Latest Facts and News
- The IRS can levy a joint bank account if one account holder has delinquent tax debt, regardless of who deposited the funds
- In community property states, the IRS can levy a spouse’s wages and bank accounts even if they are not directly liable for the tax debt, due to shared ownership laws.
Imagine waking up to find that the IRS has dipped into your joint bank account—it’s alarming, isn’t it? Joint accounts often symbolize shared goals and trust between partners, but when tax issues arise, they can also expose you to risks you didn’t know you had.
And one pressing question that surfaces in these scenarios is, “Can the IRS levy a joint bank account?” Knowing your rights in this situation is going to protect your finances in the long run, regardless of the hardships you encounter.
In this article, we’ll guide you through the IRS actions on joint accounts, helping you understand how and why these levies occur, and most importantly, how you can safeguard your shared assets. Whether it’s your spouse, family member, or a business partner, the insights we share will empower you to manage your joint account wisely in the face of tax obligations.
Also Check: What Happens If You Don’t Pay Taxes?
Understanding IRS Levies on Joint Bank Accounts
An IRS levy is defined as the lawful seizure of property to satisfy the individual’s tax liability. This consequently allows the IRS to levy funds directly from bank accounts, garnish wages, or seize and sell property.
In cases like can the IRS levy a joint bank account, it makes no difference who deposits the money. According to the Internal Revenue Manual, the IRS can levy any account from which the taxpayer has the right to withdraw funds, even if the funds belong to another account holder.
For example, if two siblings share a joint account and one sibling deposited all the money, the IRS can still seize those funds to cover the other sibling’s unpaid taxes. They can take the full balance in the account, up to the amount of taxes, penalties, and interest owed.
If you owe the IRS and a levy is possible, you should inform the other account holder about the risk that their funds could be used to pay off your tax debt.
How Joint Account Levies Work?
Now that we know the answer to can the IRS levy a joint bank account is yes, it is important to know that the IRS follows specific legal steps and processes that must be followed before the levy is enforced. Here’s how it works, including the legal basis and the procedural steps involved:
Step 1: Pre-Levy Legal Requirements
Before levying a joint bank account, the IRS must fulfill certain legal obligations:
- Proper Tax Assessment:
The IRS must have assessed a tax liability against at least one of the joint account holders in accordance with Internal Revenue Code (IRC) requirements. - Notice to the Taxpayer:
The IRS must provide sufficient notice to the account holder who owes taxes. This includes:
- Notice CP14: The initial tax due notice.
- Notice CP504: A warning about potential collection actions.
- Notice LT11: Final notice of intent to levy and the taxpayer’s right to a hearing.
These notices are required under IRC Sections 6303, 6330, and 6331.
Even with proper assessment and notice, the IRS cannot immediately access the joint account. A specific process must be followed.
Step 2: Issuance of the Levy Notice
Once the legal requirements are met, the IRS sends a Levy Notice to the bank holding the joint account. This notice is issued on Form 668-A(c)(DO) (commonly referred to as Form 668-A). The notice includes:
- The taxpayer’s personal information.
- The tax debt amount for each year, with a total balance owed.
- Instructions to the bank, such as:
“This levy requires you to turn over to us this person’s property and rights to property (such as money, credits, and bank deposits) that you have or which you are already obligated to pay this person. However, don’t send us more than the ‘Total Amount Due.’”
The form instructs the bank to send the IRS the funds in the account, up to the amount owed.
Step 3: The 21-Day Freeze Period
When the bank receives the levy notice, it places a 21-day freeze on the funds in the joint account. This freeze is required under Section 408(n) of the Internal Revenue Code. Here’s what happens during this period:
- Funds Held Temporarily: The bank holds the levied amount for 21 calendar days.
- Opportunity to Contest: During this freeze, the account holder can contest the levy or negotiate with the IRS to have it released.
The freeze gives taxpayers a chance to resolve the issue before the funds are transferred to the IRS.
After the 21-day freeze period, if no tax resolution is reached or the levy is not contested successfully, the bank proceeds with the actual seizure of funds, transferring the levied amount to the IRS to satisfy the tax debt.
Rights of Joint Account Holders
- Right to Notification: The IRS must send a Final Notice of Intent to Levy before taking money from a joint account. This notice explains the tax debt, the intent to levy, and the rights of account holders. Both liable and non-liable account holders must be notified.
- Right to Review the Notice: Account holders can review the notice to check for mistakes. Verify the amount owed, the tax period, and account details. If there are errors, contact the IRS immediately.
- Right to Explore Payment Options: The IRS offers payment options to avoid a levy.
- Right to Appeal: If you believe the levy is wrong or unfair, you can file an appeal. This lets you explain your case to the IRS and possibly stop or reverse the levy.
- Right to Prove Ownership of Funds: Non-liable account holders can prove the money in the joint account is theirs. Use deposit records, payroll stubs, or transaction histories to show ownership. This can prevent their funds from being taken.
Strategies to Protect Your Joint Account from IRS Levies
Here is a simple checklist that you can follow and protect your share of the funds, based on the information provided:
Preventive Measures
- Keep records showing your contributions to the account, such as pay stubs, deposit receipts, and government benefit statements. These can help establish your ownership if a levy occurs.
- Whenever possible, avoid mixing your funds with someone who may have tax liabilities. Using an individual account reduces the risk of IRS levies affecting your money.
- Social Security benefits, retirement income, and other exempt sources of income retain their protected status even when deposited in a joint account. Maintain clear records to prove the source of exempt funds.
