Challenging an IRS Levy: Steps to Stop a Bank Seizure

Overview

An IRS levy is the legal process the Internal Revenue Service uses to collect unpaid taxes by taking your property or rights to property — including funds in bank accounts. A bank levy can freeze your checking or savings account and result in removal of non-exempt funds. This article explains practical, timely steps to challenge a levy, the documents and forms you’ll need, and options that commonly lead to release of a bank seizure.

Sources: IRS, “Understanding Levies” (irs.gov/payments/understanding-levies) and IRS guidance on Collection Due Process hearings.

Immediate actions you should take (first 24–72 hours)

1. Don’t panic; act fast. When a bank notifies you that it received a levy, the clock starts. Banks often freeze accounts immediately and may be required to remit non-exempt funds to the IRS after a holding period.
2. Collect the paperwork. Locate the IRS notice(s): typically a Notice and Demand for Payment and a Notice of Intent to Levy and Notice of Your Right to a Hearing. These notices explain the tax period, amount, and deadlines.
3. Call the bank. Ask whether the bank has already sent funds to the IRS or is holding them. Ask the date the bank received the levy and how long it will hold the funds before remitting. Keep a written log of bank contacts.
4. Identify exempt funds. Certain federal benefits and some protected funds may be exempt from levy (for example, some Social Security and federal benefit payments can be protected). If the account contains exempt federal benefits, tell the bank and the IRS immediately and be prepared to provide proof of the benefit deposit. See IRS guidance on exempt payments (IRS – Understanding Levies).

How the law frames your window to challenge a levy

Before the IRS levies property, it must generally send a Notice of Intent to Levy and a Notice of Your Right to a Hearing at least 30 days before enforcing the levy. You typically have 30 days from that notice to request a Collection Due Process (CDP) hearing with the IRS Office of Appeals. If you file timely, the IRS generally cannot proceed with the levy while the CDP is pending.

To request a CDP hearing you file Form 12153, Request for a Collection Due Process or Equivalent Hearing (see the IRS CDP page). Filing Form 12153 within the 30‑day window preserves appeal rights.

Reference: IRS, Understanding Levies and Collection Due Process information (irs.gov).

Practical steps to challenge and stop a bank seizure

Follow these steps in order. In practice, acting on multiple options at once gives you the best chance to recover funds quickly.

Step 1 — Review the IRS notice closely

• Confirm the tax type, tax year, amount claimed, and the contact information. Errors occur — sometimes the IRS has the wrong balance or applied payments incorrectly. If you find a mistake, you can dispute it with documentation.

Step 2 — Determine whether funds are exempt

• Federal benefit payments (e.g., certain Social Security, VA, or federal retirement benefits) may be exempt. If exempt funds were swept, request an immediate release and supply proof of benefit deposits. The IRS explains which payments are exempt on its levies guidance page. If you have mixed deposits (benefits plus other funds), get help calculating the exempt portion.

Step 3 — Request a Collection Due Process (CDP) hearing (Form 12153)

• File Form 12153 within 30 days of the Notice of Intent to Levy to preserve appeal rights. If accepted, a CDP hearing pauses collection activity while Appeals reviews your case. In my practice I’ve seen timely CDP requests often prompt the IRS to release a bank levy while the appeal is resolved.

Step 4 — Propose immediate relief: installment agreement or partial pay

• Offering an installment agreement or making a partial payment can motivate the IRS to release a levy. If you can demonstrate a realistic plan to pay (and follow through), collections officers commonly lift levies to allow you access to essential funds.

Step 5 — Ask for Currently Not Collectible (CNC) status if you are in financial hardship

• If you can prove that the levy results in immediate financial hardship, the IRS may place your account in Currently Not Collectible status, which temporarily stops collection efforts. You’ll need to provide careful documentation of income and living expenses.

Step 6 — Consider an Offer in Compromise (OIC)

• An Offer in Compromise can settle tax debt for less than the full amount if you meet strict criteria. It takes time to process, but an accepted OIC will release a levy. For detailed guidance on Offers in Compromise, see FinHelp’s guide: “What Is an Offer in Compromise and How It Works.” Also see the filing guide for practical tips on building a financial package for an OIC.

(Internal links: What Is an Offer in Compromise and How It Works — https://finhelp.io/glossary/what-is-an-offer-in-compromise-and-how-it-works/, Filing an Offer in Compromise: Eligibility, Process, and Tips — https://finhelp.io/glossary/filing-an-offer-in-compromise-eligibility-process-and-tips/)

Step 7 — Engage the Taxpayer Advocate Service (TAS) if you face immediate economic harm

• If the levy creates substantial hardship (nobody to cover basic living expenses), TAS can intervene. Contact the Taxpayer Advocate Service for help and case assistance; they are an independent organization within the IRS that helps taxpayers in crisis.

Step 8 — If necessary, seek court or bankruptcy protection

• Bankruptcy can impose an automatic stay that temporarily halts IRS levies, but bankruptcy effects on priority tax debts are complex — consult a bankruptcy attorney. In rare situations, quick injunctive relief from a federal court may be an emergency option, but this requires counsel.

Documentation to gather before contacting the IRS or Appeals

• Copies of the IRS notices.
• Bank statements showing levied deposits and dates.
• Proof of exempt benefits (Social Security or VA award letters or direct deposit statements).
• A current budget showing income, monthly living expenses, and dependents.
• Pay stubs, proof of unemployment, or other income verification.
• If pursuing an OIC or CNC, a completed financial disclosure (Form 433-A or 433-F as applicable).

Collect and organize these documents immediately — having them ready speeds resolution.

Common mistakes that delay or worsen levies

• Ignoring the IRS notice. Silence usually leads to enforcement.
• Missing the 30‑day deadline for a CDP hearing request. Late requests may forfeit appeal rights.
• Failing to document exempt benefits or living-expense hardship.
• Agreeing to payment terms you cannot keep — defaulting invites renewed enforcement.

Example from practice

A client had their joint checking account levied after a tax assessment related to an inherited property sale. We quickly confirmed the error in how the IRS had reported taxable gain, filed a timely Form 12153 to request a CDP hearing, and provided corrected paperwork plus a proposed payment plan. The bank released a portion of the funds to cover living expenses within two weeks while Appeals reviewed the case. The levy was fully released after 60 days when the error was corrected and a short-term installment plan was put in place.

When to hire professional help

If the levy involves large sums, complex business accounts, or possible errors in tax computation, engage a tax attorney, CPA, or enrolled agent experienced in IRS collections. In my practice, representation often clarifies facts faster and negotiates release terms with less risk of repeated enforcement.

Resources and authoritative guidance

• IRS — Understanding Levies: https://www.irs.gov/payments/understanding-levies
• IRS — Collection Due Process (CDP) information and Form 12153 instructions: https://www.irs.gov/appeals/collection-due-process-cdp
• Taxpayer Advocate Service: https://taxpayeradvocate.irs.gov/

Final checklist: Stop a bank seizure

• Read the notice and calendar the 30‑day CDP deadline.
• Contact your bank to confirm if funds are being held or already remitted.
• Identify and document any exempt funds.
• File Form 12153 for a CDP hearing if you want to preserve appeal rights.
• Propose an installment agreement or apply for CNC status when appropriate.
• Consider an Offer in Compromise if you qualify; see FinHelp’s OIC guides linked above.
• If you suffer immediate hardship, contact the Taxpayer Advocate Service.

Professional disclaimer: This content is educational and does not replace individualized legal or tax advice. Specific circumstances may require advice from a qualified tax attorney, CPA, or enrolled agent.