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Can You Reverse an IRS Bank Levy? How to Avoid and Stop

Can You Reverse an IRS Bank Levy? What You Need to Know

Yes, you can reverse an IRS bank levy – but it's hard. Typically, once the levy has hit your account and the funds are frozen, the IRS will only reverse the levy in cases of error, severe financial hardship, or if they believe doing so will help them collect the tax more effectively. The best option is to respond to the IRS proactively before they send a levy notice to your bank – but if it's too late for that, reach out to a tax pro to talk about reversing the levy. 

Don't wait to get help – IRS bank levies are a very common collection tactic, and they're very hard to reverse without the right guidance. Use TaxCure to find a licensed tax professional to represent you today.

Key takeaways

  • Bank levy – when the IRS seizes the funds in your bank account for unpaid taxes.
  • Notice period – the IRS must alert you at least 30 days before taking the funds. 
  • Frozen funds – once the IRS alerts your bank about the levy, they'll freeze the funds for 21 days.
  • Appeal rights – you can appeal before or after the levy hits your bank account. 
  • Reversing the levy – typically only possible if there's an error, severe financial hardship, or you pay in full. 
  • Getting back the funds – once the bank sends the funds to the IRS, you can ask for them back, but approval is rare.

How to reverse a bank levy

If you've received Form 8519, alerting you that the IRS has frozen the funds in your account with a bank levy, the best way to get the levy reversed is by contacting a licensed tax professional. They can guide you through the reversal options, which include:

  • Paying in full – then, the IRS will release the levy and the underlying tax lien, meaning you no longer owe anything.
  • Convincing the IRS that reversing the levy will help to get the tax paid – this argument can be effective if the frozen funds are going to be used to run a business that's going to pay the tax debt.
  • Proving the IRS is levying exempt funds – for example, money you received from workers' compensation or other exempt funds. 
  • Establishing an error – for example, you are only a signatory on the account and don't actually own the funds in it. 
  • Showing that the IRS didn't notify you – the IRS must send a Final Levy notice and alert you to your right to a hearing at least 30 days before the levy (unless the jeopardy levy rules apply).
  • Claiming severe financial hardship – generally, the IRS will only release the funds for financial hardship if you're facing homelessness or similar types of significant financial distress.

The IRS may also be willing to reverse the levy if you set up payments – that can be hard to do if you're dealing with the Automated Collection System, and potentially easier if you're working with a revenue officer. A tax professional can help you find the best option for your situation. If you want to navigate the levy on your own, you need to appeal. 

How to appeal an IRS bank levy

You can appeal bank levies before or after the IRS initiates them. Ideally, you should appeal before the IRS contacts your bank about the levy – if you appeal proactively, you'll still have access to the funds in your account, while you go through the appeals process. 

However, if you appeal after the IRS has levied your bank account, the funds will be frozen. You won't be able to access those funds, but you can still use the account. However, if you don't act now, the bank will send the frozen funds to the IRS in 21 days. 

Here are the main appeal options:

  • Within 30 days of the date on the Final Notice of Intent to Levy – request a CDP hearing, and during the hearing, talk with the IRS about payment arrangements. If you haven't had a chance to appeal the tax due yet, you can do so at this hearing. 
  • Within one year of the Final Notice of Intent to Levy – request an equivalent hearing using the same form as the CDP hearing. By this time, the levy may have already hit your bank account, but you'll still be able to explain why it shouldn't move forward and talk about payment options. If the bank has already sent the funds to the IRS, you may be able to ask about your options for requesting a refund.
  • Before or after the bank levy takes place – appeal through the Collection Appeals Program. To start, you must call the IRS and speak with an employee about the levy. If they refuse to reverse the levy, you should ask to talk with their manager. If that doesn't resolve the issue, you can take the matter to appeals. The IRS will generally not move forward with any aspect of the bank levy during this process, but you must meet very strict deadlines and the process varies if a revenue officer is assigned to your account. You only have one chance at a CAP appeal, and you can't appeal the results.

Appealing bank levies or any other IRS collection actions involves strict deadlines and procedures. Mistakes can make the situation worse, and although you can appeal certain decisions, you can't appeal others. In particular, you cannot appeal the results of most CAP appeals or equivalent hearings. 

To protect yourself, you need to act as soon as you get the Final Levy notice about a possible bank levy.

