When and How the IRS Can Issue a Levy: What to Expect

Overview

An IRS levy is an enforced collection action the IRS uses to seize property to satisfy unpaid federal taxes. Unlike a lien (which is a legal claim on property), a levy actually takes possession or legal control of assets: funds in bank accounts, a portion of wages, business receivables, or even personal property. Because levies can immediately affect cash flow and everyday life, understanding when the IRS can issue one and how to respond is essential.

(Author note: In my 15+ years advising taxpayers, the single best outcome usually comes when the taxpayer responds within the notice timeframes—calling the IRS, requesting a hearing, or entering a payment plan. Waiting often reduces options and increases financial damage.)

How the levy process starts (step-by-step)

1. Notice and demand for payment. The IRS typically begins with notices demanding payment (for example, letters like CP14 for balance due). These notices explain the amounts owed, penalties, and interest. If you ignore them, collection escalates.
2. Final Notice of Intent to Levy. Before a levy, the IRS must send a “Final Notice of Intent to Levy and Notice of Your Right to a Hearing.” For many taxpayers this appears as a CP504, LT11, or another final notice. That notice generally gives you 30 days to respond or request a Collection Due Process (CDP) hearing with the IRS Office of Appeals. See the IRS page on understanding your CP504 for details: https://www.irs.gov/individuals/understanding-your-irs-notice-cp504.
3. Request a hearing or act. Within the 30-day window you can: pay in full, arrange an installment agreement, submit an Offer in Compromise, request a CDP hearing (Form 12153), or demonstrate that the funds or property the IRS plans to levy are exempt.
4. Levy issued. If you don’t act within the allowable time or the IRS does not approve another resolution, the IRS may issue a levy to a third party (bank, employer) or directly seize property.

Timelines to remember

• Final notice period: Generally 30 days from the date on the Final Notice to request a CDP hearing (Form 12153). See IRS Collection Due Process (CDP) info: https://www.irs.gov/collections/collection-due-process-cdps.
• Bank levy hold: When the IRS serves a third‑party levy (for example, a bank levy), the bank is usually required to hold the funds for 21 days before remitting them to the IRS. During this hold period the taxpayer can provide documentation of exempt funds or request a hearing.
• Wage levies: Employers begin withholding according to the IRS notice schedule; state wage-garnishment rules may also apply.

Common levy targets and what gets seized

• Bank accounts: The IRS can freeze and demand balances from checking and savings accounts. If a levy affects an account that contains both exempt (for example, certain Social Security checks) and non-exempt funds, you must act quickly to claim exemptions.
• Wages and salary: The IRS can issue a wage levy; employers withhold a portion of an employee’s pay and remit it to the IRS.
• Business assets and receivables: Accounts receivable, inventory, or other business property can be levied.
• Personal property and real estate: In extreme cases the IRS may seize and sell property.

Note: The Federal Payment Levy Program (FPLP) allows the IRS to levy certain federal payments. There are complex rules and exemptions—see the IRS FPLP guidance: https://www.irs.gov/individuals/federal-payment-levy-program.

Your rights and the Collection Due Process (CDP)

You have statutory rights before the IRS levies your property. The critical protection is the right to a hearing: after the final notice the taxpayer typically has 30 days to file Form 12153 and request a CDP hearing with the Office of Appeals. At that hearing you can:

• Challenge the existence or amount of the liability.
• Propose a collection alternative (installment agreement, Offer in Compromise, or currently not collectible status).
• Claim that the levy would create an economic hardship or is otherwise improper.

If the IRS issues a levy and you missed the CDP window, you may still be able to pursue other administrative appeals, a Collection Appeals Program (CAP) review, or seek relief in Tax Court in limited circumstances.

How to stop or release a levy

A levy can be released if you do any of the following:

• Pay the tax in full.
• Enter into and comply with an installment agreement acceptable to the IRS.
• Reach an agreement with the IRS (for example, an accepted Offer in Compromise).
• Show that the funds the IRS levied are exempt (and provide timely proof).
• Successfully request a release via a Collection Due Process hearing or administrative appeal.

If a levy was issued in error, the IRS should release it immediately once notified and provided proof. In my experience, a bank levy that is demonstrably wrong will typically be released within a few business days after the bank receives IRS authorization, but you should document communication and escalate if necessary (call the number on the notice and ask to reach the revenue officer handling the case).

