Quick summary
- An IRS bank levy lets the IRS seize funds in your bank account to satisfy unpaid taxes. You normally receive advance notice and have appeal rights (see Collection Due Process rights below). Acting quickly preserves options.
- Common responses: pay in full, set up an installment agreement (often a direct-debit plan), submit an Offer in Compromise (OIC), seek Currently Not Collectible (CNC) status, request penalty abatement, or pursue innocent spouse relief.
- In many cases the IRS will release a levy once it receives payment in full or an acceptable payment arrangement. Always confirm requirements in writing.
How a bank levy usually works
The IRS must generally send a Notice of Intent to Levy and notice of your right to a Collection Due Process (CDP) hearing at least 30 days before it levies (Internal Revenue Code §6331(d)) — that notice explains appeal rights and next steps. If you do not respond the IRS can serve a levy on your bank. Once the bank receives the levy it will typically freeze the account balance as of that date and may hold the funds pending IRS instructions. This process can be fast; immediate contact and documentation dramatically improve outcomes. (IRS: Understanding Your Lien and Levy.)
Immediate steps if your bank account is levied (action checklist)
- Review all IRS notices immediately for amounts, dates, and the tax periods involved.
- Call the number on the notice or the IRS Collections number to confirm the levy and request next steps.
- Gather records: recent bank statements, paystubs, business cash-flow reports, filed tax returns, and correspondence with the IRS.
- Determine whether any incoming deposits are from protected sources (e.g., Social Security) and notify the IRS if so.
- Assess realistic payment options — can you pay in full, or do you need a plan or relief?
- Consider hiring a qualified representative (CPA, EA, tax attorney). In my practice, representation shortens negotiation time and reduces mistakes when requesting levy releases.
Options to resolve the levy
Below are the most common solutions and what to expect.
1) Pay in full
- Paying the full tax balance plus penalties and interest will typically prompt the IRS to release the levy. Ask the IRS for written confirmation of release and the expected timing. (The IRS’s procedures and processing times vary by bank and region.)
2) Installment agreement (monthly payments)
- An installment agreement lets you pay over time. The IRS offers different types of installment agreements (streamlined, direct debit, partial-payment, etc.). A Direct Debit Installment Agreement (DDIA) that electronically withdraws payments is often viewed favorably and may speed levy release. For guidance on setup see FinHelp’s article on Setting Up an IRS Installment Agreement.
- Practical tip: Make the first payment quickly and provide proof to the IRS or your bank to improve the chances of a prompt levy release.
3) Offer in Compromise (OIC)
- An OIC lets qualified taxpayers settle for less than the full amount owed when full payment would create economic hardship or where collection in full is unlikely. Eligibility requires being current with filing and estimated tax obligations and providing comprehensive financial disclosure.
- The OIC process can take months. If accepted, the IRS will release the levy. For details see our overview: Offer in Compromise (OIC). Also reference IRS guidance on Offers in Compromise when preparing an application.
4) Currently Not Collectible (CNC) status
- If you can demonstrate you have no ability to make payments (basic living expenses exceed income), the IRS may place your account in CNC status and suspend collection activity including levies. Interest and penalties typically continue to accrue, and the IRS can re-evaluate when your financial situation improves.
5) Penalty abatement and administrative relief
- If penalties caused or inflated the balance (for example, due to circumstances outside your control), you can request penalty abatement. Reducing penalties can lower the amount owed and open up payment options.
6) Innocent spouse or other relief
- If the tax arises from a joint return and you qualify, Innocent Spouse Relief (Form 8857) may remove your liability. If granted, prior collection actions attributable to that liability may be reversed or adjusted.
7) Requesting a Levy Release without full payment
- The IRS may release a levy if: the levy was issued in error; releasing it will aid in collecting more tax (e.g., levied account is the business-operating account and lifting it preserves future collections); or you enter an acceptable direct-debit installment agreement. Request a written levy release and document why the release will improve collection.
Collection Due Process (CDP) and appeal rights
You generally have a right to a CDP hearing after the IRS issues a notice of intent. If you file a timely CDP request you can stop the levy while the appeal is pending. The notice will include procedures and deadlines — act within the stated timeframe or you may lose the automatic stay.
Documents and information the IRS will want
- Completed tax returns for all required years.
- A current financial statement (online IRS Collection Information Statement: Forms 433-A/433-F for individuals, 433-B for businesses).
- Bank and business account statements.
- Proof of protected income (e.g., Social Security statements) if applicable.
- Any documentation supporting requests for penalty abatement, OIC, or CNC.
Timing: how quickly can you get funds released?
Timing varies. If you pay in full and the bank cooperates, funds can be released quickly, but banks and the IRS often require documentation and processing time. In many cases the IRS indicates levies are released after confirmation of payment or an agreement; always request written confirmation of release and the date funds will be returned or the levy closed.
Common mistakes to avoid
- Ignoring notices or delaying contact with the IRS.
- Failing to file required returns — you must be current to qualify for many relief options.
- Accepting the first un-reviewed offer from the IRS without exploring alternatives.
- Not documenting that levied funds are needed for protected business operations — this can be a strong basis to request an immediate release.
Real-world example
A small-business client’s operating account was levied for unpaid payroll taxes. We immediately contacted the IRS and documented the need to pay employees and suppliers. By showing that the levy threatened business continuity and arranging a direct-debit installment agreement for the payroll tax balance, the IRS released the levy and allowed the business to continue operations. This is a common outcome when the taxpayer provides clear evidence and a realistic plan.
When to get professional help
If the balance is large, multiple tax types are involved, or the levy threatens business operations, hire a qualified tax professional (CPA, Enrolled Agent, or tax attorney). Representation often improves negotiation speed and accuracy. In my practice as a CPA specializing in tax resolution, clients benefit from faster levy releases and fewer procedural errors.
Helpful internal resources
- Learn how to Set Up an IRS Installment Agreement for step-by-step instructions and form references.
- Read our primer on Offer in Compromise (OIC) to determine if a negotiated settlement is realistic for your situation.
Authoritative and government resources
- IRS, “Understanding Your Lien and Levy” — for procedural details and appeal rights: https://www.irs.gov/individuals/understanding-your-lien-and-levy
- IRS, “Payment Options” — for installment agreement types and requirements (see IRS.gov).
Professional disclaimer
This article is for educational purposes only and does not constitute legal or tax advice. Tax matters are fact-specific and laws change. Consult a qualified tax professional (CPA, Enrolled Agent, or tax attorney) for tailored advice.
If you’d like, I can review a redacted copy of the IRS notice and suggest next steps based on the specific levy type and tax periods involved.