Today TaxMama hears from Marhall in Alabama, who complains. “My bank paid an IRS Levy with no funds in my account. They mailed me a letter previous to sending the funds to the IRS stating my funds were being held. I was able to withdraw these funds through their ATM with my debit card, which left insufficient funds to pay the levy. The bank has filed a suit in small claims court seeking repayment of these funds claiming that my account is in overdraft. My contention is they paid the IRS with insufficient funds in the account and did not exercise due diligence in controlling the funds.”
Well, Marshall, you’re in trouble. But…maybe not. Depends on how smart the judge is.
Here’s how the process is supposed to work.
1) Your bank gets a levy notice from IRS, which requires they give IRS the amount of the levy, or the total amount of money in the account on the day of the notice, whichever is lower.
2) Your bank freezes your account for the appropriate amount on the day of the notice.
3) You should get a copy of the levy notice from either IRS or the bank, which gives you about 20 days from the date of the notice to resolve this with IRS – or the bank must turn over
the funds. In this case, the bank notified you.
4) You should not have been able to take any money out of your bank via your ATM, unless the balance in your account on the day you drew the funds was higher than the balance
in the account on the day of the levy. The funds should have been frozen.
You should have received a message telling you that you had exceeded your balance. The little statement printout should have summarized something like this:
Funds in the account $400
Funds available for use $200
Once the levy hit the account, it was the bank’s responsibility to prevent you from drawing it.
But, since you drew out that money after you received the levy notice, to deliberately get it out of IRS’s hands, you’re breaking Federal laws. I would not being going to court and blaming the bank for lack of due diligence. A smart judge would throw the book at you!
And they’d lecture you about taking responsibility for your actions.
On the other hand, the bank never should have given you access to that money. It was their responsibility to freeze those funds. And they never should have sent the money out to IRS if there were insufficient funds in the account. So, you do have a defense. Worth trying, since you have no other choice.
But remember, no matter what happens with the bank, you still owe IRS enough money to have them go to the effort of putting levies on your bank account. If you don’t take care of this with IRS right away, your paycheck is next.
And remember, you’ll find answers to questions about IRS Collections and all kinds of tax issues, free. Where? Where else? At TaxMama.com
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