What to do when you get a notice of levy

First, be aware that the IRS sends many notices that talk about levies. For example, the 504B says the IRS may levy your assets, but when you receive this notice, the agency is only seizing your state tax refunds. They must send you additional notices before taking any assets. 

However, if you get a Final Notice of Intent to Levy – for example, the LT1058 or LT11– you need to respond, or you will wake up to a frozen bank account in about a month. To respond, do the following:

  • File a request for a Collection Due Process hearing.
  • Appeal the pending bank levy through the Collection Appeals Program.
  • Pay the tax debt in full – follow up on the payment to make sure it's processed correctly. 
  • Set up a payment plan – if you owe less than $50,000, you can set up payments easily online, but you should still contact the IRS directly to make sure they're not going to move forward with the levy. 
  • Apply for an offer in compromise – as long as you apply for the offer by the deadline on the notice, the IRS will not move forward with the levy. 
  • If applicable, apply for innocent spouse relief – this only applies in situations where your spouse incurred a tax debt without your knowledge. There are three different types of innocent spouse relief, and applying for any of them will give you a brief reprieve from collection actions. 

You can also file for bankruptcy, and the stay will prevent the IRS from moving forward, but keep in mind that bankruptcy does not resolve all tax debts. 

The most important point is to take action before the deadline on the levy notice. Otherwise, you will be in a position where you're trying to reverse the levy after the funds are frozen.

What to do if the IRS freezes the funds in your bank account

Once the funds have been frozen due to an IRS bank levy, you have limited options, but you still have rights. To protect your finances, you should reach out to a tax professional as soon as possible. They can file an appeal to get the IRS to reverse the levy. 

The IRS has very specific protocols around collection actions. If you want to reverse the levy, you'll need to present extremely accurate arguments based on the Internal Revenue Code. An experienced professional is key.

FAQs on reversing IRS bank levies

If you have more questions, read on. Here's a look at some of the most common queries about reversing bank levies, or check out our FAQs on bank levies in general if you don't see your question here. 

Can an IRS bank levy be reversed?

Yes, IRS bank levies can be reversed, but generally only in cases of error or severe financial hardship. If the IRS levies your bank account, you have the right to appeal both before and after the levy. If you appeal before, the levy will not move forward, and you will be able to use the funds in your bank account freely. If you appeal after the IRS contacts your bank about the levy, the funds will be frozen, and you will typically not be able to use them during the appeals process. 

How long does it take to get money back from an IRS levy?

The timing varies, but it's more important to note that it's very difficult to get levied funds back from the IRS. Once your bank sends the funds from your account to the IRS, you have up to two years to request the money back, but unless you can prove error or severe financial hardship, it's very unlikely that you'll be able to get the money back. That's why it's critical to be proactive when dealing with IRS tax debt.

What are the steps to stop a bank levy?

To stop a levy, respond as soon as you receive the Final Notice of Levy with your right to a hearing. Request a Collection Due Process hearing to stop the bank levy, and then, during the hearing, set up payments or make other arrangements with the IRS. Once the IRS has contacted your bank about the levy, it's very hard to stop unless it was done in error or the IRS didn't provide the right notice. 

Can the IRS levy my entire bank account?

The IRS can levy all of the funds in your bank account on the day of the levy, but cannot seize the entire account. You will still be able to use your bank account, and any funds deposited after the levy date will be available to you. The IRS must issue an additional levy to take any other funds from the account. 

Who can help me remove an IRS levy?

A licensed tax professional focused on tax resolution can help you deal with IRS levies. They'll be able to assess your situation and leverage their experience to get you the most effective results possible. Unfortunately, it's not always possible to stop a levy once it's in progress – but regardless of what you're facing, there are options to minimize the financial damage and get back into good standing with the IRS. 

Use TaxCure to find a licensed tax professional

Tax resolution is an extremely specific part of the tax industry – often, bank levies and other collection actions are out of the scope of your usual CPA, and unfortunately, the big nationwide tax relief firms are often not well poised to help with issues this complicated either. 

To get help, you need an expert – and TaxCure can help you find that. Start your search by selecting the IRS (or your state agency if they're threatening a bank levy). Then, select "bank levy" as your problem, and look at the list of results. You'll see local tax professionals along with reviews and more. Don't wait – reach out to a tax professional today.

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