How an IRS Bank Levy Works
An IRS bank levy is a legal seizure of funds in your bank account. The bank freezes funds up to the amount of the tax debt and holds them for 21 days before remitting to the IRS. This holding period gives the taxpayer time to resolve the issue before funds are permanently surrendered.
Unlike a wage levy, a bank levy is a one-time action capturing whatever funds exist at the moment of receipt. However, the IRS can and frequently does issue multiple levies.
The 21-Day Window
This window is critical. Funds are frozen but not yet sent to the IRS. A tax professional can negotiate release during this time. If the taxpayer demonstrates hardship, enters a payment arrangement, or resolves the underlying issue, the IRS can instruct the bank to release funds back to the taxpayer.
After 21 days, the bank sends funds to the IRS. Recovery then requires filing a formal claim for refund or administrative relief, a significantly more difficult process.
Joint Accounts and Third-Party Funds
Bank levies on joint accounts create complications. The non-liable account holder can recover their portion by filing Form 668-A with documentation showing fund sources. Third-party funds like payroll deposits may also be exempt, but the burden is on the account holder to prove ownership during the 21-day period.
Getting a Bank Levy Released
The methods mirror wage garnishment releases: demonstrating hardship, entering an installment agreement, filing an OIC, or establishing error. The key difference is urgency. With only 21 days, immediate action through an experienced representative is essential.
A bank levy is a wake-up call. The IRS has exhausted its patience with voluntary compliance. Responding immediately, not next week, is essential.