"How did they even know about that account?" I hear it every week. The account was at a small credit union. The client never mentioned it on a tax return. And the IRS levied it anyway.
The answer is not mysterious. The Internal Revenue Manual tells its own collection employees where levy sources come from, and most of them are data you or your bank already handed the IRS. Knowledge is protection. Here is the list.
The IRM's own list of levy sources
For the Automated Collection System (ACS), the IRS call-site operation that issues many levies, IRM 5.19.4.3.5 says levy source data comes from a variety of places, including:
- Forms W-2 and 1099 information.
- States, credit bureaus, and other third parties.
- The taxpayer, when requesting an installment agreement or during other contacts.
- Partial payment checks submitted by the taxpayer.
- Closed accounts from ACS archives.
IRM 5.19.4.3.7 then describes the categories ACS displays, including:
- Information Returns Program (IRP) sources, which list interest documents first, then wage documents, then others.
- Remittance Processing System sources, described as "banks on which payments were drawn."
- Federal Tax Deposit sources, which identify the bank used to make the deposit.
- Electronically filed return sources, described as wage or bank sources secured from an e-filed return.
- Manually added sources, including bank sources an employee enters in real time while working the case.
The same section says IDRS sends new levy sources to ACS when a case is set up and at least every three weeks afterward, and that the yearly Information Returns Master File download happens in February, followed by weekly downloads on open cases. Translation: a new 1099 can turn into a new levy source without anyone at the IRS lifting a finger.
Source one: your bank's own Form 1099-INT
IRC § 6049(a) requires anyone who pays interest aggregating $10 or more to a person in a calendar year to file an information return. "Interest" includes interest on deposits with banks and amounts paid by credit unions and savings associations on deposits (§ 6049(b)). That is the Form 1099-INT you get every January. The IRS gets a copy.
That copy names the payer, which is your bank, and you. It does not have to be a big account. The IRM notes that ACS systemically drops interest documents under $10 to avoid low-value sources (IRM 5.19.4.3.7), which is another way of saying everything at $10 and up stays on the list.
Source two: the checks you send the IRS
This one surprises people. When you mail the IRS a check, the IRS learns which bank it was drawn on. The IRM lists the Remittance Processing System as a levy source for exactly that reason, and separately lists partial payment checks as a source of levy information.
I am not telling you to stop paying. Voluntary payments matter, and IRC § 6331(k) bars levy while a payment plan request is pending or in effect. I am telling you that "they do not know about that account" is often not true once you have paid from it.
Source three: your e-filed return
If you e-file and choose direct deposit of a refund or direct debit of a balance due, the return contains routing and account numbers. IRM 5.19.4.3.7 lists electronically filed returns as a source of wage or bank levy sources.
Source four: business deposits
For businesses, IRM 5.19.4.3.7 lists Federal Tax Deposit records, which identify the bank used to make the deposit. A business that makes payroll tax deposits from its operating account has told the IRS where that account is.
Card processing is another one. Form 1099-K reports payments processed through merchant accounts and third-party networks, and IRM 5.19.4.3.5.1 discusses levying the processor or acquiring bank that holds the funds. Note a quirk: the IRM says funds held by processors and acquiring banks are not "deposits" under IRC § 6332(c), so the 21-day bank hold does not apply to them. See IRS levies on business bank accounts.
Source five: what you tell the IRS
Collection Information Statements (Forms 433-A, 433-F, and the business Form 433-B) ask for your bank accounts. So do installment agreement requests in many cases. The IRM lists information from the taxpayer "when requesting an installment agreement or during other contacts" as a levy source.
Some people think the answer is to leave an account off. It is not. Financial statements are signed under penalties of perjury, and the IRM conditions an economic hardship release on good faith, naming "failing to make full disclosure of assets" as an example of not acting in good faith (IRM 5.11.2.3.1.4). Hiding an account can cost you the very relief you are asking for.
Source six: third parties and the summons power
The IRM lists states, credit bureaus, and other third parties as sources. Revenue officers in the field also have broader tools. IRC § 6333 requires anyone with custody of records relating to property subject to levy to exhibit them on demand, and IRM 5.11.4.11 describes using a summons to find out whether a bank searched thoroughly for all of a taxpayer's accounts.
There is one procedural protection worth knowing. IRC § 7602(c)(1) generally requires the IRS to give you advance written notice before contacting third parties about your tax, and a notice of levy served on a bank is a third-party contact (IRM 5.11.1.3.2). The statute calls for that notice at least 45 days before the contact period begins. If you received a letter mentioning third-party contacts, take it as a sign that levies may be coming.
What this means for you
The practical lessons are simple.
- Assume the IRS can find every account with a 1099, a payment history, or a direct deposit on file. Plan as if it will.
- Do not build your strategy on hiding money. It rarely works, and it can turn a civil collection problem into something worse.
- Build it on a status that stops levies. A pending installment agreement or offer, a timely Collection Due Process request, or a hardship determination does more than any number of new accounts. See installment agreements and bank levies and CDP hearings.
- If an account the IRS found is not really yours, for example a parent's account where you are only a signer, the real owner has remedies. See wrongful levy claims.
The IRS rarely finds your bank by accident. It finds it because the system was built to.
If a levy has already hit, the next step is your first 48 hours after a bank levy. For more on how the firm handles collection cases, see I owe the IRS: what to do.