Actions to Take After a Levy
- If the IRS levies the account, you can challenge the action by proving your contributions to the account. Submit detailed records showing the portion of funds that are solely yours.
- If the joint account exists purely for convenience, such as assisting a parent with finances, provide evidence like banking records or utility bills that show the funds belong solely to you.
- Act immediately after receiving a levy notice. Request a hearing to present your case, including proof of contributions or exempt funds, to prevent the IRS from seizing your share.
- Make sure you follow the federal rules to ensure that certain benefits, like Social Security, are protected from garnishment. If these funds are in the account, provide documentation to secure their exemption.
Legal Recourse for Wrongful Levies
If you believe the IRS has wrongly levied your joint account, you have options to challenge it. Here’s what you can do:
- Request a Collection Due Process (CDP) Hearing
You can ask for a CDP hearing within 30 days of getting the Final Notice of Intent to Levy. This lets you appeal the levy before it happens. You’ll present your case to an IRS Settlement Officer.
- Use the Collection Appeals Program (CAP)
File Form 9423 to contest the levy through the CAP. This process is usually faster than a CDP hearing. It can also put a hold on the IRS’s collection action.
- File a Civil Action in Federal Court
You can take action against the United States in federal district court under IRC Section 7426(a)(1). This lets you seek relief from a wrongful levy on your joint account.
- Gather and Present Evidence
Collect documents that prove your ownership of the funds. Bank statements and account agreements can help. Show that the money belongs to you, not the person who owes taxes. - Contact Your Bank
Tell your bank about the wrongful levy right away. Give them proof that you own the funds. Ask about their process for handling IRS levy disputes.
Remember, act quickly when challenging an IRS levy. Each option has strict deadlines. Consider talking to Hopkins CPA Firm for help with your specific situation.
Preventing Future IRS Levies on Joint Accounts
To prevent future IRS levies on joint accounts, consider the following steps:
- Timely Filing and Payment: Always file your tax returns on time and pay any taxes owed promptly. This helps you avoid accumulating debt that could lead to a levy.
- Set Up Payment Arrangements: If you can’t pay your tax debt in full, contact the IRS to negotiate a lower payment than the real whole amount or maybe a payment plan. The IRS offers various options, such as installment agreements, which allow you to pay your debt over time.
- Open Communication with the IRS: Respond promptly to any IRS notices and maintain open communication. If you need assistance or require additional time to pay your taxes, contact the IRS as soon as possible.
- Consider Separate Accounts: If one account holder has tax liabilities, consider maintaining separate bank accounts. This can help protect funds that do not belong to the liable party.
- Document Fund Sources: Keep clear records of who deposits money into joint accounts. This documentation can be helpful if there is ever a dispute about ownership of the funds.
If you are struggling with tax obligations, consider seeking help from a tax attorney or Certified Public Accountant (CPA) at Hopkins CPA Firm. We can guide you through the process and help you explore available options.
Final Thoughts!
Now that we know the answer to, “Can the IRS levy a joint bank account?” — it is a good reminder to think about how you manage shared finances. Sometimes, a joint account isn’t the best choice, especially if there’s a risk of one person’s debts affecting the other.
It might be better to use separate accounts and keep track of who’s contributing what. This way, you can still share access when needed but avoid the stress of shared ownership. You could also look into other ways to handle shared finances that don’t put your money at risk.
At the end of the day, it’s about making smart choices that protect your money. A little planning now can save a lot of trouble later. And if you’re unsure, getting advice from a professional at the Hopkins CPA Firm can really help. Get in touch now.
Can the IRS take money from a joint account if only one person owes taxes?
Yes, the IRS can take money from a joint account if one account holder owes taxes. As long as the person with the tax debt has access to the funds, the IRS can levy the account, even if the money doesn’t belong to them.
We at Hopkins CPA can guide you through the steps to show which funds belong to non-liable account holders. By helping you organize records like deposit histories or payroll documents, we assist in presenting a clear case to the IRS to protect your rightful share.
How long does an IRS levy on a joint bank account last?
An IRS levy on a joint bank account lasts until the bank sends the money to the IRS or the issue is resolved.
Here’s how it works: the bank freezes the account for 21 days. During this time, you can work things out with the IRS or dispute the levy. If nothing changes after 21 days, the bank sends the frozen money to the IRS.
The levy only applies to what’s in the account when the bank gets the notice. Any new deposits aren’t included, but the IRS can issue another levy if needed. So, it’s really about that 21-day window to act.
What happens if the IRS levies a joint account with exempt funds?
If the IRS levies a joint account that contains exempt funds—like Social Security, disability, or retirement income—those funds are still protected by law. They don’t lose their exempt status even after being deposited into the account.
To protect these funds, you’ll need to prove their source. Keep records like deposit slips or benefit statements to show the money came from exempt sources.
Federal rules also provide some relief. Banks are required to leave at least two months’ worth of federal benefit payments in the account untouched. In some cases, this could mean the entire account is protected, even if it’s shared.
How does divorce affect an IRS levy on a joint account?
Divorce does not stop the IRS from levying a joint account if one spouse owes taxes. For joint tax debts incurred during the marriage, the IRS can levy the account, regardless of what the divorce decree says.
For individual tax debts, the IRS may still levy the account if the liable person has access to it. However, the non-liable spouse can contest the levy by proving their ownership of the funds using deposit records or other documentation. Another option can be innocent spouse tax relief services.
