IRS Just Took My Payroll Funds!
Whoa! This problem is an emergency. It needs a real solution, right now! (Or else employees won’t get paid.)
This situation is called an “IRS Bank Levy”. IRS will use various forms of collection enforcement to collect unpaid federal tax. Done either by an IRS Revenue Officer or IRS’s automated system, a “Notice of Levy” is issued to your bank. This levy is one of those collection tactics.
According to the IRS rulebook, this levy only reaches funds you have on deposit when the bank gets the IRS notice. Therefore, money deposited later is not subject to this levy. Neither are funds deposited during the holding period. Another levy must be served for IRS to reach money deposited later, after the notice is received.
At some point, your bank is required to send the amount in your accounts. However, it cannot send more than the amount shown on the notice of levy. Fortunately, the bank cannot send the funds immediately. There is a 21-day waiting period.
What is This 21-Day Rule?
The law requires your bank to wait 21 calendar days after a levy is issued, before turning over your bank account funds. Usually the money is sent the next business day, after the 21 days expire. Your bank can be punished is it fails to send the funds to IRS.
Of course, there are exceptions:
• You could waive this waiting period, and allow the money to be taken earlier. But why, right?
• Your bank won’t surrender funds that are already subject to a court order or other court attachment. For example: funds to satisfy a child support order.
• During the holding period, a levy might be released, or the amount owed could decrease.
Payroll is Friday – What Can I Do Right Now?
For emergency cases like this, you will need an immediate “Release of Levy”.
Everyone suggests asking for a personal hardship exception. This applies when IRS’s collection enforcement action prevents you from meeting your basic personal needs. But that doesn’t apply to business needs, or payroll. The hardship exception does not help you in this situation.
To release a levy, we must meet three different goals. We prove to IRS that:
• Maintaining this levy would create an undue burden on everyone involved, including on IRS;
• The client is actively working to resolve all of his/her tax problems, and can clearly demonstrate a plan for permanent resolution; and
• Releasing the levy will help facilitate payment of the tax liability.
Act immediately. Find a specialist. Even if you are too busy, or just overwhelmed by the situation, the problem still must be resolved. Taking no action only compounds the problem.
Remember, if your bank does not receive a Form 668–D, Release of Levy / Release of Property from Levy, then your bank must still surrender your funds. What’s worse, IRS could issue another levy, after the 21-day period!
So take action.