Practical steps to take when you receive a Final Notice (CP504/LT11)

1. Read the notice carefully and note the deadline for requesting a hearing.
2. Do not ignore the notice—call the IRS using the number on the notice or contact a tax professional immediately.
3. If you cannot pay, consider options quickly: online installment agreements, submitting an Offer in Compromise, or applying for Currently Not Collectible status.
4. If a bank freeze or levy follows, gather bank statements, social security deposit records, and proof of exemptions. Contact the bank and the IRS, and file a claim for exempt funds if appropriate.
5. If the levy affects your paycheck or business cash flow, document hardship and contact the Taxpayer Advocate Service if you cannot resolve it through normal channels (https://www.taxpayeradvocate.irs.gov).

Exemptions and common misconceptions

• Exempt income: Certain types of income are protected from levy (for example, some social safety-net benefits), but deposit commingling can complicate matters. If an exempt federal benefit is deposited into the same account as non-exempt funds, you must act quickly to prove which funds are exempt.
• Misconception: People sometimes assume the IRS uses levies only after many attempts. While the IRS generally follows progressive collection steps, a taxpayer who ignores notices and calls can often stop enforcement earlier.
• Misconception: A levy is permanent. It can be released, and many levies are temporary holds while the IRS pursues a long-term solution.

When to call a tax professional or seek help

• If a levy is imminent or already in place, consult a CPA, enrolled agent, or tax attorney who handles collections. They can help by negotiating installment agreements, assembling Offer in Compromise packages (Form 656), or filing Form 12153 to request a hearing.
• Low- and moderate-income taxpayers who can’t resolve matters should contact the Taxpayer Advocate Service; TAS provides independent help when the IRS’s normal processes aren’t working.
• If you’re unsure which collection option fits, a practitioner can run Reasonable Collection Potential (RCP) calculations and advise whether an Offer in Compromise, an installment plan, or Currently Not Collectible status is most realistic.

For a detailed guide to alternatives and the application process, see our article on Offer in Compromise: Qualifying, Applying, and Pitfalls: https://finhelp.io/glossary/offer-in-compromise-qualifying-applying-and-pitfalls/ and for payment options see IRS Payment Plans and our practical guidance: https://finhelp.io/glossary/irs-payment-plans-for-non-filers-how-to-get-current-without-filing-first/.

Also, if the levy is tied to a filed Notice of Federal Tax Lien or you’re concerned about liens affecting credit and loans, read our piece on how tax liens appear on credit reports: https://finhelp.io/glossary/how-tax-liens-appear-on-credit-reports-and-what-to-do/.

Real-world examples (anonymized)

• Client A: Received multiple unpaid tax notices and a CP504. By requesting a CDP hearing within 30 days and proposing an installment agreement, the levy was stayed and an affordable 60-month plan was put in place.
• Client B: Ignored notices until the bank froze their business checking account. We immediately documented payroll obligations and exempt funds, requested a release, and negotiated a short-term installment agreement to avoid long-term business interruption.

Quick checklist to protect funds

• Act within the notice deadlines (usually 30 days).
• Contact the IRS or a tax professional right away.
• Gather proof of exempt income (SSA statements, benefit letters, etc.).
• File Form 12153 to request a CDP hearing if eligible.
• Consider the Taxpayer Advocate Service for unresolved hardship situations.

Final notes and authoritative references

Levies are a powerful tool—but the IRS follows legal steps and taxpayers have rights and options. Interest and penalties continue to accrue until a liability is resolved, so earlier engagement preserves more options.

Authoritative sources and additional reading:

• IRS — Levies and Seizures FAQs: https://www.irs.gov/businesses/small-businesses-self-employed/levies
• IRS — Understanding Your IRS Notice CP504: https://www.irs.gov/individuals/understanding-your-irs-notice-cp504
• IRS — Collection Due Process (CDP) hearings: https://www.irs.gov/collections/collection-due-process-cdps
• IRS — Federal Payment Levy Program: https://www.irs.gov/individuals/federal-payment-levy-program

Professional disclaimer: This article is educational and does not constitute legal or tax advice. Your situation may require analysis of detailed facts and current IRS procedures. Consult a qualified tax professional or attorney to address your specific case.