A federal tax levy can have an immediate effect on a person’s finances. The IRS reported that it collected more than $5.1 trillion in federal taxes during fiscal year 2023, while enforcement activities included millions of collection notices and other actions. A levy is different from a tax lien: a lien establishes the government’s legal claim against property, while a levy involves the actual seizure of property or rights to property to satisfy a tax debt. Bank accounts and certain other assets can be subject to collection action when statutory requirements are met.
Let’s look at how tax levies work and what taxpayers can do when collection action threatens their finances.
How a Tax Levy Can Affect Your Bank Account
A bank levy can temporarily restrict access to funds in an account. Under federal rules, a bank generally holds funds subject to an IRS levy for a specified period before sending the amount to the government.
This can create immediate problems for households that depend on their account for rent, utilities, groceries, or other expenses. Someone seeking relief from tax levies should review the levy notice and determine whether the IRS has followed the required collection procedures.
How Taxpayers May Challenge or Resolve a Levy
Taxpayers may have several potential avenues depending on their financial circumstances and the status of the tax debt. Options can include:
- Requesting a Collection Due Process hearing
- Seeking an installment agreement
- Applying for an Offer in Compromise when eligible
- Requesting currently-not-collectible status
- Addressing errors in the underlying tax assessment
- Seeking release or modification of a levy when IRS requirements are met
The appropriate option depends on the taxpayer’s income, assets, liabilities, tax history, and collection circumstances.
How to Take Action Before a Levy Causes Greater Financial Strain
Ignoring tax collection notices can allow the situation to progress. Taxpayers should retain copies of IRS correspondence, review the amounts claimed, gather income and expense information, and seek professional advice when the debt is disputed or unaffordable.
Other financial obligations may also require attention. A debt settlement lawyer can discuss settlement-related issues, while a bankruptcy lawyer can assess whether bankruptcy may fit the person’s broader financial circumstances.
How Taxpayers Can Respond to Tax Levies
A tax levy can disrupt access to money and place significant pressure on a household. Understanding the difference between a lien and levy, reviewing IRS notices, and responding within applicable deadlines can help taxpayers make informed decisions.
If you are facing a tax levy in Alice or other serious collection action, The Law Office of Joel Gonzalez can help you review your legal options and understand the next steps available for your circumstances. Contact us to discuss your situation before collection problems become more difficult to manage.
