How An IRS Tax Levy Works in Washington DC

When you are unable to pay your required tax to the IRS, or you forgot to do so in a timely fashion, you may be hit with a tax levy. This can freeze your bank account or garnish your wages if you do not address the situation quickly. Pontius Tax Law can help you understand how an IRS tax levy works in Washington DC and assist you in resolving it in a constructive way.

When Can the IRS Impose a Levy on the Taxpayer?

The IRS can impose a levy when the taxpayer has not made attempts to resolve their tax debt after several attempts made by the IRS to contact the taxpayer in writing. The IRS has to give a Final Notice with Intent to Levy and a Right to a Collection Due Process Hearing letter which give the taxpayer 30 days to either make full payment or request a hearing before that levy can take place.

Taxpayers can prevent their funds from being levied by the IRS by staying in filing compliance and paying all their tax returns when they are due. If they have unpaid tax debt, they can proactively contact the IRS and discuss a collection alternative like an installment agreement, Offer in Compromise, and Currently Not Collectible status.

Compliance Check

When someone receives a tax levy notice, they should contact the IRS as soon as possible to resolve the issue. If the issue is too large or challenging for the taxpayer, a tax attorney may be necessary to resolve the underlying tax debt and prevent the implementation of the levy.

A tax levy attorney could help a taxpayer by contacting the IRS for a compliance check to review the balances due, collection, expiration date, and confirming if all returns have been filed. They would then review the individual’s ability to repay the IRS based upon the taxpayer’s Form 433, Collection of Information statement. They must then provide the IRS with the collection alternatives and a completed Form 433 with supporting documents showing income, expenses, and assets.

How Does a Bank Freeze Affect a Taxpayer?

A tax levy can be challenging to live with and a frozen bank account is one of the most significant ways for the IRS to collect the tax. In this scenario, the taxpayer would be unable to withdraw money from their bank accounts or write checks from that account. It can prevent them from making monthly mortgage or car payments, or address other loans they may have.

A bank levy is going to be a one-time action as opposed to a continuous collection, which would be in the form of a wage levy (wage garnishment). In the case of IRS frozen assets from bank accounts, the IRS holds funds for 21 days. They will give the taxpayer the chance to reach out and resolve the debt, but on the 22nd day after a bank levy, the IRS will require the bank to release the funds to the IRS.

During that 21-day period, the taxpayer or their representative must contact the IRS to resolve the underlying tax debt and request the return of the funds if it is going to cause economic hardship. Normally, funds that are deposited after the levy notice was served on the bank are not going to be seized.

Is it Different for Businesses?

In the case of businesses, the IRS will not release a levy due to economic hardship, and the result of that is much more serious. If the IRS is taking all the assets and money from a business, they would effectively shut the business down through tax levies. Fortunately, this is only in the most drastic cases and most taxpayers should be able to resolve their dispute administratively.

Talk to Our DC Attorney to Learn More About How a Tax Levy Works

Do you owe more than $50,000 to the IRS, and are either experiencing a levy on your assets or are about to be? Our DC-based tax lawyer is experienced in how IRS tax levies work and could work with you to return to compliance. Schedule a consultation for more information.