Can the IRS Levy a Joint Bank Account?

The Internal Revenue Service (IRS) collects unpaid tax debts through levies, which are the legal seizure of a taxpayer’s property. This can include wages, retirement accounts, and bank accounts. A common concern for those with shared finances is whether the IRS can levy a joint bank account. The IRS can levy joint accounts, but rules and protections exist for non-liable co-owners. Understanding these procedures is important for anyone with intertwined finances.

IRS Levy Authority and Joint Accounts

The IRS’s authority to levy assets stems from Internal Revenue Code Section 6331, permitting the legal seizure of property to satisfy a tax debt. A bank account levy directs a financial institution to freeze and transfer funds from a taxpayer’s account to cover an outstanding tax liability. This differs from a tax lien, which is a legal claim against property, as a levy actually takes the property.

Before levying any bank account, including a joint one, the IRS must meet prerequisites. It must first assess the tax liability and send a Notice and Demand for Payment. If the taxpayer does not pay, the IRS then sends a Final Notice of Intent to Levy and Notice of Your Right to a Hearing. This notice provides the taxpayer at least 30 days to respond, make payment arrangements, or request a Collection Due Process (CDP) hearing.

The IRS can levy joint bank accounts if one account holder has a tax debt. Initially, the IRS may freeze the entire balance, even if only one party owes the tax, presuming all funds in the account are available for collection. However, the agency must assess the liable taxpayer’s equitable interest before seizing funds. While the IRS can initially freeze the full amount, the non-liable party has an opportunity to prove their ownership share.

Establishing Ownership in Joint Accounts

When an IRS levy impacts a joint bank account, determining ownership interests is important, as the IRS seeks to levy only the portion legally belonging to the taxpayer with the outstanding debt. Proving this equitable interest involves demonstrating the source and contribution of funds by each account holder.

State laws influence how the IRS views funds in a joint account. In community property states, marital assets are considered jointly owned, regardless of who earned the income, meaning the IRS may claim the entire balance if one spouse owes taxes. In other states, ownership is based on who contributed the funds, allowing a non-liable party to show their distinct share.

To demonstrate their contribution or ownership share, a non-liable co-owner should gather documentation. Evidence may include pay stubs, deposit slips, and bank statements showing deposits and withdrawals. Agreements between account holders can also serve as supporting evidence. The goal is to trace the source of funds and establish that a portion belongs to the non-liable party, limiting the IRS’s reach to only the tax debtor’s share.

Protecting a Non-Liable Owner’s Funds

Non-liable co-owners facing an IRS levy on a joint account can take steps to protect their share or reclaim levied amounts. Upon receiving a levy notice, the bank freezes funds for 21 days before sending them to the IRS, providing a window for the non-liable party to act.

To assert an ownership claim, the non-liable party should contact the IRS immediately. They must provide documentation, such as evidence showing their contributions to the account. This documentation helps differentiate their funds from the liable taxpayer’s. While no universal form exists for third-party claims, the IRS reviews claims supported by detailed financial records.

The IRS reviews claims and may request additional information or conduct interviews to verify ownership. Timely action is important; submitting evidence quickly can increase the chances of protecting or recovering funds. If the IRS determines the funds do not belong to the liable taxpayer, they may release the levy on that portion. This process requires adherence to IRS procedures and prompt communication.

Actions After a Joint Account Levy

After a levy on a joint bank account, funds up to the tax debt amount are frozen by the bank. The bank is legally obligated to comply with the IRS levy notice. After the 21-day holding period, if no resolution or successful challenge occurs, the bank remits the frozen funds to the IRS to satisfy the tax debt.

For the liable party, a levy signals the urgency of resolving the tax debt. Options include an installment agreement for monthly payments, or, if eligible, an Offer in Compromise (OIC) to settle the tax debt for a lower amount. These actions can lead to a levy release and prevent future enforcement. The IRS may also release a levy if it causes immediate economic hardship, preventing the taxpayer from meeting basic living expenses.

For the non-liable party, if an ownership claim was made before funds were remitted, follow up with the IRS on its status. If a levy occurred without prior protective action, the non-liable party can still dispute it by providing evidence the seized funds belonged to them. Communication with the IRS is important for both parties to discuss the levy’s status, address discrepancies, or explore resolution pathways. While the IRS may not return funds once remitted, successful claims can lead to a refund if the levy was wrongful.