Can the IRS levy a business account for personal taxes? Yes, but it depends on the business structure. If the business is a sole proprietorship, the IRS can levy the business account for personal tax debts. But for corporations and LLCs with separate finances, personal tax issues shouldn’t affect business accounts. This article breaks down when and how the IRS can levy business accounts and what you can do to protect your finances.

A levy is the legal seizure of property or assets to pay off an outstanding tax debt, which is different from a tax lien that’s just a claim against property.

Quick Facts

• The IRS can levy a business account to collect unpaid taxes, but can’t seize business accounts for personal tax debts.
• Businesses facing a levy must respond quickly to IRS notices to avoid severe financial consequences and have the right to request a hearing to negotiate.
• To prevent future levies, businesses should file timely, pay regularly on tax liabilities and work with tax pros for compliance and resolution strategies.
• An IRS levy is a sign of a serious tax problem that needs immediate attention.

IRS Levies on Business Accounts

 

An IRS levy is a legal way for the government to take property to collect unpaid taxes. For businesses, this means a bank levy where the IRS seizes funds in your business bank account to pay your tax debt. The IRS sends a levy form to the bank which authorizes the bank to freeze and seize funds from the account. The IRS can also seize funds from other types of accounts, retirement accounts and may even target personal property like vehicles or business equipment if necessary. This can be devastating to any business especially if it relies on cash flow for daily operations. IRS bank levies can make things worse for struggling businesses.

The IRS can levy a business account if the business owes taxes. This isn’t a decision made overnight. It’s usually the result of prolonged non-payment and ignoring multiple collection attempts by the IRS. Once you get a Final Notice of Intent to Levy, it’s a clear sign you need to act fast.

Understanding this is key for any business owner. Knowing the signs early and what to do can mean the difference between a temporary setback and a financial income disaster.

Tax Liens vs Tax Levies

A tax levy involves the legal seizure of property to pay tax debt. This means the IRS can:

• Take funds directly from your bank account
• Garnish your wages
• Seize assets or other assets. It’s a powerful tool used by the IRS to ensure compliance and recover unpaid taxes.

A tax lien is a claim against your property that secures the government’s interest in your assets for payment of your tax debt. It’s important to understand that while a lien gives the IRS a legal claim to your property, it doesn’t involve immediate seizure like a levy does. The lien simply ensures that the government gets paid if you sell the property.

Tax Levies and Different Types of Business Entities

Understanding how tax levies affect different types of business entities is key for both business owners and taxpayers. The IRS treats various business structures differently when it comes to levying accounts to satisfy tax debts, especially when distinguishing between personal taxes and business taxes.

In the case of sole proprietorships, the IRS can levy the business bank account to collect unpaid taxes. The IRS may also target other income sources, such as contract payments or other income, if the tax debt is not resolved. However, certain types of income, such as disability payments or unemployment benefits, may be exempt from IRS levies, so business owners should be aware of these exemptions.

Sole Proprietorships

In a sole proprietorship, there is no legal separation between the owner and the business. This means that the business’s bank account is considered the owner’s personal account for tax purposes. So if the sole proprietor owes personal taxes or back taxes, the IRS can levy the business bank account to collect those debts. This is because the IRS views the funds in the business account as the personal funds of the taxpayer.

Partnerships

Partnerships are treated as separate entities for tax purposes, but the partners themselves are personally liable for their share of the partnership’s tax obligations. The IRS can levy the partnership’s business bank account to collect unpaid business taxes owed by the partnership. But the IRS can’t use the partnership’s business account to collect an individual partner’s personal tax debts. Conversely, the IRS could levy a partner’s personal bank account for their individual tax liabilities.

Corporations and Limited Liability Companies (LLCs) with Multiple Owners

Corporations and LLCs with multiple owners are distinct legal entities separate from their owners. This separation provides protection of the owners’ personal assets and bank accounts from business liabilities, including tax debts. The IRS can only levy the business bank accounts of corporations or LLCs to satisfy business tax debts owed by the entity itself. Personal tax debts of the owners cannot be collected through the business accounts of these entities.

