The 21-Day Hold on an IRS Bank Levy, Explained

Here is the part most people miss about an IRS bank levy: on the day it hits, the IRS does not get a dime.

The money is frozen, yes. You cannot spend it. But it is still sitting at your bank, and federal law makes the bank sit on it for 21 days before sending it anywhere. That gap was put into the Code on purpose. Use it.

Where the 21 days come from

The general rule for anyone holding your property is IRC § 6332(a): surrender it on demand. Banks get a special rule. IRC § 6332(c) says any bank (as defined in § 408(n)) shall surrender deposits, including interest, "only after 21 days after service of levy."

Congress added that subsection in 1988, effective for levies issued on or after July 1, 1989. The Internal Revenue Manual explains its purpose plainly: the holding period exists to settle disputes about who owns the money in an account before it is sent to the IRS (IRM 5.11.4.1). During the hold, the IRM notes, a levy might be released or the amount owed could decrease (IRM 5.11.4.2).

"Bank" is broad. It includes credit unions, savings and loan associations, trust companies, and similar institutions described in § 408(n) and Treas. Reg. § 301.6332-3(b).

How the days are counted

The details are in Treas. Reg. § 301.6332-3(c)(1):

• The count is 21 calendar days, not business days.
• Day one follows the date the levy is made, which means served on the bank.
• If no release arrives, the bank pays on the first business day after the holding period ends.

The regulation's own example: a levy is served on April 2. The bank must surrender the money on April 24, the first business day after the 21-day period. April 23 is the last day of the hold.

When is a levy "made"? If it is served by certified mail, the IRM treats the delivery date on the return receipt as the date of levy. If it is mailed by regular mail, the date and time the bank's authorized person signs for it controls, absent proof otherwise (IRM 5.11.4.11). Either way, the clock starts when the bank gets the levy, not when you find out about it. You will often learn of the freeze several days into your 21.

Count yours with the 21-day hold calculator. Then subtract a few days for the time it takes the IRS to process a release and fax it to the bank.

What is frozen during the hold

The regulation says a bank levy applies to funds on deposit at the time the levy is made, up to the levy amount, and that no withdrawals may be made on those levied deposits during the holding period (Treas. Reg. § 301.6332-3(c)(3)).

Three practical consequences:

1. Money above the levy amount is not frozen by the levy. If the levy is for $10,000 and you had $25,000, only $10,000 is held (IRM 5.11.4.4.1). Whether your bank lets you reach the rest quickly is a bank operations question, so ask.
2. New deposits are not caught. The levy reaches what was there when it was served. The regulation's Example 2 makes the point: a $5,000 deposit made the day after the levy is not surrendered. The IRS would need a new levy to reach it. See does a bank levy take future deposits.
3. Checks and autopays can bounce. Rent, car payments, and payroll drafts that were counting on that balance may fail. Bank charges caused by an erroneous levy can sometimes be reimbursed. See Form 8546 and bank fees.

Interest, CDs, and fees during the hold

The regulation is surprisingly specific here.

Interest. When the bank pays over, it must include interest that accrued before and during the hold under the terms of your account, but never more than the levy amount (Treas. Reg. § 301.6332-3(c)(2)). The IRM gives three examples. A $10,000 levy on a $5,000 balance: the bank sends $5,000 plus interest. A $10,000 levy on $25,000: the bank sends $10,000 and no interest. A $10,000 levy on $9,999: the bank sends $10,000 if at least a dollar of interest accrued (IRM 5.11.4.4.1).

Certificates of deposit. A CD can be levied before it matures. In the regulation's Example 5, the bank surrenders the principal plus accrued interest minus the early-withdrawal penalty in the deposit agreement. If the CD matures during the hold, the penalty does not apply (Example 6).

Bank levy fees. Many banks charge a fee for processing a levy. The bank may not reduce the levy proceeds to collect it (IRM 5.11.4.4.3). If the levy is $1,000 and you have $1,500, the bank sends $1,000 and takes its fee from the other $500.

Who can shorten, extend, or waive the hold

The IRS can release the levy during the hold

This is the whole point. Under the regulation, during the holding period the levy is released only when the IRS notifies the bank of its decision to release. That notice is a Form 668-D, Release of Levy/Release of Property from Levy, which the IRS can mail or fax, and which can release the levy in full or in part (IRM 5.11.2.3.3 and 5.11.2.3.4).

IRC § 6343(a)(1) requires release in five situations, including an installment agreement and economic hardship. The full list, and how to prove each one, is in how to get an IRS bank levy released.

The IRS can extend the hold

The regulation lets the IRS request an extension. The IRM uses it in two situations. First, when the IRS needs more time to decide who owns the money, the revenue officer asks the bank to hold the funds to a specific date and gives the potential third-party owner a deadline to prove ownership (IRM 5.11.4.3). Second, if there appears to be a genuine dispute about the underlying assessment, the IRS may request an extension (Treas. Reg. § 301.6332-3(d)(2)).

You can waive it, but think hard first

A depositor may waive the 21-day hold by telling the bank. If more than one depositor is listed on the account, all of them must agree (Treas. Reg. § 301.6332-3(c)(4)). Waiving sends the money to the IRS faster. Occasionally that is the right call, for example when the money will be paid anyway and you need the account unfrozen. Usually it is not. Do not waive the hold before you know whether a release ground applies.

What does not stop the clock

A phone call alone does not stop the 21 days. Neither does a letter to the bank. The bank is following the levy, and only an IRS release (or a court order or other legal bar) changes what it does.

Here is another one people get wrong: the collection statute expiring during the hold. If a levy is served before the 10-year collection period under IRC § 6502 runs out, the levy is still enforceable even though the bank pays after the deadline. The IRM gives exactly that example (IRM 5.11.2.3.1.2). See bank levies and the collection statute.

Filing for bankruptcy is different. The automatic stay under 11 U.S.C. § 362(a) bars acts to collect prepetition claims, and the IRM tells employees a levy on property of a taxpayer in bankruptcy generally violates the stay and must be released. See bankruptcy and the automatic stay.

A 21-day plan

Every case is different, but the order of operations usually looks like this:

1. Days 1 to 3. Get the levy copy, confirm the service date, call the number on the levy. Pull your IRS account transcripts if you can.
2. Days 3 to 10. Choose your release ground. Gather the proof: a Collection Information Statement and bank statements for hardship, a payment plan proposal, proof of ownership for a co-owner, or proof of payment if the IRS made an error.
3. Days 10 to 18. Push for a decision. If the collection employee says no, ask for a manager. The Collection Appeals Program moves fast, and the Taxpayer Advocate Service can step in on economic harm cases. See the Collection Appeals Program.
4. Days 18 to 21. Confirm the bank actually received the release. A release that sits in someone's outbox does not help you.

Twenty-one days is enough time to fix a lot of bank levies. It is not enough time to think about it for two weeks first.

If you want background on how my firm handles IRS levies, see the tax levies page at getirshelp.com.