Can the IRS Levy a Joint Bank Account For Back Taxes?

If you owe the IRS money for unpaid taxes, you probably already know that the IRS can potentially use a bank levy to collect your tax debt. But did you also know that the IRS can take money from other people while attempting to satisfy your tax debt? This might occur if you have a joint bank account with someone else who doesn’t owe anything to the IRS, such as a child, parent, spouse, or business partner.

In this blog post, we’ll address how this is possible and ways you can prevent it from happening to you. To protect your finances and get help now, contact us at Seattle Legal Services today.

Key Takeaways

The IRS may levy a joint bank account even if only one account holder owes money to the IRS.
The IRS levies a bank account by sending Form 668-A to the bank, informing them of the levy and ordering them to freeze the funds in the bank account for 21 days.
After the passage of the 21-day waiting period, the bank must transfer the levied funds to the IRS unless the IRS informs the bank of a release of the bank levy.
The best way to avoid a bank levy is to pay off the tax debt or make proactive payment arrangements, such as an installment agreement or payment plan.
If the IRS takes money from the account holder who doesn’t owe the IRS, that account holder may contact the IRS to have the money returned by proving ownership of the levied funds.

What Is a Bank Levy?

A tax levy is the seizure of property to satisfy a tax debt. A bank levy is a type of tax levy where the property seized is the money in a bank account. Both individual and joint bank accounts are subject to tax levies, even if the joint account has only one owner, but two people with signature authority (the owner plus an authorized signer).

It usually takes some time for an unpaid tax to go from the mailing of a tax bill to the taking of property. But once it gets to the point of property seizure, bank accounts are high on the IRS’s priority list of assets to target, as opposed to other assets, like real estate, vehicles, or personal property. Bank accounts are at risk because they’re easier to seize than physical assets.

How Does the IRS Levy a Bank Account?

Before the IRS levies a bank account, it will have sent a series of notices and letters reminding you about the unpaid tax bill and warning you of what could happen if you don’t pay it off in full or make payment arrangements. If you don’t respond, you may receive a Notice of Intent to Levy, such as Letter 1058, or LT11. These notices give you 30 days to respond, or the IRS will move forward.

Once the IRS decides to levy your bank account, it will send IRS Form 668-A (Notice of Levy) to your bank. The bank then freezes the funds in the bank account being levied; neither you nor the other account holder may access the frozen funds. It’s important to note that the bank only freezes the funds as of the day of the levy. Generally speaking, future deposits aren’t subject to the bank levy.

There’s a 21-day waiting period before the bank sends the money to the IRS. This 21-day clock begins on the date Form 668-A is delivered to the bank (typically by mail).

During this time, the bank should notify you of the levy, and if you (or the other account holder) disagree with it, now’s the time to contact the IRS and explain the situation.

Unless the IRS contacts the bank stating otherwise (such as informing the bank of a release of levy), at the end of this waiting period, the bank will send the money in the levied account (up to the amount listed in the levy) to the IRS.

Why Is the IRS Allowed to Take Money from Joint Bank Accounts?

The U.S. Supreme Court case, United States v. National Bank of Commerce, declared that the IRS could levy on jointly held bank accounts even though only one of the account holders owed money to the IRS. The Supreme Court also concluded that the IRS wasn’t required to identify what funds in the joint bank account belonged to the account holder with the tax debt before issuing the bank levy.

This sounds a bit unfair, but there are at least two reasons why the Supreme Court reached this conclusion.

The Court reasoned that the right to withdraw money from the bank account qualified as “property subject to a levy.” Put another way, simply having legal access to money was enough of a property interest to make a joint bank account subject to a levy.
The innocent account holder has the right to seek the return of money taken by the IRS through the bank levy (assuming that the money belonged to them and not the taxpayer with the tax debt). For instance, they can contact the IRS for a levy release by providing documentation that shows it was their money that was taken.

Stopping the IRS From Taking Money from Family Members

There are two primary ways to prevent the IRS from taking money from a joint bank account (whether it’s with a family member or business partner). The first option is to stop the bank levy, and the second option is to protect the other account holder from IRS collection actions.

