Thousands of Colorado residents and small businesses receive a Colorado Bank Levy Notice from the Department of Revenue annually. For many, it arrives without warning, freezing funds needed for rent, payroll, or daily expenses. According to the Internal Revenue Service, collection actions like bank levies typically occur only after repeated failure to respond to prior tax notices. By that stage, the state has already determined that your tax bill remains unpaid, and enforcement is the next step.
Receiving this notice is not simply a form letter; it is an official legal action indicating that your state taxes are past due. The Colorado Department of Revenue can remove funds directly from your bank account to recover unpaid balances. This process can shock individuals and business owners who are unsure how to pay bills and are worried about losing access to essential funds. However, understanding how and why the notice was issued is the first step toward regaining control.
This guide explains what a Colorado Bank Levy Notice means, why you received it, and most importantly, how to respond effectively before additional penalties or interest accrue. It will outline realistic resolution options—such as entering a payment plan, applying for hardship relief, or negotiating with the Department of Revenue—to help you stop enforcement and resolve your tax debt efficiently. Acting quickly can distinguish between a temporary setback and lasting financial damage.
A Colorado Bank Levy Notice is an official enforcement action issued by the Colorado Department of Revenue to collect unpaid state taxes. When you owe taxes and fail to respond to previous notices, the department gains legal authority to withdraw funds directly from your bank account. This process is part of Colorado’s collection system under Colorado Revised Statutes §39-21-114, which allows the state to recover unpaid balances through third parties such as banks and credit unions.
The Department of Revenue only issues a levy after other failed collection methods. Before reaching this point, taxpayers usually receive several communications—including a Notice of Deficiency, a Demand for Payment, and a Final Determination Letter. Each document outlines the amount due and provides a specific due date for paying or contacting the department. The account becomes subject to enforced collection if these earlier notices go unanswered.
A typical bank levy notice includes several key components that you should review carefully:
Understanding these sections allows you to verify the notice's accuracy, identify any errors, and take the correct steps toward resolution before further collection action occurs.
Before taking any action, it’s essential to understand why the Colorado Department of Revenue issued your Colorado Bank Levy Notice. This notice does not appear out of nowhere; it follows a series of missed communications or unresolved tax obligations. Knowing what triggered your situation helps you correct errors, prevent future levies, and maintain compliance with state tax laws.
The most common reason for receiving a levy notice is an outstanding tax debt that has not been paid in full. When a tax bill remains unpaid past its due date, the DOR initiates collection procedures to recover the balance. This may involve unpaid individual income taxes, business tax debt, or employer withholding taxes. Even partial payments do not stop enforcement; penalties and interest continue to accrue until the balance is paid in full or a payment plan is officially established.
If required tax returns are missing or contain errors, the Department of Revenue may estimate your liability based on available financial information. Using data from the IRS, banks, and employers, the department creates a “substitute return” that calculates your tax debt without your claimed deductions or credits. These substitute returns typically show higher balances than you actually owe. Submitting accurate and updated returns as soon as possible can reduce your assessed balance and demonstrate good faith to the department.
Colorado participates in multiple data-matching programs designed to uncover inconsistencies in taxpayer information. For example, income reported by your employer or bank may differ from what appears on your state return. When discrepancies arise, the DOR issues a Notice of Deficiency explaining the conflict and requesting clarification. If you fail to respond or provide supporting documentation, the department finalizes the balance and may initiate levy proceedings to collect it.
The DOR always follows a precise sequence before sending a bank levy notice to your financial institution:
Understanding these causes helps you identify where communication broke down and what actions are necessary to prevent further collection efforts. Taking immediate steps to resolve the underlying issue can stop enforcement and restore your standing with the Colorado Department of Revenue.
The process moves quickly once the Colorado Department of Revenue issues a Colorado Bank Levy Notice. The department has confirmed that your tax debt remains unpaid, and enforcement begins shortly after the notice is sent to your financial institution. Knowing what happens next helps you act before your funds are permanently withdrawn and additional penalties apply.
Your account is immediately frozen after the Department of Revenue sends the levy to your bank. This means that you cannot access, withdraw, or transfer money while the levy is pending. The freeze usually occurs within 24 to 48 hours after the bank receives the notice, leaving taxpayers with limited time to contact the department, request relief, or enter a payment plan.
Once the account is frozen, the bank must hold your funds for a specific period before releasing them to the state. After this period expires, the available balance—up to the total amount owed—is transferred to the Colorado Department of Revenue. If the funds in your account do not cover your entire tax bill, the department may issue additional levies or use other methods to collect the remaining balance.
