How to get an IRS Tax Levy Released

The IRS sends the levy notice to the taxpayer’s bank, which orders the bank to hold the money in the taxpayer’s account(s) for 21 days. The bank is legally obligated to honor the levy. No one can access the funds during this period. The 21-day period provides an opportunity for the taxpayer or his/her representative to contact the IRS and negotiate for a release of the funds controlled by the levy. Once the 21-day period passes, the funds are remitted to the IRS.

Any money deposited after the receipt of the levy is not frozen by the levy. The taxpayer should have full access to the deposited funds. The IRS can only get any subsequent funds deposited by a taxpayer after issuing another bank levy.

Releasing an Income Levy

The IRS will not release an income levy unless a taxpayer resolves his or her back tax liability. The taxpayer can resolve his or her back tax liability through Full Payment, an Offer in Compromise, an Installment Agreement, or through placement in Currently Not Collectible status.

Thus, for the most part, a taxpayer does not need not engage in any special process to release an income levy. However, a taxpayer does need to respond quickly to any IRS requests for documents, so that their case can be resolved before the a levy is imposed.

Releasing a Bank Levy – Extreme Financial Hardship

Because a bank levy is a one-time event and the amounts within bank accounts are typically small, the IRS will not always release a bank levy after entering into an Installment Agreement or proving a financial hardship (i.e. Currently Not Collectible status). Instead, the IRS will typically release a bank levy only if the taxpayer is experiencing an “extreme financial hardship.”

An “extreme financial hardship” occurs when the funds within the bank account are needed for a specific reason. The reason must relate to allowable expenses, which are those expenses necessary for the health or welfare of the taxpayer, or for the production of income. Usually, if proven, the IRS will release the bank levy up to the amount necessary to pay for the allowable expense.

Here are some examples that could demonstrate an extreme financial hardship:

• Notice of Eviction
• Notice of Foreclosure
• Shut-Off Notice (i.e. electricity, water, phone, etc.)
• Notice of Repossession
• Upcoming Medical Procedures
• Necessary Travel Expenses for Employment
• Payroll for Business

Releasing a Levy through Filing an Offer in Compromise

You can also get a levy released by filing an Offer in Compromise. However, the IRS will only release a levy after an Offer in Compromise has been “deemed processable” by the IRS Centralized Offer in Compromise (COIC) Unit. This means that the IRS COIC Unit has determined that the filed Offer in Compromise has met all procedural requirements.

Unfortunately, releasing a levy through filing an Offer in Compromise is not an exact science. A taxpayer must rely upon the IRS COIC Unit to notify the department that issued the levy (i.e. ACS, Revenue Officer, etc.) that it has received a processable Offer in Compromise. A taxpayer must also rely upon the IRS COIC to ask that department to release the levy so that IRS COIC may accurately consider the taxpayer’s financial situation.