What Can You Do When Your Bank Account Is Levied Because of Someone Else’s Unpaid Taxes?

Stressed at Desk

A bank account can be levied when a creditor wants the owner of the bank account to pay their outstanding debt. In short, a bank levy means that the bank account is frozen while the value of the outstanding debt is transferred from it to the creditor. The IRS tends to be use bank levies the most, but it is important to note that other creditors can use the measure as well when the owner of a bank account has outstanding debt that must be repaid.

Naturally, a bank account being levied can come as a serious shock to the owner of the bank account as well as a serious inconvenience, particularly if they were unaware of what was happening. This is not as uncommon as it sounds because some accounts can be held jointly between more than one person, meaning that the actions of one person can cause the joint account to be levied without the foreknowledge of the other people with their names listed on it. For example, one potential scenario is a joint account held between a parent and a child, which has been levied by the IRS because of the parent’s unpaid taxes.

Although it sounds tragic, it is something that has happened in the past and can be expected to continue happening in the future, meaning that there is a need for answers for those who encounter it in the course of their daily lives.

What Can You Do When Your Bank Account Is Levied Because of Someone Else’s Unpaid Taxes?

Generally speaking, the IRS is not particularly sympathetic to claims that a joint account should not be levied because only one of the owners of the joint account had unpaid taxes while the rest were up-to-date on their tax obligations. In fact, it should be noted that the Supreme Court of the United States has explicitly ruled that the interest of someone with unpaid taxes includes all of the funds held in a joint account so long as they are capable of unlimited withdrawals from the joint account, which is not exactly encouraging news for those who would like to challenge said outcome.

However, it should be noted that the IRS can make mistakes, meaning that it will sometimes take more than what the person with unpaid taxes was entitled to. As a result, those who wish to challenge such mistakes should make sure to contact their local Taxpayer Advocate Service as soon as possible since that is the part of the IRS that is responsible for hearing such complaints and attempting to address them in a mutually satisfactory manner. It should be noted that since different cases can have different circumstances, there is no guarantee to the outcome of such a complaint. Instead, the result will differ from case to case, much as how the interest of the person with unpaid taxes in the joint account will differ from case to case.

With that said, it is interesting to note that the IRS is not without sympathy for certain people who are caught in unfortunate circumstances for no fault of their own, which should come as welcome news to children with joint bank accounts that have been levied because of the mistakes of their parents. In short, the IRS explicitly mentions that minors sometimes cannot open bank accounts under their own names. As a result, while the funds in those bank accounts belong to them, they are actually being held under the names of their parents, thus making them eligible for levying. However, the IRS recognizes that levying the funds from the minors would be a case of wrongful levying, meaning that it is willing to reverse what has been done to them so long as it can be proven that the funds belonged to the children rather than the parents. Before attempting to recover the levied funds in this manner, interested individuals should make sure to speak with someone with the relevant tax expertise and experience since that will provide them with the knowledge that they need to maximize their chances of success. With taxes as with many things in the field of finance, being fully-informed is absolutely essential for ensuring a decent outcome, particularly when the stakes are so high as in these cases.

How Can You Prevent Your Bank Account From Being Levied Because of Someone Else’s Unpaid Taxes?

With that said, it is better to prevent levies than to challenge them. After all, an ounce of prevention is better than a pound of cure, not least because it means a lot less stress in the long run.

Fortunately, preventing a bank account from being levied because of someone else’s unpaid taxes is a simple and straightforward matter. In short, you should never use joint accounts because the funds held in them are considered to belong to all of the people with their names listed on them, meaning that the government is in the right to levy said funds if one of those people have unpaid taxes. Failing that, you should accept the risk that the funds in a joint account can be levied because of someone else’s actions, though there is a lot that you can do to minimize that risk. For example, you can make sure that the people with whom you share a joint account have healthy finances, which will minimize the chances of them failing to pay their taxes and thus incurring a levy in the process.

Further Considerations

Summed up, if your bank account has been levied because of someone else’s unpaid taxes, you should not hesitate to challenge the levy as soon as possible. However, it is important to remember that you should always exercise an appropriate level of care and caution while engaging in any sort of financial dealing since that is what will keep your finances as healthy as possible. After all, there are all sorts of financial pitfalls out there, meaning that while being informed about them can save you from some of the most obvious, developing a healthy sense of skepticism will also serve you well when your knowledge fails you.

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