It is essential for owners of corporations and LLCs to maintain clear separation between personal and business finances. Proper bookkeeping and separate bank accounts help ensure that personal tax issues do not affect the business’s financial operations and vice versa.

Single-Member LLCs

Single-member LLCs are often treated as disregarded entities for tax purposes, meaning the IRS may treat the LLC’s finances as the owner’s personal finances. In such cases, the IRS may have the authority to levy the LLC’s business bank account for the owner’s personal tax debts. However, this depends on how the LLC is classified for tax purposes and whether the owner maintains separate financial records.

Understanding Entity Structure

Knowing how the IRS can levy accounts based on business structure helps taxpayers protect their assets and plan accordingly. For example, incorporating a business or forming an LLC with proper financial separation can shield personal assets from business tax levies. Conversely, sole proprietors should be particularly mindful of their tax obligations as their business accounts are vulnerable to levies for personal tax debts.

Working with Tax Professionals

CPAs and enrolled agents can provide guidance tailored to a business’s legal structure. They can help navigate complex tax law, negotiate with the IRS and develop tax resolution strategies that protect both personal and business assets. Consulting with tax professionals early can prevent costly levies and other collection actions.

Understanding tax levies and entity structure empowers business owners and taxpayers to take proactive steps in managing their tax liabilities and safeguarding their finances. Many tax professionals offer a free consultation, so business owners can explore their options and get expert advice without obligation.

How the IRS Levies a Business Bank Account

 

The process starts with the IRS sending a CP504 Notice which is often followed, if unresolved, by a CP523 Notice.

• Notifies the business about the impending levy
• Is a critical document that alerts the taxpayer to the seriousness of the situation and the need to act immediately
• Informs taxpayers of their right to request a hearing before the levy of their bank account

Once the notice period has passed the IRS sends Form 668-A to the bank as part of the levy process. The steps are:

• The bank must freeze the business account.
• The bank will withdraw the specified amount.
• From the moment the bank received the IRS levy, frozen funds are held and must be held for 21 days before the IRS receives them.

This 21-day period is called taxpayer time, which is the time allocated to the taxpayer to respond, dispute or resolve the tax issue before the funds are sent to the IRS.

During this period the business can still negotiate with the IRS or make arrangements to pay the debt. But if no resolution is reached the funds are sent to the IRS and the business is severely limited in its operations. Also, while the levy is in place, funds deposited after the levy are not affected.

Understanding this process is crucial for any business owner. Knowing the steps and the timelines can help you take the necessary actions to minimize the impact on your business.

Conditions for Business Bank Account Levies

There are specific conditions under which the IRS will levy a business bank account. Typically businesses must be in substantial debt and have ignored previous collection attempts for the IRS to take such action. This often includes unpaid taxes that have accumulated over several years and have caused financial hardship.

Unpaid tax payments not addressed will increase the risk of an IRS levy. If you don’t respond to the IRS’s claim, intensified collection activity will follow and ultimately a levy. The IRS must send a notice explaining the levy and give 30 days for the business to respond. During this period the business can request a hearing, make payment arrangements or propose other arrangements such as setting up a payment plan to resolve the debt and prevent enforcement actions. If the business doesn’t respond the IRS may pursue other enforcement actions such as a wage levy in addition to bank account levies.

Not responding to an IRS notice by the deadline will result in a levy. To avoid this situation you must address any IRS final notice communication promptly and take the necessary steps to resolve outstanding tax issues with the IRS immediately.

Receiving a Final Notice: What It Means and Why It Matters

Receiving a Final Notice of Intent to Levy from the IRS is a pivotal moment for any taxpayer or business. This notice signals that the IRS is prepared to take serious action—such as seizing assets or levying bank accounts—to collect unpaid tax debt. The final notice outlines the total tax liability owed, including any accrued interest and penalties, and serves as the last opportunity for taxpayers to address their tax issues before the IRS initiates a levy.

