Can the IRS Levy a Business Bank Account? 6 Steps Between the Notice and the Money Leaving

The IRS can levy a business bank account, and it does not need a judge to do it. What it needs is time and paper: an assessment, a demand, two kinds of written warning, and then a waiting period at the bank itself, and each of those intervals is a window in which a business owner can still change the outcome.

The six steps below trace the sequence from the first bill to the day the bank sends the money, with the statute that governs each. Most owners learn of the process at step four. By then, two of the useful windows have closed.

1. Notice and Demand Starts a Ten-Day Clock

The levy power begins with an unpaid assessment. The Code's levy section, 26 U.S.C. 6331, provides in subsection (a) that if any person liable to pay a tax "neglects or refuses to pay the same within 10 days after notice and demand," it "shall be lawful" for the IRS to collect it by levy on the person's property. The statute authorizes the levy directly. Nothing in section 6331 sends the IRS to a courthouse first.

Ten days is not the practical deadline, because the next two steps add their own waiting periods. It is the moment the power exists.

2. The Notice of Intent to Levy Arrives at Least 30 Days Ahead

Section 6331(d) requires written notice of the intent to levy "no less than 30 days before the day of the levy," delivered in person, left at the home or usual place of business, or sent by certified or registered mail to the last known address. A business that moved without updating its address with the IRS may find the notice went to an empty suite.

The letter is quiet. It resembles the notices that came before it, which is precisely why it is set aside.

3. The Hearing Right Has Its Own 30 Days

Section 6330 adds a second notice, this one about rights. No levy may be made unless the IRS has notified the taxpayer in writing of the right to a hearing "not less than 30 days before the day of the first levy," and the taxpayer may request that hearing "during the 30-day period." A timely written request, stating the grounds, goes to the Internal Revenue Service Independent Office of Appeals.

This is the procedural moment with the most room in it. A collection due process hearing puts the matter before the Independent Office of Appeals while every dollar is still in the account, and what may be raised there, collection alternatives included, is worth reviewing with a tax professional before the request is written. The statute contains exceptions to the pre-levy notice rule for certain situations, and counsel should confirm none applies. Where one does not, the 30 days are the owner's.

4. Service on the Bank Freezes What Is There

Some weeks after the thirtieth day, the first sign an owner notices may come from the bank rather than the IRS: a declined vendor payment, a hold on the operating account, a phone call from a branch manager reading from a form.

Section 6331(e) makes a levy on salary or wages continuous until released. The statute makes no comparable provision for a bank balance, and a business that keeps receiving deposits after service should ask its tax professional what the levy reaches and whether another is likely, rather than guess in either direction.

5. Twenty-One Days at the Bank Are the Last Window

The bank does not send the money at once. Section 6332(c) directs that a bank "shall surrender" levied deposits, with interest, "only after 21 days after service of levy." The hold is a waiting period on the bank's side. It is not a reversal, and nothing about it returns funds automatically, but it is the last interval in which the levy can be released before the money leaves.

Release is governed by section 6343(a)(1), which says the IRS shall release a levy when the liability is satisfied or has become unenforceable by lapse of time, when release will help the IRS collect the liability, when the taxpayer has entered into an installment agreement under section 6159 (unless the agreement provides otherwise), or when the property's value exceeds the liability and a partial release would not hinder collection.

A fifth ground, economic hardship, is the one business owners hear about and the one that does not help them. The regulation limits it to "the financial condition of an individual taxpayer," so a corporation or LLC cannot insist on release because the levy will keep it from making payroll, however true that may be, however many employees are waiting on Friday's deposit, and however obvious it seems to the owner that shutting the company down is a strange way for the government to collect from it.

The installment agreement is therefore the practical route. A business calls the number on its notice or 800-829-4933, and a larger request may call for Form 433-B. For an out-of-business corporation or LLC, the Internal Revenue Manual directs that trust fund recovery penalties be considered in the same review. An owner who asks for terms should expect to be asked about payroll deposits.

Twenty-one days is enough time to reach a tax professional. It is not enough time to find one after day nineteen.

6. After Surrender, the Account Answers to the Next Deposit

Once the bank remits, the money has gone to the Treasury. What remains is the balance of the liability, the possibility of further levies, and the same release grounds, now applied to a smaller debt.

Owners who have been through a merchant cash advance default sometimes expect the IRS to behave like a funder. It does not. A New York judgment creditor needs a judgment before the attorney can issue a restraining notice under CPLR 5222, which then binds the bank for up to a year, or before a sheriff can levy under CPLR 5232, a levy that becomes void after ninety days except as to what was already paid over. The IRS needs neither a judgment nor a sheriff. It needs only the notices described above, and a bank that waits the statutory 21 days.

The bank's letter will name the amount frozen and the date of service.

Keeping Private Debt Separate From the Tax Problem

Delancey Street is a business debt settlement company, not a law firm, and it does not negotiate with the IRS or seek levy releases. When a tax levy arrives alongside merchant cash advance debits or a funder's restraining notice, its free, confidential review can separate the private balances from the federal one, with independently licensed counsel brought in for legal questions, so that the tax matter goes to a CPA, enrolled agent or tax attorney without delay.