Penalties and interest continue to accrue even after the levy is issued. Colorado typically applies a 10 percent late payment penalty plus an additional 0.5 percent each month until the balance is paid in full. The department also compounds interest daily, which means the longer the balance remains unpaid, the more the total tax debt increases. Entering an installment agreement or paying promptly can reduce long-term costs and prevent further enforcement actions.
If you ignore the Bank Levy Notice, the Department of Revenue may pursue more severe collection measures. These can include wage garnishment, where up to 25 percent of your disposable income may be withheld from each paycheck until the balance is paid. The state may also record liens against your property, seize vehicles or equipment in the case of business tax debt, or suspend specific professional licenses until your account complies. Each step adds additional fees and interest, making the debt even more challenging to resolve.
Understanding the consequences of a bank levy can help you take immediate steps to protect your finances. Contacting the Colorado Department of Revenue at (303) 205-8291 as soon as you receive the notice can often stop or delay collection while you discuss available tax relief options.
When you receive a Colorado Bank Levy Notice, the Colorado Department of Revenue (DOR) moves forward quickly once the levy process begins. However, taking the proper steps can help you stop or delay the collection before your funds are permanently withdrawn. This section explains the practical steps to regain control of your account, protect your income, and work toward resolving your tax debt.
Start by reading every page of the Bank Levy Notice to confirm its accuracy. Verify your name, taxpayer identification number, and balance details to ensure no administrative errors. Compare the listed tax bill and due date with your own payment records and confirm which tax years the debt applies to. Gather proof, such as canceled checks, correspondence, or payment confirmation receipts, if something appears incorrect, before contacting the department.
Call the Colorado Department of Revenue’s Collections Section at (303) 205-8291 as soon as possible. Have your notice, tax records, and identification ready. When speaking with a compliance agent, explain your situation clearly and request information about options to stop or postpone the levy. The agent can help you determine your eligibility for a payment arrangement, hardship review, or penalty reduction. Acting quickly demonstrates good faith and may prevent your bank from releasing funds to the state.
The department will need detailed financial information before approving any relief option. Prepare income statements, bank records, and your most recent tax returns to show your current ability to pay. You may also need proof of regular expenses, such as rent, medical bills, or business costs, especially if you cannot pay in full. Keeping this documentation organized allows the compliance agent to process your case more efficiently and may improve your chances of a favorable decision.
After reviewing your financial situation, the Department of Revenue will discuss which path fits your needs best:
After submitting documents or starting a plan, follow up with your assigned compliance agent regularly to confirm that your account remains active and in good standing. Always note the date and time of your calls for reference, and keep copies of all agreement paperwork you send or receive. Staying responsive ensures your case remains open and prevents accidental termination of your plan due to missed correspondence or delayed payments.
Once you’ve contacted the Colorado Department of Revenue (DOR), your next step is to choose the most practical resolution method for your situation. Colorado provides several structured options to help taxpayers resolve their tax debt, avoid further enforcement, and comply with state taxes. Acting quickly can help you regain financial stability and protect your income or business operations.
Taxpayers who cannot pay their tax bill in full may qualify for a payment plan through the DOR. Under this option, you agree to make monthly payments until your balance is paid in full. You’ll need to submit agreement paperwork outlining your plan's conditions, including payment amounts, due dates, and your commitment to filing all future tax returns on time.
Before the plan is accepted, all tax returns must be filed and current. Missing returns can delay or prevent approval. Once the department receives your plan, you must continue making each payment as scheduled to remain in good standing. Failure to make a payment or to file future tax returns can cause the agreement to be canceled, restarting the collection process.
A compliance agent may request proof of income or expenses before approval. This documentation helps verify that your proposed monthly payments fit your financial situation. The department usually provides several options for automatic withdrawals or online payments through Colorado Revenue Online.
You can request economic hardship consideration if you cannot make reduced payments. The DOR allows eligible individuals to submit Form DR 6596, the Statement of Economic Hardship. You must provide detailed proof of your income, household expenses, and dependents. Along with the form
After reviewing your financial situation, the department may temporarily reduce or suspend your payments. This relief is not permanent but gives taxpayers time to recover from financial strain. The Department of Revenue may also set a follow-up review date to confirm whether your financial condition has improved. During this time, you must communicate with your compliance agent and file all new tax returns to keep your case active.