The intent to levy notice is not just a formality; it is a clear warning that the IRS will proceed with collection actions if the tax debt remains unresolved. Taxpayers who receive this notice should act immediately by reviewing the details, understanding the amount owed, and exploring available options to prevent the levy. These options may include negotiating an installment agreement to pay the tax debt over time, making a lump-sum payment, or demonstrating financial hardship to potentially halt the levy process.

Ignoring a final notice can result in the IRS levying bank accounts, garnishing wages, or seizing other assets. To avoid these severe consequences, it is crucial to consult with tax professionals who can help evaluate your situation, communicate with the IRS, and develop a strategy to resolve your tax liability. Taking prompt action in response to a final notice can make the difference between regaining control of your finances and facing aggressive IRS levies.

Business Bank Account Levy Consequences

When the IRS levies a business bank account the consequences are immediate and far reaching. A bank account levy freezes the funds in your business bank account for 21 days making them unavailable for business operations. This can disrupt your ability to pay employees, cover rent, purchase inventory or meet other critical financial obligations. If the tax debt is not paid the IRS will withdraw the levied funds and apply them to your outstanding balance leaving your business without the funds to operate.

Repeated IRS levies will continue until the tax debt is paid in full, compounding financial hardship and threatening the long term viability of your business. Loss of access to business assets and funds can damage relationships with vendors, erode employee trust and even lead to insolvency if not addressed quickly.

Business owners facing a bank account levy should seek immediate help from tax attorneys or enrolled agents who specialize in tax resolution. These professionals can help you understand your rights, negotiate with the IRS and explore options such as installment agreements to manage your tax debt. Acting fast is key to minimize disruption, protect your business assets and get your business bank account back in good standing.

What to Do Immediately When Your Business Account Is Levied

 

If your business account is levied, the first step is to contact a tax professional right away. These experts can guide you through the process and help gather the necessary documentation.

A frozen account can’t pay rent or other critical expenses so time is of the essence to resolve the issue.

Gather all relevant documentation that shows ownership of the funds if you have signature authority. This will help prove the funds in the levied account are not subject to the levy.

Follow the instructions in the Final Levy Notice to request a Collection Due Process hearing and adhere to those guidelines. This is your opportunity to present your case and negotiate with the IRS. Remember the IRS requires a 21 day waiting period after a levy on a bank account so you have some time to address the issue.

How to Release a Business Bank Account Levy

One way to release a levy is to negotiate with the IRS for an alternative payment plan. This can include livable monthly payments to manage your finances while you address your tax debt. Demonstrating financial hardship is another way to stop a levy. If the levy prevents you from paying basic living expenses the IRS may release it. The IRS uses the standard deduction, your filing status and number of dependents to determine the portion of your wages or income that is exempt from levy which can impact levy release negotiations.

Taxpayers have the right to appeal if a request to release a levy is denied. The IRS must lift a levy if:

• The taxpayer has paid the amount owed.
• The collection timeframe has expired.

The IRS may also release a levy if the value of the property under levy exceeds the taxes owed. Contacting the IRS and addressing the tax liabilities quickly can help resolve the issue and get the levy released.

How to Protect Your Business Assets from IRS Levies

Protecting your business assets from IRS levies starts with proactive tax management and compliance. Businesses should prioritize timely filing of tax returns, making all federal payments and staying current on their tax obligations to avoid IRS collection activity. Being in good standing with the IRS reduces the risk of a levy on your bank accounts, accounts receivable or other business property.

Also keep in mind which business assets the IRS can target. The IRS can levy bank accounts, seize accounts receivable and claim other business property to satisfy tax debt. To protect these assets businesses should keep personal and business funds separate, maintain accurate and up to date financial records and address tax debt as soon as it arises.

Consult with tax professionals like those at Fortress Tax Relief or Highland Tax Group to get guidance on IRS procedures and how to protect your business’s financial health. They can help you develop strategies to prevent levies, respond to IRS notices and keep your business in compliance and resilient to tax challenges.

