IRS bank levy: how it works and how to get it released

How a bank levy works

The IRS sends a levy notice to your bank. The bank freezes the funds in the account up to the balance owed, as of that moment. Deposits that arrive later are not taken by that levy, although the IRS can issue another one. After 21 days, if the IRS has not released the levy, the bank sends the frozen funds.

A wage garnishment is different: it is continuous and takes a share of every paycheck until it is released. Bank levies are one-time events, which is exactly why the 21-day hold matters.

Does the IRS have to warn me before a bank levy?

In most cases, yes. Before it levies a bank account, the IRS generally must have sent a final notice of intent to levy with hearing rights, usually an LT11 or a Letter 1058, at least 30 days earlier. That notice is required only once for each tax and period, so a levy today can rest on a notice mailed months or years ago. The law also lets the IRS levy first and offer the hearing afterward in a few situations, such as a jeopardy levy, certain employment tax debts and federal contractors.

Two situations get confused here. If the notice was sent by certified or registered mail to your last known address, usually the one on your most recent return, and you never saw it, the notice is generally still valid and the levy stands. You can still ask for an equivalent hearing within one year of the notice date, appeal through the Collection Appeals Program, or ask for a release on the grounds below. If the notice was never issued, or was not sent to your last known address, it may be legally defective, and that is a ground to have the levy released and the money returned. Your account transcript generally shows whether and when a final notice was issued. Whether it went to your last known address has to be checked with the IRS.

The grounds for a release

• The balance is paid, or the levy is collecting more than what is owed.
• An installment agreement is accepted, and its terms do not allow the levy.
• For an individual, the levy creates an economic hardship: you cannot meet basic, reasonable living expenses with the money gone.
• Releasing the levy will help the IRS collect, for example because it lets you keep a business running that pays the balance.
• The levy was premature, not in line with procedure, or sent after the collection period expired.

Hardship is one of the most common grounds for release in the cases I see. What counts is rent, utilities, food, medicine and transportation, and the IRS asks for a short financial statement and proof of the bills.

What the IRS asks for

Expect a collection information statement (Form 433-F or 433-A for individuals, Form 433-B for a business), recent bank statements, pay stubs and the bills that show the hardship. Have them ready before calling. A representative with a signed authorization can make the call, present the documents and ask for the release while you keep working.

After the release

A release stops this levy. It does not erase the balance, and it does not prevent the next levy if nothing else changes. The release is the moment to put a real resolution in place: a payment plan sized to the budget, an offer in compromise if you qualify, or hardship status with a review date.

Every situation is different and results depend on the facts of each case. This guide is general information, not advice on your file. The complimentary 15-minute introductory call is where your facts come in.