Legacy Law Blog

A bank levy is one of the most powerful tools the Internal Revenue Service (IRS) uses to collect unpaid taxes, and it often comes as a shock to individuals and businesses who aren’t familiar with federal collection procedures.

In simple terms, a bank levy occurs when the IRS legally freezes and then seizes money directly from a taxpayer’s bank account to satisfy a tax debt. This post breaks down how bank levies work, who is at risk, what to expect and essential tips for responding if the IRS targets your bank account.​

What Is an IRS Bank Levy?

A bank levy is a legal action taken by the IRS that allows agents to freeze and ultimately take the funds you have in your checking or savings account if you owe unpaid taxes.

Unlike a lien, which is only a claim to your property, a levy is the actual process of taking property or money to cover your tax debt. Bank levies are used only after other IRS collection efforts, like sending letters and demanding payment, fail to result in payment from the taxpayer.

Once the IRS issues a levy, the bank immediately places a hold on the available funds in the account, freezing them as of the date the levy is received. The bank is required to hold those funds for 21 days before remitting them to the IRS.

During this window, taxpayers can resolve the debt with the IRS or prove that the funds do not belong to the taxpayer and are not eligible to be levied.

Bank Levy Process: Step-by-Step

1. IRS Assessment and Notices

The process starts after the IRS assesses a tax liability (meaning it formally determines what you owe) and then sends a series of written notices—generally four or more—demanding payment. The last of these is the "Final Notice of Intent to Levy and Notice of Your Right to a Hearing," which must be sent at least 30 days before any levy action can occur.​

2. 30-Day Warning

When you receive this Final Notice, you have a critical 30-day window to request a Collection Due Process (CDP) hearing or make arrangements with the IRS such as a payment plan or other settlement. If you do not respond, the IRS can move forward with the bank levy without further notice.​

3. Bank Receives the Levy

If no action is taken during the notice period, the IRS notifies your bank to freeze (levy) your account. On receipt of the levy, your bank immediately freezes funds in the account up to the amount of your tax debt. Any money deposited after that date is not automatically included in the levy, although future levies are possible.​

4. 21-Day Holding Period

After the bank freezes your account, there is a mandatory 21-day holding period provided by law. This is designed to give you one last opportunity to resolve the situation with the IRS—such as by paying the tax, setting up a payment plan or proving that the funds do not belong to you.​

5. Money Sent to the IRS

If the issue isn’t resolved within 21 days, the bank sends the frozen funds to the IRS, and those funds are applied toward your tax debt. At this point, it is extremely difficult to recover the money taken by the IRS.

6. Additional Levies as Necessary

A levy can only be issued against a specific bank account to seize the assets in that account as of the date of the levy. If the original levy is not sufficient to satisfy the tax debt, the IRS can issue additional levies against the same or a different account by following the same process outlined above.

Impact on Individuals

For individuals, a bank levy can create immediate hardship. The taxpayer loses access to the frozen funds, making it impossible to pay rent, groceries or other essentials, and the damage can be compounded by overdraft fees and bounced checks.

If the IRS made an error or the funds belong to someone else (such as a co-signer or a person using the account for bill-paying assistance), the innocent party can attempt to prove ownership and request a levy release.​

Beyond bank levies, the IRS also has the authority to garnish wages and, in extreme cases, to seize property or levy Social Security benefits. While property seizures are less common, the threat is real if issues are not promptly addressed.​

Unique Challenges for Businesses

For business owners, the consequences of a bank levy are particularly severe.

The levy freezes the business account, making it impossible to make payroll, pay vendors or manage ongoing operations. This can quickly disrupt relationships and damage the company’s reputation and cash flow.

If the underlying debt remains unresolved, the IRS can continue to levy the account or other assets, potentially driving the business into insolvency.​

Special rules can apply if there are multiple authorized signers, such as when individuals are only signers on an account for administrative help. If proof is provided that funds belong to others, some relief may be possible.

Why Did the IRS Pick Me?

Bank levies don’t happen overnight. Common reasons for landing in trouble include:

• Ignoring multiple IRS collection letters and deadlines​
• Failing to arrange payment or submit financial information
• Repeatedly defaulting on IRS payment agreements

The IRS usually shifts to levies after months of unsuccessful attempts to collect taxes by less aggressive means. A levy is a predictable outcome for a taxpayer who fails to take their tax balances seriously.

What Happens After the Levy?

The practical impact is immediate—the frozen funds cannot be withdrawn, used for bills or accessed at all, often without warning aside from a notice in the mail. This can result in bounced checks, missed payments, further bank fees and significant financial hardship.​

Funds in the account when the levy arrives are the only ones affected—new deposits are not taken by the IRS under that specific levy, but the IRS can issue more levies in the future.

Once the holding period elapses, the funds are transferred to the IRS and applied to any outstanding tax balances.

Can You Recover Levied Money?

Once the 21-day hold expires and funds are transferred, recovering your money becomes extremely difficult, but not always impossible. If the IRS made a mistake (wrong person, previously paid, or non-liable funds were seized), taxpayers can file a claim for reimbursement. The best chance of preventing loss is to resolve things during the holding period.

How to Respond to a Bank Levy

If the IRS has issued or is threatening a bank levy, the most important thing is to act quickly and avoid ignoring notices. Here are essential steps:​

1. Request a CDP Hearing (If within 30 Days)

This can immediately stop the levy and provide a chance to challenge the IRS’ actions, set up a payment plan or settle other issues.​

2. Contact the IRS Immediately

If your account has already been frozen, contact the IRS right away—especially if you can prove the funds aren’t yours (such as joint accounts containing non-liable parties’ money), or if the levy is causing serious hardship (such as inability to pay housing, food or utilities). Taxpayers can often get the levy released if they demonstrate these facts.​

3. Negotiate Resolution

Options include setting up an installment agreement, making an Offer in Compromise or requesting “Currently Not Collectible” status, which pauses collection if you cannot pay anything due to hardship.​

4. Get Professional Help

IRS collection cases can be complex, especially when financial hardship or errors are involved. Experienced tax professionals can help negotiate with the IRS, protect non-liable parties in joint accounts or even correct unjustified levies.

How to Avoid Future Levies

Preventing bank levies is an ongoing responsibility that can be satisfied by adhering to the following simple guidelines:

• Open and read all IRS correspondence.​
• Respond promptly to notices and deadlines.
• File all required tax returns and keep up with tax payments.
• Work with the IRS or a tax professional when a problem arises before it escalates.

Ignoring the warning signs almost always leads to worse consequences, like levies or wage garnishments.

Final Thoughts

IRS bank levies can devastate personal finances or business operations, but they don’t happen abruptly—there’s typically a long road of missed payments and ignored notices leading up to this aggressive step.

By understanding how bank levies work, responding quickly to IRS notices and seeking help early, most people can avoid or resolve a levy before it causes lasting harm. If a bank account is already levied, immediate action and professional guidance are essential to limit the damage and start down the path to resolution.