Bank Levies Ruin Everything: Here’s why it happens - and what you can do about it.

Jan 20

There’s a moment—usually a panicked phone call—when a client says something like:

“I can’t access my money. The bank says the IRS froze it.”

And then everything else you’re working on immediately grinds to a halt.

Closings stall. Settlements pause. Payroll gets missed. Divorce negotiations explode. Financial plans unravel. And suddenly, all hell breaks loose over a tax issue your client said they would “deal with later.”

This is the IRS bank levy. And it’s one of the most disruptive collection tools in the IRS playbook.

Let’s talk about what actually happens, why timing matters more than people realize, and where professionals can lose—or preserve—control of the situation.

There are three critical realities every professional should understand about IRS bank levies.

1. The Best Way to Stop a Bank Levy Is to Be Ahead of the Game

The most effective way to avoid an IRS bank levy is to stay in good standing with the IRS—meaning all required returns are filed and known balances are addressed.

That should be simple enough and yet here you are.

Most clients don’t ignore the IRS out of defiance. They ignore it because they’re overwhelmed, embarrassed, or convinced the problem isn’t urgent yet. Meanwhile, while the IRS begins patiently, it doesn't go away.

Setting up monthly payments or other arrangements stops collections when clients are unable to pay in full. Ideally, those conversations happen as soon as they know they owe, not after enforcement begins. Early action gives the taxpayer leverage and keeps the situation in negotiation mode instead of collection mode.

Even if you wait until the very last minute, there’s still a narrow window to fix things before all hell breaks loose.

When a client receives a Final Notice of Intent to Levy, identified with an LT1, CP90, or LT1058, they have 30 days to act. During that time, they can pay in full, negotiate a resolution, or file a Collection Due Process (CDP) request that stops enforcement and forces a a hearing before money is taken.

Resolving the balance shields the client from a bank levy but also wage garnishments, additional levies, and asset seizure, which come into force when the notices and letters are ignored.

Early recognition saves money. More importantly, it preserves leverage and options. Once enforcement begins, both leverage and options begin to disappear.

2. When the Bank Freezes Their Account, the Clock Starts Ticking

The bank immediately takes money out of their account when the IRS issues a bank levy.

The IRS already sent multiple notices stating they were going to do this. There are no more warning calls. No last courtesy email. They just take the money.

BUT unlike a wage garnishment, the money isn’t sent to the IRS right away—and that distinction is important.

By law, the bank must hold the funds for 21 days before sending them to the IRS. During that period, the money is in limbo. It’s unavailable to the client, but it’s also not yet gone.

That 21-day holding period is the last opportunity to stop the levy.

After day 21, the bank sends the money to the IRS automatically. At that point, recovery is rare.

Once an account is frozen, it may feel final, but it isn’t, at least not yet. But the margin for error is measured in days.

3. Proving Economic Hardship is the Only Way to Get the Levied Funds Back

Yes, an IRS bank levy can be stopped even after the bank has frozen the funds. But the reasons are limited—and the window is short.

The levy may be released if it’s shown to be causing an economic hardship, if the IRS made a procedural error, if the bank levied exempt funds, or if the balance is paid in full. But as we discussed, the window to prove any of these is small - a mere 21 days.

Many people assume “economic hardship” means that the levy makes things difficult. It doesn’t.

In IRS terms, economic hardship exists when a levy prevents a taxpayer from meeting basic living or operating expenses—housing, utilities, payroll, medical care, and essential business costs.

That distinction is important, because when economic hardship is properly established, the IRS is required to release the levy.

But economic hardship must be proven. It must meet the requirements of a clearly defined IRS standard. it's not proven through urgency or emotion. It’s proven through financial facts, documentation, and a clear connection between the levy and the inability to pay for essential monthly bills.

This is where the numbers, the narrative, and persuasion matter. The same financial reality can lead to very different outcomes depending on how it’s presented, supported, and timed.

The IRS responds to numbers, structure, and compliance—not feelings.