What to Expect If the IRS Freezes or Seizes Business Bank Accounts

Quick overview

An IRS freeze (an administrative hold placed by your bank after receiving a levy) or seizure (when funds are turned over to the IRS) can immediately interrupt payroll, vendor payments and day-to-day operations. The IRS generally uses levies as a collection tool only after sending a series of notices and offering appeal rights (for example, the Notice of Intent to Levy/Notice of Your Right to a Hearing). In my practice advising small businesses, acting quickly after the first formal notice usually prevents a prolonged freeze or seizure.

(Authoritative sources: IRS collection process and levy guidance — IRS Publication 594; IRS levy information: https://www.irs.gov/businesses/small-businesses-self-employed/levies.)

How the IRS gets from notice to bank seizure

1. Notices and billing: The IRS sends tax bills (CP14, CP501, CP504) and later a Notice of Intent to Levy (often the LT11 or similar). That notice explains the amount owed, penalties and your right to request a hearing within 30 days. (IRS, “Notice of Intent to Levy/Notice of Your Right to a Hearing”)

2. Opportunity to appeal: You may request a Collection Due Process (CDP) hearing or an equivalent administrative review. Timely requests (typically within 30 days of the LT11) pause certain collection actions.

3. Levy issued: If the IRS doesn’t receive payment or a timely appeal, it can issue a Notice of Levy to third parties — a bank levy is the most common third-party levy. The bank receives the levy and will identify and freeze funds in the account that are subject to the levy.

4. Bank response and hold period: After a bank receives the levy, it generally places a hold on the account and notifies the account holder. There is a limited period during which the taxpayer can contest the levy and request a release. While timing rules vary by circumstance, immediate communication with your bank and the IRS is critical.

5. Turnover of funds: If the levy isn’t released, the bank will surrender available funds to the IRS up to the amount of the levy. The IRS applies those funds to the tax debt, including penalties and interest.

(See IRS levy procedures and your right to a hearing: https://www.irs.gov/collections/enforcement-actions; see also Consumer-facing guidance from the CFPB about bank account holds.)

Who can be affected and special cases

• Sole proprietors: Personal and business accounts are often intertwined, so both can be at risk.
• Corporations and LLCs: Business accounts are directly levyable for business tax liabilities. However, piercing corporate veils, owner guarantees and payroll-tax trust fund rules can expose owners to additional liability.
• Payroll taxes and trust funds: Payroll taxes (trust fund taxes) are high-priority and often lead to rapid enforcement. The IRS can assess Trust Fund Recovery Penalties against responsible persons and pursue levies aggressively.

In my experience, payroll-tax problems and missed deposits are the most common triggers for urgent levies. If payroll is affected, the business faces steep operational and legal exposure quickly.

What funds are exempt or protected?

Some types of funds are exempt from levy if they can be identified and proven:

• Certain federal benefit payments (Social Security, SSI, VA) are often protected if deposited directly into the account and properly identified. (IRS and CFPB guidance explain exemptions.)
• Funds protected by bankruptcy stay are exempt if a bankruptcy stay is in place.

Exemptions must be claimed proactively. For mixed accounts (business and personal deposits mixed), proving exemption is more difficult. A tax professional can help prepare the right documentation and present it to the bank and the IRS.

Immediate steps to take if you get a levy notice or see a freeze

1. Read the notices carefully: Look for the type of notice, the date, and your deadline to request a hearing (typically 30 days for CDP requests).

2. Contact the IRS early: Call the number on the notice or the Collection division if listed. Ask for the local revenue officer’s contact.

3. Contact the bank: Banks often follow the levy exactly as written. Ask what portion of your funds they identified and whether they will forward funds immediately or after their internal hold. In many cases the bank is legally required to comply.

4. Consider filing for a Collection Due Process (CDP) hearing or submitting Form 12153 if eligible. This preserves appeal rights and can delay collection while the hearing is pending.

