Key Takeaways

• The tax collection process – Before issuing a bank levy, the Department of Taxation and Finance will send a tax bill, wait for the appeal period to pass, and then file a tax warrant.
• Levy amount – The DTF can take any amount, as long as it doesn’t exceed the amount listed on the levy or include exempt funds.
• Exemptions – Funds from public assistance, child support, alimony, or unemployment benefits are exempt from a DTF bank levy.
• Levy release – To stop a levy, your primary option is to ask for a release, which the DTF can agree to in certain situations, most notably if there’s been a mistake by the DTF, the levy creates an undue economic hardship, or you enter into an eligible installment payment agreement (IPA).
• Preventing a bank levy – You can prevent a bank levy by setting up an IPA, having the DTF accept an offer in compromise, or successfully challenging the underlying tax debt.

An Overview of the New York State DTF Bank Levy Process

Due to the serious nature of a bank levy, several steps must be taken before the DTF reaches the point of freezing funds in a bank account.

Step 1: Issuing a Tax Bill

The Tax Department of the DTF will mail you a bill indicating how much you must pay to settle your account. This bill may take the form of a Notice of Determination and/or a Notice of Deficiency. You can respond by:

• Paying the full amount.
• Making arrangements to pay the bill over time.
• Disputing the tax bill by filing an appeal.

Step 2: Waiting for the Appeal Period To Pass

Before beginning a collection action against you, the Department of Taxation and Finance will wait for your appeal rights to either expire or be exhausted. How long this takes depends on your particular case, but the letter or notice informing you of your appeal or protest rights should tell you how much time you have to submit your challenge.

Step 3: Filing a Tax Warrant

Assuming you’ve done nothing in response to the letters and notices from the DTF (and formally protesting the bill is no longer an option), the DTF will file a tax warrant against you. This is a legal claim that the state of New York has against your property – similar to an IRS tax lien. The tax warrant is part of the public record with both the New York State Department of State and the applicable New York State county clerk’s office.

One major difference between an IRS tax lien and a NYS tax warrant is that the IRS does not have to file a tax lien before seizing your assets. However, before the DTF can levy your bank account or any other asset of yours, it must first file a tax warrant.

Step 4: Serving the Bank Levy

Before serving the levy on your bank, the DTF will send you Form DTF-978, Notice to Judgment Debtor or Obligor. This lists property that will likely be off limits from a DTF levy.

After the bank receives the levy from the DTF, the bank has 90 days to respond by:

• Complying with the levy and sending the DTF the money requested.
• Informing the DTF that there’s no money in the account to send.
• Informing the DTF that only exempt funds exist in the account.
• Informing the DTF that the DTF must obtain a turnover order.

A turnover order is a court order that demands the transfer of property, often to satisfy a financial debt.

Levy Exemptions

Money in a bank account is exempt from a levy if it comes from certain sources. Among the most common are:

• Welfare or other forms of public assistance.
• Social Security and Supplemental Security Income.
• Child support.
• Spousal support (alimony).
• Pension (public or private).
• Unemployment benefits.
• Workers’ compensation benefits.
• Disability benefits.

A complete list of exempt funds can be found in Article 52 of the New York Civil Practice Law and Rules.

What Triggers a Bank Levy

Any tax balance that goes unpaid long enough can result in the DTF seizing your property. Collection levies are not limited to bank accounts, but these types of assets are the DTF’s first choice given their convenience.

The following scenarios can often result in a bank levy:

• Unpaid state income taxes.
• Unpaid sales taxes.
• Unpaid NY payroll taxes.
• Defaulting on a New York installment payment plan.

How Much Can the NYS Department of Taxation and Finance Take?

The New York Department of Taxation and Finance can levy any amount of money, up to the amount owed in taxes, penalties, and interest. The New York State DTF must also not freeze any exempt funds in the account.

After the bank complies with the bank levy, any remaining money will be available to you for withdrawal or transfer. When the DTF levies your bank account, it is not actually freezing the bank account, but rather a portion of the funds in the bank account.

