Quick overview
An IRS levy takes money or property to satisfy unpaid taxes and can immediately freeze business checking or savings accounts, accounts receivable, and other assets that your business needs to operate. The IRS usually issues a final notice before levying, but once a levy is in place the immediate goal is to restore access to funds so payroll and bills can be paid. This article lays out practical, prioritized steps for releasing a levy on a business account and explains the options most commonly used in practice.
When can the IRS levy a business account?
The IRS can levy when a taxpayer has unpaid tax liabilities and does not make satisfactory arrangements after receiving notices. Before a levy, the IRS generally issues a written notice of intent to levy and a notice of your right to a hearing (often called a Collection Due Process—or CDP—notice). If you do not respond or resolve the tax debt, a levy may follow. For details, see the IRS’s official guidance on levies (IRS).
Source: Internal Revenue Service, “Understanding Levies” (IRS.gov): https://www.irs.gov/businesses/small-businesses-self-employed/understanding-levies
Common ways to get a levy released
The IRS will generally release a levy when one of the following happens:
- Pay the tax debt in full (immediate release once payment posts). (IRS)
- Enter and stay current on an approved installment agreement. See the step‑by‑step installment guidance to apply. (IRS) Anchor: Setting up an installment agreement
- Have an Offer in Compromise accepted by the IRS (Form 656). Offers can take months to process and require detailed financial disclosure. Anchor: Offer in Compromise guidance
- Prove the levy creates immediate financial hardship (economic hardship release) and your business cannot meet necessary expenses and continue operations. (IRS collection policy)
- Prove the levy was wrongful (for example, funds in the account belong to a third party or were exempt).
- Request and receive Currently Not Collectible (CNC) status if the taxpayer lacks ability to pay after full financial review.
The IRS’s payment plans page and levy rules are the primary references for each option: https://www.irs.gov/payments/understanding-levies
Step-by-step: How to pursue a levy release (practical actions)
- Read the levy notice carefully. Identify the contact phone number, notice ID, tax periods, and the collection office handling your case.
- Act immediately. Time is critical—levies can be enforced or the bank can remit funds quickly. Calling the IRS Collections number on the notice opens a direct line to the assigned case.
- Gather documentation:
- Business EIN, tax years and amounts owed
- The bank levy or seizure notice and bank contact information
- Recent bank statements and cash-flow projections
- Payroll schedules and proof of essential payments (rent, payroll, vendor obligations)
- If you plan to request hardship, prepare a short narrative and supporting bank reconciliations showing inability to pay essential expenses
- Propose an immediate solution. In most cases you can request one of the following to get the levy released: full payment, an installment agreement (Form 9465 for many taxpayers; businesses use other enrollment methods), submission of an Offer in Compromise (Form 656), or CNC status after a financial review (Form 433-B for businesses). If you already have a viable payment plan, provide evidence.
- Follow up in writing. Mail or fax supporting documents to the Collection Office and obtain confirmation of receipt.
- If you disagree with the levy, request a Collection Due Process (CDP) hearing or an equivalent appeal. This preserves rights and may stop the levy while the appeal is considered.
Practical tip from practice: Always document who you spoke with, the date/time, and the employee’s ID number. That record helps if you must escalate or appeal.
Required forms and typical documentation
- Form 9465 (Installment Agreement Request) — often used for individuals but the IRS has business enrollment routes. (IRS)
- Form 656 (Offer in Compromise) — for negotiating a reduced lump-sum or periodic payment. (IRS)
- Form 433-B (Collection Information Statement for Businesses) — the financial disclosure the IRS uses to evaluate business ability to pay. (IRS)
- Bank statements, profit-and-loss statements, payroll registers, vendor bills, lease agreements, and a short hardship statement where applicable.
For detailed, practical walkthroughs on installment plans and offers, see our guides: Setting Up an Installment Agreement: A Step‑by‑Step Guide and Offer in Compromise: Qualifying, Applying, and Pitfalls.
Timing and what banks do
When the IRS serves a levy on a bank, the bank will normally freeze the funds and follow the levy instructions. The timing for when the bank remits varies by institution and by the levy instructions; in many cases the bank will communicate with the account holder and the IRS. Because banks can act quickly, your first call should be to the IRS collection office listed on the notice and then to your bank to understand whether a hold or hold-and-remit is in place.
Special situations for businesses
- Payroll taxes: Payroll tax levies are aggressively enforced because unpaid payroll taxes are considered trust fund taxes. If payroll funds are levied, prioritize resolving payroll tax issues immediately; the IRS can and will pursue responsible persons for trust fund recovery penalties as well.
- Third‑party funds: If some of the money in the account belongs to clients or vendors (custodial funds), document ownership and ask the bank and IRS to exempt those sums.
- Closed accounts: If the account is closed, but funds were already swept, you may need to trace where funds moved and work with the bank and IRS to identify exempt funds.
Appeals and legal avenues
You can request a Collection Due Process hearing to appeal the levy and any proposed collection action. Filing an appeal typically stays collection while the appeal is active (verify timing—appeals and stays depend on case specifics). If the levy was wrongful or improperly issued, you may have grounds to request a wrongful levy release immediately and pursue damages under IRC § 7426 in certain cases (consult a tax attorney).
Common mistakes and how to avoid them
- Waiting to respond. Delay reduces options and increases chance the bank already remitted funds.
- Not documenting hardship correctly. Provide clear statements and supporting reconciliations.
- Assuming levies can’t be negotiated. Many levies are resolved through installment agreements or offers in compromise.
Real-world example (illustrative)
A small retail client faced a bank levy for unpaid payroll taxes. We immediately requested an installment agreement, provided the IRS with a 13‑week cash‑flow forecast and payroll schedule, and demonstrated that not releasing funds would force layoffs. The IRS approved a short-term payment arrangement and released the levy within days, allowing the business to meet payroll that week.
When to get professional help
If the levy involves payroll taxes, large balances, or complex ownership of funds, consult a CPA, enrolled agent, or tax attorney. In my practice, early engagement with a qualified practitioner produces better outcomes and faster levy releases. Professionals can also help prepare a strong financial package for an Offer in Compromise or to prove hardship.
FAQs (brief)
- Will the IRS release a levy if I pay the debt? Yes — paying in full generally leads to release once the payment posts. (IRS)
- Can I get a levy released while an Offer in Compromise is pending? Sometimes; you must show good cause or a partial payment and demonstrate why release is justified while the offer is considered.
- What if funds in the account are not mine? Provide documentation to the bank and IRS; they can exclude or return exempt funds.
Sources and further reading
- IRS — Understanding Levies: https://www.irs.gov/businesses/small-businesses-self-employed/understanding-levies
- IRS — Payment Plans (Installment Agreements): https://www.irs.gov/payments/understanding-levies
- IRS — Offer in Compromise (Form 656): https://www.irs.gov/forms-pubs/about-form-656
Disclaimer
This article is educational and does not constitute legal or tax advice. Tax situations are fact-specific; consult a qualified tax professional or attorney for advice tailored to your business. In my practice, quick, documented action and professional representation materially increase the chance of a favorable and timely levy release.