5. Evaluate short-term liquidity options: If payroll or bills are due, explore short-term financing, lines of credit, or emergency funding. In my advisory work, arranging a short-term bridge loan while negotiating an installment agreement with the IRS has preserved businesses from collapse.

6. Contact a tax professional and consider putting a representative on file (Form 2848) so your CPA or attorney can speak directly with the IRS.

(See FinHelp’s practical how-to: “What is an IRS Bank Levy?” and “How to Release a Federal Tax Levy on Your Bank Account”.)

• Quick internal resources: What is an IRS Bank Levy? | How to Release a Federal Tax Levy on Your Bank Account | Setting Up an IRS Installment Agreement

How to stop or limit a freeze or seizure

• Request a CDP hearing: If you qualify and request it on time, the IRS generally can’t levy while your hearing is pending.

• Request a Levy Release: The IRS must release a levy if it is creating economic hardship or if the levy was issued in error. You can request release by working with the IRS revenue officer or by submitting a financial statement (Form 433-F) to show hardship.

• Negotiate an Installment Agreement or Offer in Compromise: An approved installment agreement often ends immediate levy actions. A well-documented offer in compromise can also resolve levy threats but takes longer to process.

• Prove exempt funds: Provide documentation that deposited funds are exempt (e.g., federal benefits) and ask the bank to remove the hold on those amounts.

• Seek a temporary injunction or emergency relief: In rare cases where a levy threatens irreparable business harm, a tax attorney may request emergency court relief. This is costly and time-consuming but sometimes necessary to prevent business failure.

Timeline and what to expect in practice

• 0–30 days from final notice: Taxpayer receives LT11 or similar — this is the critical window to request a hearing.
• After 30 days (if unresolved): IRS can issue a levy to your bank and other third parties.
• Bank holds funds: The bank usually freezes the funds and coordinates with the IRS about release/turnover.
• Funds turnover: If no release or appeal succeeds, the bank forwards available funds to the IRS and applies them to the liability.

These timeframes can vary; an experienced practitioner can often create leverage by filing appeals, negotiating short-term payment schedules, or by documenting financial hardship.

Common mistakes that make things worse

• Ignoring notices: Silence typically leads to faster escalation.
• Assuming business accounts are protected because the business is incorporated: Corporate formalities matter; the IRS can still levy corporate accounts for corporate taxes and pursue responsible persons for payroll taxes.
• Waiting too long to get professional help: Early intervention (within the 30-day CDP window) is usually the most effective way to avoid a freeze or seizure.

Practical checklist for business owners (actionable)

• Immediately locate any IRS notices and note the dates and deadlines.
• Call the IRS contact on the notice and request clarification of the liability.
• Contact your bank to learn what, if any, holds are in place and how long they expect to maintain the hold.
• Prepare a current financial statement (Form 433-F) and supporting documents.
• Consider one of these remedies: CDP hearing, installment agreement, offer in compromise, or hardship release.
• Engage a CPA or tax attorney and file Form 2848 to allow them to represent you.

Final thoughts and professional insight

In my 15+ years advising business owners, the single biggest predictor of a favorable outcome is early, organized action. The IRS prefers collection and will work with taxpayers willing to negotiate. A short, well-documented plan — even a temporary installment agreement — often stops freezes and restores access to accounts faster than waiting for a seizure and then trying to claw back funds.

Authoritative resources: IRS, Publication 594 — The IRS Collection Process (https://www.irs.gov/pub/irs-pdf/p594.pdf); IRS guidance on levies and your collection options (https://www.irs.gov/collections/enforcement-actions); Consumer Financial Protection Bureau explains bank holds and consumer protections (https://www.consumerfinance.gov).

Professional disclaimer: This article is educational and does not constitute tax, legal or financial advice. Each business’s facts differ. Consult a qualified tax professional or attorney before making decisions about IRS collections or bank levies.

If you’re currently facing a freeze or levy, gather notices, account statements and payroll records and contact a qualified tax advisor immediately. Acting in the first 7–14 days after a final notice gives you the best chance to prevent a permanent fund surrender.