Explain the IRS Levy in Plain Language

Explain the IRS Levy in Plain Language

What is an IRS Levy?

In plain language, an IRS Levy is basically when the IRS seizes a person’s funds to pay a tax debt to the government. The levy is issued after multiple payment requests, and multiple “Intent to Levy” warnings.

To be clear, the IRS does not have the ability to actually seize a person’s funds being held by a third party (like an employer), a bank, or a merchant account processor). Instead, the IRS sends a Notice of Levy (IRS Form 668-A) to that third party.

Then What Happens in an IRS Levy?

Once the employer, a bank, or other third party receives the Notice of Levy, that company now has a responsibility to take some action. Instead of sending to the “Taxpayer” whatever funds that bank or employer has control of, that company must send the funds over to the IRS.

It is like your favorite cookies being taken from your cookie jar – without your permission!

According to the Form 668-A:

“Money in banks, credit unions, savings and loans, and similar institutions described in section 408(n) of the Internal Revenue Code must be held for 21 calendar days from the day you receive this levy before you send us the money. Include any interest the person earns during the 21 days. Turn over any other money, property, credits, etc. that you have or are already obligated to pay the taxpayer, when you would have paid it if this person asked for payment. This levy does not attach to funds in IRAs, Self-Employed Individuals’ Retirement Plans, or any other retirement plans in your possession or control.”

Now Where Are My Cookies? (My Money!)

What happens in IRS Levy, Tax Attorneys (Naperville IL), Tax Law Offices Inc

That is what happens with a levy. That company holding funds for the Taxpayer is demanded to send the Taxpayer’s funds to the government, usually within 21 days. In the process, the Taxpayer no longer has control or expectation of those funds.

Upon receipt of the funds, the IRS will apply the funds as a payment toward the tax liability shown on the Notice of Levy.

An ongoing levy can be stopped, or “released”. However, it is almost always better to avoid the IRS levy by taking action during early warnings.