We may earn a commission for purchases through links on our site at no cost to you, Learn more.
- The IRS can levy a joint bank account if one account holder owes taxes.
- A levy allows the IRS to freeze and seize funds from bank accounts, including joint accounts.
- Joint bank account ownership implies shared access, which can make funds eligible for IRS levies.
- The IRS assesses account terms, source of funds, and state laws before levying joint accounts.
- Certain state property laws affect the IRS’s ability to levy a joint account fully or partially.
- Account holders can contest a levy by proving their ownership share or requesting a due process hearing.
- Strategies like maintaining separate accounts and documenting contributions help protect joint account holders.
- In community property states, married couples may be more vulnerable to IRS levies on joint accounts.
- Business partners sharing an account should formalize ownership to protect individual contributions.
- Proactively managing tax debts and consulting professionals can reduce levy risks on joint accounts.
Can the IRS Levy a Joint Bank Account?
When dealing with taxes, many people wonder, “Can the IRS levy a joint bank account?” This question stems from understandable concerns about financial security, especially when shared accounts are involved. Tax levies can be complicated, particularly when it comes to accounts held jointly with another person, like a spouse, family member, or even a business partner. A levy means the IRS can legally seize funds to satisfy a tax debt, but joint accounts raise unique questions about rights, ownership, and liability.
This blog post explores the topic in depth, covering how and when the IRS can levy a joint bank account. We’ll look at what defines a joint account, the different factors the IRS considers before levying such accounts, and the rights of individuals who share them. By understanding these factors, taxpayers can better protect themselves and prepare for any potential IRS actions.
Understanding IRS Levies
The IRS has a range of tools for collecting unpaid taxes, and a levy is one of the more aggressive methods. When the IRS issues a levy, it can seize property and assets like wages, bank accounts, real estate, and even vehicles. Before it reaches this point, the IRS typically sends multiple notices and demands for payment, giving taxpayers chances to settle their debts voluntarily.
A levy differs from a lien. A lien secures the IRS’s interest in a taxpayer’s property for the amount of unpaid taxes, while a levy allows the IRS to take the property outright. In the case of a bank levy, the IRS issues an order to the bank to freeze the funds in the account. After 21 days, those funds are transferred to the IRS unless the taxpayer successfully contests the levy or resolves their debt. But what happens if the account is shared with someone else? Can the IRS levy a joint bank account in the same way it does a single-holder account?
What Is a Joint Bank Account?
A joint bank account is one held by two or more people, often for shared household expenses, business purposes, or joint financial goals. Each account holder has access to and control over the funds within the account. In legal terms, ownership is considered joint, meaning that each person has a stake in the total balance, regardless of individual contributions. Common scenarios include married couples sharing an account, parents and children opening accounts for mutual accessibility, or business partners managing joint funds.
The IRS recognizes the complexity of joint accounts but generally views each account holder as having access to all funds. This means that if one account holder owes taxes, the IRS may attempt to levy the entire balance, assuming that the debtor has equal access to it. However, the actual process can vary depending on several factors.
How the IRS Determines Account Ownership and Levy Eligibility
When considering levying a joint bank account, the IRS doesn’t simply assume that every dollar belongs to the delinquent taxpayer. Instead, it assesses several factors to determine the level of ownership the taxpayer has in the account:
- Account Agreement Terms: The IRS will examine the terms outlined in the account agreement. Some joint accounts specify that each holder has a 50% stake, while others may suggest unequal ownership based on deposits or contributions.
- Source of Funds: If the taxpayer can prove that the majority of funds come from a non-debtor account holder, the IRS may reduce or release the levy on the account. For example, if a parent and child share an account and the funds are primarily deposits from the parent, this may impact the IRS’s decision.
- State Property Laws: State-specific laws about joint ownership can influence IRS actions. Some states classify joint accounts as “tenants in common,” while others consider them “joint tenants with rights of survivorship.” These classifications impact the perceived ownership each party has in the account.
By evaluating these factors, the IRS decides how much of the joint account it may levy, but often the entire balance is frozen during the initial process.
Types of IRS Levies and Their Application to Joint Accounts
Not all IRS levies are the same, and understanding the distinctions can shed light on how the agency approaches joint bank accounts. Here are some common types of levies:
- Bank Levies: This is the most relevant type for joint accounts. A bank levy directly targets accounts held in a financial institution and freezes the assets for potential seizure.
- Wage Garnishment: This type of levy takes funds directly from a taxpayer’s wages, meaning joint accounts aren’t directly affected. However, the resulting financial strain might affect any shared funds in the account.
- Property Seizure: While this applies to physical assets, it indirectly impacts joint accounts if one account holder loses other sources of income or property.
In the case of bank levies, the IRS is likely to freeze the entire account balance, although it may ultimately claim only a portion after determining the taxpayer’s actual ownership share. This is why understanding how the IRS views joint ownership is crucial.
Options to Contest an IRS Levy on a Joint Account
If the IRS decides to levy a joint bank account, all account holders have the right to contest the levy. Here’s how this process usually works:
- Prove Ownership Shares: The non-debtor party can present documentation to prove that most or all of the funds in the account belong to them. This could include pay stubs, deposit records, or other financial statements.
- Request a Collection Due Process Hearing: Both parties can request a hearing to contest the levy. This hearing allows taxpayers to argue their case, potentially resulting in a reduction or release of the levy.
