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How To Stop, Remove Or Prevent A Bank Levy

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Receiving a bank levy notice from the IRS can cause a lot of stress. Finding ways to stop, prevent, and even remove one is a top priority for anyone in this situation.

RELATED: 9 Types Of IRS Letters And Notices And What They Mean

What Every Taxpayer Can Do When They Receive a Bank Levy

Step 1: Understand What Is a Bank Levy First

Bank Levy Definition: when a creditor notifies the bank to freeze the debtor’s bank account to recover part or the whole debt.

The levy goes in effect 30 days after the constructive receipt of the Final Notice of Intent to Levy and the Notice of Your Right to A Hearing. A constructive receipt happens when :

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  • The taxpayer receives the two notices personally,
  • Either the home address or designated office space has received the notices, or
  • The two notices sent to the last known address were sent back to the IRS.

A constructive receipt does not require physical possession of an item of income.

An important point of clarification: not all bank levies are from the IRS. This course of action is available to other creditors as well.

However, only the IRS and the Department of Education do not need a court decision to push through with the bank levy. Other creditors need a court proceeding to levy on assets and even wages.

A bank levy occurs when the IRS freezes a bank account until the satisfaction of the tax debt. Usually, a bank levy comes together with tax liens

Remember, a bank levy is just one of the many available IRS Levy options. Understanding what a tax levy is helps toward preventing and removing a bank levy.

Step 2: Practice Better Money Management That Can Prevent Any Chance of a Levy

The only way to completely prevent a bank levy is to actually pay taxes on time. However, timely payment is only possible if prudent financial management is already in place.

In fact, preventive measures in stopping wage garnishment apply here, even when a bank levy is inevitable. Preparing a monthly budget builds discipline in spending and allocating funds properly.

Another possible option is to pay taxes quarterly or even monthly. This process gives one better standing with the IRS, which makes requests for payment plans more viable.

Of course, preparation for tax filing is not the only preventive measure available. Another option is to simply save money from taxes.

On top of tax deductions, there are also tax-saving options available all year round.

Step 3: Use the Bank Levy Process to Your Advantage

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Working with the IRS to remove a bank levy

There are several ways a taxpayer can use the process to his or her advantage.

First, taxpayers still have 30 days after the receipt of the Final Notice of Intent to Levy for it to take effect. This gives one enough time to correct the situation and get the necessary funds by applying for a loan.

A new bank loan is far less onerous compared to a bank levy or even just IRS penalties.

Second, you can make an appeal and prove errors and inconsistencies found within the tax file. The IRS could consider the appeal and review the account as they need to investigate the claimed errors.

Another option is to ask the IRS for payment options. The IRS is always willing to work with the taxpayer and make it easier for them to give Uncle Sam what he is due.

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RELATED: What Is A Tax Levy? | Everything You Need To Know

Step 4: If a Bank Levy Is Unavoidable, Minimize Its Effects

If a bank levy is already in place, the taxpayer still has options to minimize its impact.

As mentioned earlier, one can negotiate a payment plan. This option is available before or even during the bank levy.

Another possible option, although risky, is to file for bankruptcy. Do note that the court can grant or deny such a motion, however bankruptcy proceedings can put the bank levy process on hold.

A more benign alternative from bankruptcy proceedings is to file for a Currently Not Collectible status. A CNC status allows taxpayers enough breathing room financially, as all notices and penalties stop while the status is in effect.

Last option is to ask for an Offer in Compromise. The taxpayer can ask for a lower tax amount, which can halt the bank levy proceedings as well until the negotiations are complete.

Step 5: Understand a Bank Levy Release Is Not Automatic

If the bank levy is still in effect for 21 calendar days after the 30-day notice, the bank levy moves into the collection phase. The IRS will then take the funds from the frozen bank.

Due to the time constraint of 21 days, taxpayers may find the release of the bank levy difficult at this point.

Step 6: Know Other Important Information

Just to be clear, wage garnishment is different from a bank levy, but they are both forms of an IRS tax levy.

Wage garnishment occurs when the IRS withholds part of a taxpayer’s salary each month until the unpaid taxes, plus fees, are fully paid.

Sometimes the IRS can get it from a bank account where the taxpayer gets his or her salary, Other times the IRS gets it directly from the employer.

Acquiring information about the tax process is always beneficial, however, some cases require experts like a taxpayer advocate.

 

A bank levy is a serious matter which should never be taken lightly. Taxes, for that matter, should always be dealt with in a timely manner to avoid levies.

Whether the issue is a complicated bank levy or any other tax concern, a well-informed taxpayer can make wiser financial decisions. Better decisions lead to a better financial standing devoid of any bank levies.

Do you have other questions regarding a bank levy? How about other kinds of tax levies? Let us discuss in the comments section below.

If you owe back taxes, visit taxreliefcenter.org for more information on tax relief options.

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