A bank levy does not care what the money was for. The rent check, the electric bill, the prescription refill. If it was in the account when the bank was served, it is frozen.
Congress anticipated that. IRC § 6343(a)(1)(D) says the IRS shall release a levy when it determines the levy "is creating an economic hardship due to the financial condition of the taxpayer." That word "shall" matters. If you meet the standard, you are entitled to the release. You do not have to beg for it.
What "economic hardship" means
The definition comes from the regulation. Under Treas. Reg. § 301.6343-1(b)(4), the condition applies if satisfying the levy, in whole or in part, "will cause an individual taxpayer to be unable to pay his or her reasonable basic living expenses."
The IRS decides what is reasonable for you, and the regulation tells it what to consider:
- Your age, employment status and history, ability to earn, number of dependents, and whether you are someone else's dependent.
- What you reasonably need for food, clothing, housing (including utilities, insurance, and association dues), medical expenses (including health insurance), transportation, current tax payments, alimony, child support or other court-ordered payments, and expenses needed to produce income, such as union dues or child care that lets you work.
- The cost of living where you live.
- Any property exempt from levy that is available to pay your expenses.
- Extraordinary circumstances like special education expenses, a medical catastrophe, or a natural disaster.
- Anything else you bring to the IRS's attention that bears on hardship.
What does not count: the regulation says unique circumstances "do not include the maintenance of an affluent or luxurious standard of living."
The IRM restates the test in plain terms: a levy creates economic hardship when it will cause the individual to be unable to pay reasonable necessary living expenses (IRM 5.11.2.3.1.4). It points employees to the Financial Analysis Handbook in IRM 5.15.1 for allowable living expenses.
Why bank levies cause hardship so often
When the IRS levies wages, the employer must leave you an exempt amount under IRC § 6334(a)(9) and (d). When the same paycheck is sitting in your checking account, that protection is gone. IRM 5.11.4.6 is direct about it: "Once income is deposited in a bank, there is no exempt amount."
The very next sentence in the IRM is your argument: when an entire paycheck is deposited, an economic hardship may exist because all of the money is levied, and the levy should be released in whole or in part to avoid economic hardship.
The IRM's own example is worth reading closely. A taxpayer misses the deadline for a financial statement, and a bank levy attaches $600. He calls, says he is unemployed and lives on Social Security that was deposited into the levied account, and provides proof of the monthly benefit and an eviction notice showing $600 due the next day. The IRM's conclusion: release the levy (IRM 5.11.2.3.1.4). Same facts, same result for you, if you have the paper.
The good faith requirement
There is a catch, and it is in the regulation: "the taxpayer must act in good faith." Treas. Reg. § 301.6343-1(b)(4)(iii) lists examples of bad faith:
- Falsifying financial information.
- Inflating actual expenses or costs.
- Failing to make full disclosure of assets.
The IRM repeats the list (IRM 5.11.2.3.1.4). That last item trips people up. If you leave a second bank account or a brokerage account off your financial statement, you have not just risked a perjury problem on a form signed under penalty of perjury. You have handed the IRS a reason to deny the hardship release. Disclose everything and explain it.
What the IRS will ask for
The IRM says a hardship decision "requires financial analysis" with enough information to confirm the levy is causing you to be unable to meet necessary living expenses, and that each levy should be considered independently (IRM 5.11.2.3.1.4). It also notes that the financial information can be gathered by phone or correspondence (citing IRM 5.15.1.2(7)).
Have this ready before you call:
- A Collection Information Statement. Form 433-A or Form 433-F for individuals. Both list bank accounts, income, and monthly expenses, and both are signed under penalty of perjury.
- Proof of income. Pay stubs, benefit award letters, or deposit records.
- Bank statements showing what was in the account and what the money was earmarked for.
- Proof of the emergency. Eviction notices, shutoff notices, past-due rent statements, medical bills, a bounced-payment notice. The IRM example turned on an eviction notice with a due date.
- Proof of exempt-type income, if the deposit came from a source like unemployment compensation that would have been exempt at the source under § 6334(a).
You are entitled to enough relief, not necessarily all of it
The IRM sets the measure: where the financial analysis shows you merit a full or partial release, "the taxpayer has a statutory right to enough relief to end the hardship" (IRM 5.11.2.3.1.4). It also gives the flip side: if a smaller levy would not cause hardship, the IRS may release only enough to prevent it.
For a bank levy, that often means a partial release of a specific dollar amount, the money needed for rent and necessities, with the rest still going to the IRS. Form 668-D can release a levy in part or in full (IRM 5.11.2.3.4). Ask for the number you actually need, and show the math.
The IRS cannot hold your hardship hostage
This is one of the most useful sentences in the IRM. When the IRS determines a levy is creating economic hardship, employees are told: "do not refuse, delay or understate the release amount as a means to secure other compliance, e.g., missing tax returns." The IRM calls hardship and delinquent returns "separate collection issues" (IRM 5.11.2.3.1.4).
The same principle appears before levy. IRM 5.11.1.3.1 says that if a revenue officer has verified a levy would cause economic hardship, the levy should not be issued, and it should not be used as a means to secure other compliance.
You still need to file those returns. The IRS will need them for any long-term resolution. But they are not a lawful precondition to ending a hardship.
If the IRS says no
The regulation requires the IRS to promptly tell you if it decides none of the release conditions exist, and why (Treas. Reg. § 301.6343-1(c)(4)). The IRM says the denial and the financial analysis should be documented and communicated to you, and that you may appeal under the collection appeal procedures in IRM 5.1.9, with referrals to the Taxpayer Advocate Service where appropriate.
- Collection Appeals Program. Fast, and available for levies. See CAP and bank levies.
- Taxpayer Advocate Service. Built for economic harm cases. See the Taxpayer Advocate.
- Collection Due Process, if your 30-day CDP window is still open. See CDP hearings.
If the money already went to the IRS
Hardship can still matter after day 21. Under IRC § 6343(d), the IRS may return levied property in certain cases, including where return is in your best interest (as determined by the National Taxpayer Advocate) and the government's, with your consent or the NTA's. IRM 5.11.2.4.1 gives an example in which a levy on Social Security benefits was released for hardship and the taxpayer's information confirmed the hardship existed when the levy was first issued, and levy proceeds were returned. Requests generally must be made in writing within two years of the levy. See getting levied funds returned.
After the release
A hardship release fixes this levy. It does not fix the debt. If your finances show you cannot pay anything toward the tax, the long-term answer may be a hardship closing, often called currently not collectible. The IRM says that when a case is closed as hardship, all open levies should be released (IRM 5.11.2.3.1.4). If you can pay something, an installment agreement under § 6159 bars further levies while it is in effect (§ 6331(k)(2)).
The law requires prudence and care, not perfection. Show the IRS an honest, complete picture and the hardship rule does the rest.
For the longer-term option, see the firm's page on currently not collectible status. Related here: all five release grounds and Social Security deposits and bank levies.