- File an Appeal: If the IRS denies the initial request for a hearing or upholds the levy, an appeal may be filed for further review.
- Submit an Innocent Spouse Claim: If the joint account is held by a married couple, the non-debtor spouse may file for Innocent Spouse Relief, especially if the debt in question is related to prior individual tax issues.
These options are essential for joint account holders seeking to protect their share of the account funds.
Ways to Protect a Joint Bank Account from an IRS Levy
Understanding how to safeguard a joint bank account from an IRS levy is critical, especially if one account holder has tax liabilities. Here are some practical steps that can help reduce risk:
- Limit Account Holders: If a taxpayer anticipates financial trouble with the IRS, limiting joint account holders can protect other parties from potential levies.
- Maintain Separate Accounts: For couples or family members, maintaining separate accounts can prevent one party’s tax issues from impacting the other’s finances.
- Document Ownership Contributions: Keeping a detailed record of who deposits what into the account can help establish ownership proportions, potentially protecting a non-debtor’s share.
- Explore Tax Resolution Options: Resolving tax debts early, such as through an installment plan or Offer in Compromise, can eliminate the risk of levies on any accounts, including joint accounts.
Proactively managing these factors can prevent the IRS from viewing the account as fully accessible for tax collection.
How State Laws Impact IRS Levies on Joint Accounts
State laws play a substantial role in how the IRS treats joint bank accounts during the levy process. While federal tax laws are consistent nationwide, state property laws differ. Here’s a breakdown of common property classifications:
- Tenants in Common: Some states classify joint accounts under this label, where each person owns an individual share of the account. This setup can help limit the IRS’s ability to levy the entire account balance.
- Joint Tenants with Rights of Survivorship: Other states view joint accounts as shared entirely, meaning each party has full ownership. In this case, the IRS may be able to claim the full balance if one party owes taxes.
- Community Property States: In community property states like California and Texas, marital assets (including joint accounts) may be viewed as shared, allowing the IRS to access the full account to settle one spouse’s debt.
Knowing your state’s property laws can help you anticipate the IRS’s approach if a tax debt arises and affects a joint account.
Additional Considerations for Business Accounts
When a joint account is shared between business partners, the IRS may take a different approach to a levy. Business accounts are often structured with clear ownership documentation, making it easier for non-debtor partners to assert their stake if a levy is issued. However, if the business account is under a sole proprietorship with a single taxpayer liable for the debt, the IRS may treat the entire balance as accessible.
It’s critical for business partners to formalize account ownership percentages and maintain detailed financial records to protect their contributions.
Frequently Asked Questions
Here are some of the related questions people also ask:
Can the IRS levy a joint bank account if only one person owes taxes?
Yes, the IRS can levy a joint bank account even if only one account holder owes taxes. However, it considers factors like ownership terms and state laws when deciding how much to levy.
How does the IRS determine ownership in a joint bank account?
The IRS reviews the account agreement, deposit history, and state property laws to assess each account holder’s ownership share, which can influence the amount subject to levy.
Can a non-debtor protect their funds in a joint bank account from an IRS levy?
Yes, the non-debtor can contest the levy by proving their contributions and ownership share, often by providing deposit records or financial statements to the IRS.
What are the options to stop an IRS levy on a joint bank account?
Options include requesting a Collection Due Process hearing, proving ownership shares, filing an appeal, or seeking Innocent Spouse Relief if applicable.
How does state law affect IRS levies on joint bank accounts?
State laws influence how the IRS views joint ownership. For example, in community property states, the IRS may treat marital assets as shared, allowing for broader levy access.
Can business accounts be levied by the IRS if they’re jointly owned?
Yes, business accounts can be levied if one partner owes taxes, but clear ownership documentation may help non-debtor partners protect their share.
What is the difference between a lien and a levy by the IRS?
A lien secures the IRS’s interest in a taxpayer’s property, while a levy allows the IRS to seize assets, including funds in bank accounts, to satisfy a tax debt.
What steps can couples take to protect joint accounts from IRS levies?
Couples can maintain separate accounts, document individual contributions, resolve tax debts early, and consult a tax professional to reduce the risk of levies.
How long does the IRS hold funds after issuing a bank levy?
After issuing a bank levy, the IRS typically holds funds for 21 days, allowing time for the taxpayer to contest the levy or settle their debt before the funds are transferred.
The Bottom Line
So, can the IRS levy a joint bank account? The answer is a qualified yes. While the IRS can issue a levy against a joint account, the process is more nuanced than with a single-holder account. The IRS considers factors like the account’s terms, the source of funds, and state property laws before determining how much it can claim. Joint accounts are especially vulnerable in community property states or when both account holders are married.
However, joint account holders aren’t powerless. They can contest the levy, proving their individual ownership stakes and requesting a hearing. Strategies such as maintaining separate accounts, documenting ownership shares, and pursuing early tax resolutions also offer protection. Additionally, understanding your state’s property laws and account classifications can provide insight into how the IRS might handle a joint account levy.
For taxpayers with joint accounts, proactive measures are crucial. If you or a joint account holder is facing potential tax issues, consulting a tax professional early on can prevent or minimize the impact of a levy. By taking these precautions and understanding the IRS’s approach, joint account holders can protect themselves and their finances more effectively.