A personal bank levy is painful. A business bank levy can be fatal. Payroll checks bounce, vendors stop shipping, and employees start updating resumes, all within a few days.
The good news is that business levies run on the same core rules as personal ones, including the 21-day bank hold under IRC § 6332(c). The bad news is that some of the protections individuals rely on are not available to businesses, and some business funds do not get the 21-day hold at all.
Whose account is it? Entity type matters
The levy reaches the taxpayer's property. Who the taxpayer is depends on how the business is set up and what tax is owed.
Sole proprietors
A sole proprietorship is you. The IRM tells employees to include all appropriate TINs on a levy, giving the example of both the SSN and EIN of a sole proprietor (IRM 5.11.2.2.2). Your business account and your personal account are both your property.
The IRM's account-matching examples show how broad this can be. A levy against a person doing business under one trade name reasonably matches an account in the same unusual name under a different trade name and EIN (IRM 5.11.4.11.1).
LLCs
IRM 5.11.2.2.2.2 draws a line in both directions:
- When the LLC is the liable taxpayer, the levy names only the LLC and "attaches only to the assets of the LLC, not to the assets of the member/owner(s)."
- When the single-member owner is the liable taxpayer, the levy names the owner, and "attaches only to the assets of the SMO not to assets of the LLC."
That separation is only as good as your facts. Commingling, paying personal bills from the LLC account, and similar practices invite nominee and alter ego arguments, which have their own IRM approval procedures (IRM 5.11.1.3.6).
Partnerships
A levy on partnership property names the partnership. When levying on a partner's property for a partnership debt, the IRM allows a remark that the notice attaches to all property in the name of the partner (IRM 5.11.2.2.2).
Business funds that skip the 21-day hold
The 21-day hold applies to "deposits" in a "bank" as defined in § 408(n). Card processing money is often neither.
IRM 5.19.4.3.5.1 says the IRS uses Form 668-A to levy the acquiring bank or processor holding a merchant account, and that "the funds held by the processors and acquiring bank are not deposits within the meaning of IRC 6332(c) and the 21 day holding period does not apply to these funds." The processor pays the IRS when it would otherwise pay you under the merchant contract. The IRM describes merchant accounts in more detail at IRM 5.11.6.16.
Receivables are another target. The IRM says Form 668-A is used to levy bank accounts and business receivables (IRM 5.11.2.2.2). A customer who owes you money can receive a levy and must pay the IRS instead of you.
Notices and hearing rights for businesses
The general rule is the same as for individuals: notice of intent to levy under § 6331(d) and a CDP notice under § 6330 at least 30 days before the first levy. Two business-specific exceptions in § 6330(f) let the IRS levy first and offer a hearing afterward:
- Disqualified employment tax levy. Under § 6330(h)(1), this applies if the business (or a predecessor) requested a CDP hearing on unpaid employment taxes for a period in the two years before the period being levied.
- Federal contractor levy. Under § 6330(h)(2), any levy on a federal contractor.
Federal contractors face another rule: under § 6331(h)(3), a continuous levy on specified federal payments to a vendor of property, goods, or services to the government can reach 100 percent of each payment, rather than the usual 15 percent. That levy is on the payments, not the bank account, but it often lands at the same time.
Getting a business levy released
Hardship is usually not available
The economic hardship ground in § 6343(a)(1)(D) is defined in Treas. Reg. § 301.6343-1(b)(4) in terms of an individual taxpayer's reasonable basic living expenses. For an entity, look to the other grounds. For a sole proprietor, your personal hardship may still be relevant.
Partial release to make payroll
This is the most useful example in the IRM for business owners. In IRM 5.11.2.3.4, a business pyramiding employment taxes has its bank account levied. The owner contacts the revenue officer on a Friday, submits the required financial information, agrees to make all current federal tax deposits by the following Wednesday when a contract is paid, and asks for a release of a specific amount to cover payroll. The result: a partial release of bank deposits up to that amount, with the levy continuing to attach to everything above it.
That example has a formula: complete financials, a concrete commitment on current deposits, and a specific dollar request. Use it.
Installment agreements and facilitating collection
Release is mandatory when an installment agreement is entered, unless the agreement provides otherwise (§ 6343(a)(1)(C)), and when release will facilitate collection (§ 6343(a)(1)(B)). A plan that keeps the business operating and paying current taxes is often the best collection argument there is. See installment agreements.
Expedited determinations are for equipment, not cash
Section 6343(a)(2) requires an expedited release determination for tangible personal property essential to the business. Treas. Reg. § 301.6343-1(d)(2) defines essential business property as tangible personal property. A bank balance does not qualify, so do not count on that track for an operating account.
The bank's own loan
If your bank has a commercial loan secured by your deposit account, its priority under IRC § 6323(b)(10) can lead the IRS to release the levy in whole or part once the bank proves its interest (IRM 5.11.4.10). See what your bank does with a levy.
Repeat levies and payroll taxes
The IRS takes unpaid employment taxes seriously. When deciding whether to return levied money for a procedural error, one factor the IRM lists is whether the taxpayer is "a pyramiding, delinquent trust fund repeater" (IRM 5.11.2.4.2). Staying current on deposits is not just a compliance issue; it is the credibility you need to get a levy released.
Federal tax deposit records also identify where you bank. The IRM lists FTD records as a levy source that identifies the bank used to make the deposit (IRM 5.19.4.3.7). See how the IRS finds your bank account.
A business owner's levy checklist
- Confirm which entity the levy names and which accounts were frozen.
- Calendar day 21 for bank deposits; assume processor and receivable levies move faster.
- Get current on deposits, or have a funded plan to be.
- Prepare Form 433-B (business) and, for owners, Form 433-A.
- Ask for a specific partial release for payroll, in writing, with the numbers.
- Propose an installment agreement that the business can actually keep.
- If the employee says no, go to the manager, then CAP.
The IRS wants a business that pays its current taxes and its old ones. Show them that business, with numbers, and payroll has a chance.
For payroll tax problems specifically, see the firm's page on payroll taxes.