What to Do When IRS Drafts Your Bank Account

Refuse to pay your federal income taxes and the IRS can obtain a court order to draft or levy funds from your bank account. A bank draft for unpaid taxes can cripple your personal finances, and these drafts can continue until the IRS recovers the owed funds.

What is a Bank Levy?

Not to be confused with tax liens, which place a claim on personal property such as a bank account, IRS tax levies involve the agency actually removing funds or seizing funds from your account to satisfy past due or unpaid tax bills. The IRS notifies your bank of the levy, and by law, your bank must adhere to the levy or draft order and take funds from your account. The bank removes up to the amount owed in taxes.

Notice of Levy

Prior to levying or removing funds from a bank account to pay a tax bill, the IRS sends a final notification urging the debtor to resolve his tax bill. Debtors are given 30 days to contact the agency and make payment arrangements. The IRS sends this notice to the debtor's last known address or business. But if the debtor refuses to communicate with the agency, the IRS will enforce the levy order. The IRS can search records to see if there's a bank account on file or conduct a skip trace and contact local banks to see if a debtor holds an account.

Holding Period

Once a bank removes funds from the debtor's account, these funds aren't immediately forwarded to the IRS. Instead, the bank holds these funds for a period of 21 days. This holding period provides debtor's with the opportunity to resolve issues arising from the draft. For example, the debtor may not own the account and disputes the levy. In the event that a debtor doesn't challenge his ownership of the bank account, the bank forwards funds to the IRS after 21 days.

Handling a Bank Levy

Responding to IRS notices is key to avoiding a bank levy. Early communication provides the opportunity to dispute a debt or provide evidence that you paid the tax bill (supply canceled checks or bank statements). You can set up a payment plan and pay off the tax bill in installments or notify the agency of a bankruptcy filing, which temporarily stops collection attempts. If the IRS levied the account, but couldn't recover all owed funds from the initial bank draft, the agency will likely order additional drafts. Satisfying your remaining tax debt following the initial levy can alleviate future bank drafts.