Ways To Avoid Bank Levies

Paying your tax bill in full is the most effective way to prevent or get rid of a bank levy, but it’s probably the most difficult. Assuming this isn’t an option, you can contact the IRS to reach another tax debt settlement arrangement, but typically, you need to do this before the levy hits your bank account. Some possibilities include:

Submitting an offer in compromise.
Requesting an installment agreement or payment plan to pay off your tax balance over time.
Obtaining Currently Not Collectible (CNC) Status.
Filing an appeal through the Collection Appeals Program (CAP).
Requesting a release of the levy.

How to Get a Stop a Bank Levy

The IRS may agree to release a levy of the bank account if you can show that releasing the levy will make it more likely you can pay your taxes or that the bank levy keeps you from paying for basic living expenses (economic hardship). A release is also possible if you can show that the funds in the joint account don’t belong to you. This might happen if you were only an authorized signer and all of the money going into the account belonged to someone else.

The IRS also must remove the levy if you can prove that it was done in error. For instance, if the IRS didn’t send you the correct notices, they’ll have to remove the levy from your bank account.

Protecting Joint Account Holders from the IRS

Here are some steps you can take to protect others from a joint bank account tax levy:

Avoid having a joint bank account with anyone not connected to you financially.
Remove yourself from any existing joint bank accounts where your co-owner or authorized user status isn’t necessary.
If you must have a joint bank account with someone who isn’t involved with your taxes, maintain detailed records that show what deposits belong to which account holder.
Act promptly when contacted by the IRS about unpaid taxes.

A Tax Attorney Can Help Protect Joint Bank Accounts

Dealing with unresolved tax issues is challenging enough. The last thing you need is to learn that the IRS is going to take someone else’s money to satisfy your tax debt. This can be especially hard to accept when the money belongs to someone you’re caring for, such as a child or an elderly parent.

If you learn that the IRS may levy your property and you have a joint bank account, consider talking to a tax professional. Seattle Legal Services, PLLC, has experience helping people find tax relief for unresolved tax issues, as well as protect family members and loved ones from the IRS. Get started by calling 425-428-5262 or using our online contact form.

Joint Bank Account Levy FAQs

When can the IRS take money from a joint bank account?

The IRS will use other attempts to collect an unpaid tax bill before levying your property. Only after a series of notices fail to resolve your tax debt will the IRS try to take money from a bank account. Oftentimes, these are individually owned bank accounts. Joint bank accounts often arise when:

A married couple wants to combine finances that include a single bank account they can both use.
A bank requires a minor child to open a bank account jointly with a parent.
Business partners or owners want to share a business bank account.
Co-owners for a bank account split up (a business dissolves or a couple divorces), but forget to close their joint bank account or remove the other person from the account.

Can I get my money back from the IRS if the other joint account holder owes the IRS money?

Yes. Even if the IRS rightfully levied a joint bank account, if you can show that the money they took belonged to you and not the delinquent taxpayer, the IRS is legally obligated to return the funds to you. You should expect to provide documents substantiating your claim; your word will likely not be enough.

How much time do I have after the IRS sends my bank the levy notice?

In most cases, you have 21 days from the date the bank receives the levy to the date the IRS receives money from the levied bank account.

Can the IRS levy my child’s joint bank account with me?

It depends. If your child is a legal adult, then the fact that they’re your child offers no additional levy protections. In other words, the IRS will treat your child like any other joint account holder.

However, things might be different if you’re a joint owner because the bank only allows minors to have bank accounts jointly with a parent. In this situation, the IRS can’t levy the joint account with your child unless the IRS can show they had a lien that attached to the funds before they were deposited into the joint account.

What if the account has money from my parents’ Social Security payments?

Assuming you’re the one with the tax debt, the IRS can still take any of the money from the account. However, if your parent proves that the money the IRS took didn’t belong to you and instead belonged to them, then they can ask the IRS to release the levy.