem areas so you don’t create more debt. For more information about how to get your finances in order, check out our finance tips and how-tos.

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