Taxpayers who faced exceptional circumstances can request that specific penalties be waived. The DOR considers reasonable cause requests when serious events—such as medical emergencies, natural disasters, or unexpected business losses—prevented timely payment. You must submit a written statement explaining your situation, supported by proof such as medical records or insurance reports.
If your explanation is approved, the Department of Revenue may reduce or remove penalties, though interest usually continues to accrue until the balance is paid. Penalty abatement does not erase the tax debt but can significantly lower your total amount owed and make repayment more manageable.
Colorado offers a limited Offer in Compromise program for taxpayers who cannot fully pay their tax debt. To be eligible, you must already have an accepted federal OIC with the IRS for the same tax periods. The state requires a full financial disclosure, proof of your federal acceptance, and Form DR 3023 outlining the compromise terms.
Your offer must be realistic and supported by detailed agreement paperwork, including income verification, asset disclosures, and documentation showing that full payment would cause undue hardship. If the DOR accepts your OIC, you must pay the agreed settlement amount immediately and decide to remain compliant with all future filing and payment obligations.
If your offer is denied, you will receive a written notice explaining why it was not accepted. You can request reconsideration by submitting updated financial details or additional proof of hardship. The process may take several months, but it can significantly reduce your debt if your case meets the state’s strict criteria.
Once your Colorado Bank Levy Notice has been resolved, preventing future collection actions should become your top priority. Staying compliant with the Colorado Department of Revenue (DOR) helps you avoid penalties, maintain financial stability, and build a clean filing history. Fortunately, there are practical ways to ensure you never face another levy situation.
Timely filing is one of the most effective ways to stay compliant. Submitting future tax returns early allows the department to process your information and apply payments immediately. If you typically file around April, consider completing your return weeks in advance to catch potential errors. Late or missing returns can automatically trigger compliance reviews, which may eventually lead to new enforcement actions.
Once your account is current, set up automatic payments or calendar reminders for each due date. Paying on time ensures your record remains in good standing and your installment plan or prior agreement stays active. Most taxpayers find that scheduling monthly payments through Revenue Online provides peace of mind and prevents missed deadlines.
If your financial situation changes, always notify the department right away. It’s better to agree on a temporary adjustment than to miss payments and trigger a default. The Department of Revenue assigns a compliance agent to many active cases, and staying in touch with this representative helps ensure your case remains open and correctly documented.
Keep copies of your tax returns, payment receipts, and correspondence with the department safely. These records prove compliance and can resolve disputes faster if future questions arise. It’s also helpful to track each payment and note the date it clears your bank account for verification purposes.
Taxpayers in Colorado have the right to fair treatment and accurate assessments. You are also responsible for filing on time, paying what’s due, and responding promptly to notices. Awareness of these expectations helps you avoid future penalties and maintain trust with the Department of Revenue.
By following these preventive steps, you’ll stay compliant, protect your finances, and avoid the stress of another Colorado Bank Levy Notice. Proactive communication and responsible filing habits are the simplest ways to ensure continued success.
Contact the Colorado Department of Revenue Collections Section at (303) 205-8291. When you call, have your notice, identification, and proof of prior payments ready to provide. A compliance agent will review your case and explain available options for tax relief or payment arrangements. Acting quickly and keeping detailed records helps protect your rights during the resolution process.
If you cannot pay your tax bill in full, contact the Department of Revenue immediately to discuss a payment plan or financial hardship review. The department may allow smaller, monthly payments while your account remains active. You must agree to specific conditions and keep future tax returns current. Quick communication ensures you don’t miss important deadlines or enforcement actions.
Yes, the Department of Revenue provides tax relief options such as payment plans, penalty abatement, and the limited Offer in Compromise (OIC) program. You must show proof of hardship and submit the required agreement paperwork to qualify. The department will review your request and determine whether you’re eligible for reduced or deferred payments. Always follow the department’s instructions on its official page to ensure proper application acceptance.
Ignoring unpaid state taxes or missing monthly payments under an existing plan can trigger another Colorado Bank Levy Notice. The DOR closely monitors compliance and will send a new notice if balances remain unpaid. Keeping communication open, filing all tax returns, and following your agreement are the best ways to stay in good standing with the department and avoid repeat enforcement actions.
If you believe your bill is incorrect, you can claim an appeal or protest through the Colorado Department of Revenue. You may submit proof, such as amended returns or payment confirmations showing that your balance was already applied. Contact the department by phone or writing to discuss your case and confirm the next steps. Responding promptly ensures your appeal remains valid within the allowed time frame.
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