How Long Can the IRS Freeze Your Bank Account and What Happens Next?
Learn how long the IRS can freeze your bank account, what factors affect the duration, and what happens to your funds once the freeze is lifted.
If the IRS believes you owe back taxes and have not responded to their notices, they can take serious action, including freezing your bank account. This process, known as a levy, allows the IRS to legally seize funds directly from your account to cover unpaid debts. For many people, this sudden loss of access to their money can cause significant financial disruption.
Understanding how long an IRS freeze typically lasts and what happens afterward can help you navigate the situation if you are facing or concerned about a potential levy. Knowing the basics allows you to prepare for the next steps and potentially avoid complications.
Circumstances That Trigger a Bank Account Freeze
The Internal Revenue Service has the authority to levy a bank account, but usually reserves this action for specific situations involving unpaid tax liabilities. This power originates from Internal Revenue Code Section 6331, which permits the IRS to collect delinquent taxes by seizing property or rights to property.1Legal Information Institute (Cornell Law School). 26 CFR § 301.6331-1 – Levy and Distraint A levy is a legal seizure of assets, distinct from a lien, which is a legal claim against property.2Internal Revenue Service. What Is a Levy?
Before the IRS initiates a bank account freeze, a sequence of events generally unfolds, centered on communication and unmet obligations. The process typically starts after the IRS assesses a tax liability and sends the taxpayer a formal bill, the Notice and Demand for Payment.3Internal Revenue Service. Topic No. 201 The Collection Process This notice details the amount owed, including penalties and interest, and requests payment. If the taxpayer does not pay after receiving this demand, the collection process advances.
Ignoring initial notices prompts further action. The agency usually sends reminder notices before issuing more serious warnings. A step preceding a bank levy is the issuance of a “Final Notice of Intent to Levy and Notice of Your Right to A Hearing.”4Internal Revenue Service. Information About Bank Levies This notice must be sent at least 30 days before the levy, typically via certified or registered mail, providing an opportunity to pay, arrange payment, or request a Collection Due Process (CDP) hearing to appeal.5Internal Revenue Service. Collection Due Process (CDP) FAQs
Failure to respond or resolve the tax debt is a primary reason for a bank account freeze. Other triggers include defaulting on an established IRS payment plan or Offer in Compromise agreement. Not filing tax returns for multiple years can also lead the IRS to use a bank levy. In situations involving suspected illegal activities or when the collection of tax is deemed to be in jeopardy (meaning delay could prevent collection), the IRS might proceed more quickly, potentially bypassing some standard notice periods. The levy itself targets funds present in the account on the date the bank receives the notice.
Standard Timeframe for IRS Freezes
Once the IRS issues a levy notice to your bank, a specific timeframe begins. The bank is legally required to hold the funds specified in the levy, up to the amount owed, for 21 calendar days before sending the money to the IRS.6Legal Information Institute (Cornell Law School). 26 CFR § 301.6332-3 – The 21-Day Holding Period Applicable to Property Held by Banks This holding period starts on the date the bank receives the notice.
This 21-day window is established under Internal Revenue Code Section 6332.7Internal Revenue Service. IRM 5.11.4 Bank Levies Its purpose is to give the taxpayer a brief opportunity to address the situation. During these three weeks, you can contact the IRS to try and resolve the tax issue, perhaps by paying the debt, setting up a payment arrangement, or showing the levy was erroneous or causes significant economic hardship. The bank cannot release the funds back to you or send them to the IRS during this period unless instructed by the IRS to release the levy.
The levy generally freezes only the funds available in the account at the exact time the bank receives the notice, up to the levy amount. Funds deposited after the bank receives the notice are typically not affected by that specific levy. If you take no action or cannot resolve the issue within the 21 days, the bank must send the held funds to the IRS on the business day after the holding period ends.
Reasons a Freeze Could Last Longer
While the 21-day hold period for levied funds is fixed, the underlying tax issue can persist, leading to subsequent actions and prolonged financial disruption. If the initial levy does not cover the total amount owed, the IRS can issue successive levies on the same or other property until the debt, including interest and penalties, is fully paid. This means additional freezes can occur if funds become available later.
The overall collection process duration can also be extended by taxpayer actions or IRS procedures. Requesting a Collection Due Process hearing after receiving a Final Notice of Intent to Levy is a right under Internal Revenue Code Section 6330.8Taxpayer Advocate Service. Collection Due Process (CDP) Filing a timely request generally halts further levy actions while the IRS Independent Office of Appeals reviews the case, a process that can take months. Missing the 30-day deadline means losing the right to stop collection during the appeal, although an “Equivalent Hearing” might be requested later, collection can proceed during this type of hearing.
Negotiating alternative payment arrangements, like an Offer in Compromise (OIC) or an Installment Agreement (IA), can also lengthen the resolution period. An OIC allows resolving tax liability for less than owed, but the investigation can take 6 to 24 months. An IA permits monthly payments over years but requires strict adherence; defaulting can lead to termination and renewed collection actions, including levies.
Complex situations involving disputes over the tax liability, ongoing investigations, or claims of economic hardship can also extend the timeline. Demonstrating hardship might lead the IRS to release a specific levy under Internal Revenue Code Section 6343, but it doesn’t eliminate the debt.9Internal Revenue Service. How Do I Get a Levy Released? Collection might pause but can resume if financial circumstances improve. These scenarios show that while a single freeze has a defined hold period, unresolved tax debts can create lasting financial uncertainty.
Status of Funds After the Freeze Ends
When the 21-day holding period concludes, the fate of the funds depends on whether the taxpayer resolved the issue with the IRS during that time. If no resolution occurred, the bank must surrender the held funds to the IRS on the next business day. The bank transfers the amount specified in the levy notice, up to the available balance at the time the levy was received.
Once the IRS receives the funds, they are applied to the outstanding tax liability, typically covering tax principal first, then penalties and interest. If the seized amount is less than the total debt, the remaining balance continues to accrue interest and penalties. The IRS can then pursue further collection actions, potentially including additional levies on accounts or assets.
Alternatively, if the taxpayer successfully resolved the matter within the 21 days – by paying, entering an approved payment plan, proving error, or demonstrating hardship – the IRS can issue a levy release. The IRS notifies the bank, which must then release the hold, making the funds accessible again.
Money deposited into the account after the bank received the levy notice is generally not subject to that specific levy and remains accessible. If the frozen amount was less than the total balance, the unfrozen portion also remains accessible. After the 21 days, and once the bank acts (sends funds or releases levy), the account holder regains full control over the remaining balance and subsequent deposits, though bank fees for processing the levy might be charged. If a levy was wrongful, the taxpayer might seek reimbursement for bank charges from the IRS using Form 8546, Claim for Reimbursement of Bank Charges, under certain conditions.