Avoiding a Levy with an Installment Agreement

An installment agreement is a practical solution for taxpayers to manage tax debt and avoid the harsh consequences of an IRS levy. By setting up a payment plan you can pay your tax liability in manageable monthly installments and the IRS can’t seize your assets or levy your bank accounts as long as you stay in compliance with the agreement.

To apply for an installment agreement taxpayers typically submit Form 9465, Installment Agreement Request and may need to provide financial information to determine the monthly payment amount. The IRS will approve installment agreements for taxpayers who owe $50,000 or less in combined tax, interest and penalties and have filed all required tax returns.

Entering into an installment agreement shows you are committed to resolving your tax debt and can stop further collection activity including levies. It’s wise to consult with tax professionals to ensure you qualify, negotiate favorable terms and stay in compliance during the repayment period. Taking this proactive step can help you get back in control of your finances, protect your bank accounts and avoid the disruption of an IRS Fresh Start Tax Program levy.

Preventing Future IRS Levies on Business Accounts

 

To prevent future IRS levies on business accounts consider:

• Timely filing of tax returns
• Making payments on taxes owed
• Staying compliant with IRS requirements
• Setting up monthly payment arrangements to meet your tax obligations proactively

These will help prevent a levy.

Addressing IRS billing notices promptly can prevent levies. If can’t pay the full tax amount businesses should pay as much as possible and discuss options with the IRS. Setting up a payment plan can be a way to pay tax debt and minimize the risk of levies. Pay the tax on time to avoid further complications.

Tax professionals can help resolve tax problems before they become levies by negotiating with the IRS and providing solutions for your business, such as installment agreements or offers in compromise. They can also advise on how to prevent future tax issues, including better recordkeeping and accurate tax filings. Staying compliant and avoiding business tax issues will keep your business in good standing with the IRS.

Role of Tax Professionals in Resolving Business Bank Account Levies

Tax professionals are key in resolving bank levies by:

• Providing expertise on IRS procedures
• Advocating for clients
• Suspending the levy
• Negotiating a compromise with the IRS on behalf of the business owner and banks.

Tax professionals offer services such as:

• Negotiating for the release of levies
• Offers in Compromise
• Setting up installment agreements with the IRS. They can also represent clients directly, so business owners don’t have to deal with the IRS personally during disputes.

Overall having a good tax professional can make a big difference in resolving a levy situation for a business.

Conclusion

In summary, understanding and addressing IRS levies on business accounts is crucial for financial stability. From recognizing the signs of a potential levy to taking immediate action and using effective strategies for release being proactive can make all the difference.

Seeking the help of tax professionals can provide the expertise and support to navigate these situations. By staying compliant and addressing issues promptly businesses can avoid the harsh consequences of an IRS levy.

FAQs

Can the IRS seize an LLC for personal taxes?

The IRS generally can’t seize the assets of an LLC for personal taxes as the LLC is a separate legal entity that protects its members from personal liability. This legal distinction protects the members’ personal assets from being targeted for the LLC’s obligations.

Can the IRS levy my business account for personal taxes?

The IRS can’t levy your business account for personal tax debts as they are separate. Your business assets are usually protected from personal tax levies.

What should I do if my business account is levied?

If your business account is levied contact a tax professional right away, gather necessary documentation and request a Collection Due Process hearing. Act fast to address the situation.

How can I release a business bank account levy?

Negotiate with the IRS for an alternative payment plan, show proof of financial hardship or appeal a denied request for levy release. This will get you access to your funds fast.

How can I prevent future IRS levies on my business account?

File tax returns on time, pay taxes on time, set up payment plans if needed and address IRS notices proactively. This will keep you compliant and safe.

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Massey and Company CPA is a boutique tax and accounting firm serving individuals and small businesses in Atlanta, Chicago and throughout the country.  Our services include tax return preparation, tax planning for businesses and individuals, estates and trusts, IRS tax problem resolution, IRS audits, sales taxes and small business accounting and bookkeeping.