How To Deal With a Bank Levy Issued by the NYS DTF

After receiving word that the DTF is about to levy your bank account (or already has, but the bank has not transferred the funds to the DTF yet), your primary options to stop the levy are to either pay the debt in full or ask for a levy release.

DTF Tax Levy Release

The Tax Commissioner of the DTF may consent to a levy release if you can show any of the following:

• The levy will create an undue economic hardship.
• You enter into an installment payment agreement that provides for a release.
• The DTF does not properly follow the collection process before issuing a levy.
• Releasing the levy will improve the DTF’s chances of collecting the entire tax debt.
• Releasing the levy is in the best interests of both you and the state.

How to Prevent a Bank Levy in New York

The best way to deal with a bank levy in New York is to prevent it from occurring. This can be as simple as paying a tax bill in full, keeping up with income, payroll, and sales tax requirements, and having a current mailing address on file with the DTF to avoid missing notices and letters mailed to you.

For more complicated matters, you can set up an installment payment agreement, submit an offer in compromise, or file an appeal.

Setting Up an Installment Payment Agreement

The installment payment plan (IPA) allows you to pay your back taxes with monthly payments. If you request an IPA online, your tax balance must be 20,000 dollars or less and require 36 or fewer monthly payments.

If you need more time to pay or have a larger balance, you’ll have to request your IPA by telephone by calling 518-457-5434 and speaking to a DTF representative. You may need to provide additional financial information, such as Form DTF-5, Statement of Financial Condition.

Besides making your monthly payments on time, you must also:

• File all required tax returns on time.
• Agree to have any state or federal tax refunds applied to your tax balance.
• Cooperate with the DTF’s requests for updated financial information, if applicable.
• Understand that penalties and interest will continue to accrue until your entire tax balance is paid.

Apply for an Offer in Compromise

New York’s Offer in Compromise (OIC) program is similar to the OIC program offered by the IRS in that it permits you to settle your tax debt for less than the full amount. Both individual and business taxpayers may be eligible, including those who have filed for bankruptcy.

The DTF will accept an OIC if the DTF deems it to be in the best interests of the taxpayer and the state. Only individual taxpayers may request an OIC on the basis of undue economic hardship. However, if you are an individual taxpayer facing personal liability for business tax debts, you may still be eligible for an OIC.

Challenge the Tax Balance Owed

If you disagree with the tax deficiency or determination, you can file a protest, request a tax appeals hearing, or request a review. You can only file a protest or request a tax appeals hearing if the notice or letter you’re challenging explicitly provides for either option. If neither option is mentioned, then you’ll need to request a review.

You can file a protest by filing Form CMS-1-MN, Request for Conciliation Conference with the Bureau of Conciliation and Mediation Services. You can request a tax appeals hearing by filing Form TA-100, Petition with the Division of Tax Appeals.

To request a review, contact the DTF and explain your disagreement and the information you have in support of your arguments. You may contact the DTF by:

• Telephone: The number to call will be listed on the notice or letter you received.
• Online: You can respond through your Online Services account.
• Mail: The address to use is:
  NYS ASSESSMENT RECEIVABLES
  P.O. BOX 4127
  BINGHAMTON, NY 13902-4127

Working With a New York Tax Professional Can Help

Whether you’re trying to avoid a bank levy or remove one that’s already been issued, consider talking to a tax professional. They can apply their experience to help negotiate a levy release or increase your chances of avoiding a New York tax levy altogether.

If the DTF makes a mistake with the tax assessment or during the collection process, your tax representative can use it to your advantage. If you have learned about the funds in your New York bank account getting frozen or you’re looking for a solution to your unpaid NY tax problem, contact Timothy S. Hart of the Timothy S. Hart Law Group.

Mr. Hart is both a tax lawyer and a CPA and is ready to talk to the Department of Taxation and Finance on your behalf to stop DTF tax enforcement actions. You can reach him online or by calling the offices today.