Mistaken IRS Bank Levy Procedures

What is a bank levy from the IRS? The Internal Revenue Service (IRS) has many enforced collection tools at their disposal to ensure that a tax debt owed by a taxpayer that has not obtained tax relief pays the tax debt owed. One such tool is a bank levy. The IRS’ has the ability to issue a bank levy on an account that bears the name of a person who owes the IRS a tax debt. When the IRS decides to take enforced collection action via bank levy, a notice of levy is sent to the taxpayer’s bank and it attaches to all accounts in the name of the taxpayer whether a sole or joint account. The bank is then legally obligated to honor the IRS levy on a bank account. Once received, the tax levy on a bank account freezes the funds on deposit in the account. The bank will not allow anyone access to the frozen funds for 21 days from the date of receipt of the levy unless released. This 21 day holding period allows time to resolve any issues about account funds ownership and collectability. After the 21 days have elapsed, the bank will send the money plus interest, if it applies, to the IRS if the levy has not been successfully released. Therefore, if you do not want the IRS to take the money in your bank account, you will need to seek an IRS tax attorney before the 21st day since your bank received your bank levy.

Luckily for taxpayers that have timely sought tax relief before their funds were remitted to the IRS, the IRS has implemented procedures for taxpayers to request a reimbursement of the fees charged by a bank against a taxpayer for processing a bank levy when the bank levy was issued erroneously by the IRS. Reimbursements are limited to $1,000.00 and must be claimed within one year of being incurred. The banking fees recoverable are the fees customarily charged by the financial institution for the financial institution’s compliance with the levy’s instructions. Fees may also include the bad check fees or overdraft fees incurred because of the freeze on the account incurred due to the levy, and are also subject to a successful reimbursement request.

An “erroneous” levy is one that properly seeks to capture a taxpayer’s property, rather than a third party’s property, but nevertheless is served prematurely or otherwise in violation of an administrative procedure or law. A claim that a taxpayer has been erroneously levied requires a factual analysis and timeline to demonstrate that the IRS’ issuance of the levy was a mistake.

The IRS must also make a determination that the taxpayer did not contribute to the continuation or compounding of the IRS’ error. Additionally, prior to the levy being issued, the taxpayer did not refuse to timely respond to service inquires or provide information relevant to the liability for which the IRS levy was made.

Successful reimbursement requests may be paid to taxpayers via an electronic funds transfer. Such payments may require disclosure of the taxpayer’s banking information needed to complete the transfer. Therefore, the IRS can also send successful claimants their reimbursement payment via check, to avoid disclosure of the taxpayer’s bank information. An experienced tax attorney will be able to recoup bank fees and funds distributed by an erroneously issued IRS bank levy.

The tax attorneys at Montgomery & Wetenkamp (https://www.mwattorneys.com) provide tax relief representation and can assist taxpayers in resolving IRS bank levy issues. For more information regarding IRS tax relief or other tax issues, contact Montgomery & Wetenkamp at (800) 454-7043 or mwattorneys@mwattorneys.com.