The Internal Revenue Code authorizes the IRS to impose levies to collect delinquent tax payments. So under certain circumstances, the IRS may be able to freeze and then seize money in your bank account.
The IRS will generally only take this step if there is still an outstanding balance after they have assessed the tax, sent a demand for payment, sent a levy notice, and notified the taxpayer that they may contact third parties regarding the collection of the liability. So this can generally be avoided by simply responding to IRS collection notices on time and proactively working with the IRS to resolve your tax debt.
Receiving an IRS Final Notice of Intent to Levy
In particular, once you receive a Final Notice of Intent to Levy, you have 30 days to reach an arrangement with the IRS to address the outstanding balance. After that period, the IRS may levy any property or right to property that belongs to the taxpayer, with certain exceptions. This is a fairly significant step. Unlike a lien, which is merely a legal claim against property to secure payment of a debt, a levy actually seizes the property to satisfy the debt itself.
In some cases, the IRS may decide to impose a bank levy. Under that strategy, they will send a Notice of Levy (Form 668-A(C)DO) to the taxpayer’s bank, which will comply by freezing the taxpayer’s funds. The funds will remain frozen—with no access from the taxpayer—for 21 days; after that, the bank will remit the funds directly to the IRS. However, the levy will only apply to the funds in the account when it was initially placed, so if the taxpayer makes any additional deposits subsequently, the IRS will be required to issue a new levy to access those assets.
During that 21-day period, the IRS will release the levy before seizing the bank funds if the taxpayer pays the amount owed. Alternatively, during the same period, the IRS might release the levy if it determines that doing so might assist the taxpayer in paying their taxes, or that doing so would not hinder eventual collection of the amount owed. Taxpayers may also be able to secure release by reaching an installment agreement with the IRS under terms that do not allow the levy to continue. Finally, the levy may be released if it creates an economic hardship by preventing the taxpayer from meeting basic, reasonable living expenses.
Appealing an IRS Levy
You may appeal an IRS levy at essentially any point—before it has been imposed, after it has been imposed, after the IRS has denied your request to release it, or even after the assets have been seized. This will initially proceed under a Collection Due Process hearing, with appellate rights to the United States Tax Court.
That being said, the IRS is unsurprisingly reluctant to relinquish funds once they have been levied or seized. Once you’ve arrived at that point, even a successful compromise arrangement will likely apply only to future levies, not the one at hand. So as a practical matter, it generally will be most productive to address the unpaid tax amount or to challenge the levy on procedural grounds before the levy has been imposed. If the IRS has initiated the levy process against an outstanding tax balance, consider contacting tax counsel as soon as possible to determine your options for resolving the matter.
The NC Department of Revenue’s Authority to Collect Unpaid Taxes
The North Carolina Department of Revenue may take similar steps to recover unpaid taxes. Under N.C.G.S. § 105-242, the DOR may file a Certificate of Tax Liability for the outstanding balance with the clerk of the Superior Court in a county in which the taxpayer resides or holds property. This results in a recorded judgment lien for the tax liability, which can be in turn used to support a tax levy on the taxpayer’s property. The Certificate of Tax Liability may only be enforced within 10 years from the date it was recorded.