IRS Form 668-A - The IRS Bank Levy 21 Day Clock and How to Respond Before Your Funds Are Gone

IRS Form 668-A is a one-time levy that attaches only to the property and rights to property that the third party holds for the taxpayer at the precise moment the levy is served. It does not capture future deposits or future payments. This is why the IRS will often issue multiple Form 668-A levies over time to a bank if the initial levy does not fully satisfy the tax liability.  This form is used to levy bank accounts and business receivables, as well as other non-wage assets like rental income, dividends, and accounts receivable. 

How a Bank Levy Works: The 21-Day Holding Period 

When a bank or financial institution receives a Form 668-A, a very specific legal process begins. The bank is required to immediately freeze the funds in the taxpayer's account up to the amount of the tax liability stated on the levy. However, the bank does not immediately send the money to the IRS. IRC § 6332(c) provides for a mandatory 21-calendar-day waiting period before the bank must comply with the levy and surrender the funds. 

This 21-day holding period is one of the most important protections available to a taxpayer facing a bank levy. The waiting period is specifically designed to allow the taxpayer time to contact the IRS to arrange payment of the tax, negotiate a collection alternative, or notify the IRS of any errors in the levy. The date and time of delivery of the levy to the bank is the moment the levy is considered to have been made, and funds in the account are frozen as of that date and time. Importantly, the levy does not normally affect funds deposited into the account after the date the levy was received. 

If the taxpayer does not resolve the issue with the IRS within those 21 days, and the IRS has not issued a release, the bank must surrender the frozen funds to the IRS on the 22nd day. For bank levies, the IRS may also request that the bank hold the funds beyond the 21-day period if additional time is needed to determine ownership of the funds, particularly in cases involving joint accounts. 

The Role and Responsibility of the Third Party 

Any third party, whether a bank, a customer who owes you money, or any other entity holding the taxpayer's property, who receives a Form 668-A has serious legal obligations. IRC § 6332(a) mandates that any person in possession of property subject to levy must surrender that property upon demand by the IRS. This obligation is not optional. The statute also provides a significant protection for the complying third party: by honoring the levy and surrendering the property, the third party is fully discharged from any liability to the taxpayer, or to any other person, with respect to the property surrendered. 

The consequences of failing to honor a levy are severe. If a third party fails or refuses to surrender property subject to a levy without a reasonable cause for doing so, IRC § 6332(d)(2) imposes a penalty equal to 50% of the amount that should have been surrendered, in addition to the liability for the amount not surrendered itself. This penalty is designed to ensure compliance and reflects the seriousness with which the law treats the obligation to honor an IRS levy. 

Under IRC § 6333, the IRS also has the authority to require the production of books and records when a levy is served or is about to be served. If there are concerns about whether a third party has fully complied with a levy, the IRS can follow up with a formal summons for bank records to verify compliance and can pursue a suit to enforce the levy if necessary. 

Property Exempt from Levy: What the IRS Cannot Take 

While the IRS' levy authority is broad, the Internal Revenue Code does carve out certain categories of property that are exempt from levy. IRC § 6334 provides an enumerated list of exempt property, and the statute explicitly states that no property other than what is specifically listed is exempt from levy. The categories of exempt property include wearing apparel and school books necessary for the taxpayer or family members, fuel, provisions, furniture, and personal effects not exceeding a certain dollar value, books and tools used in a trade, business, or profession up to a specified value, unemployment benefits, undelivered mail, certain annuity and pension payments, workers' compensation, judgments for support of minor children, certain service-connected disability payments, and certain public assistance payments. 

It is important to note that the principal residence of the taxpayer is also protected under IRC § 6334(a)(13), in that the IRS generally cannot seize it without prior written approval from a U.S. District Court judge or magistrate, and only if the tax liability exceeds $5,000. This protection underscores the gravity of the seizure of a home and the additional procedural safeguards that apply. 

The Levy and Business Receivables 

For business owners, Form 668-A represents a particularly acute threat because it can be used to levy accounts receivable. When the IRS serves a Form 668-A on a business' customer, that customer is legally obligated to pay the IRS directly rather than paying the business. This can severely disrupt cash flow and business operations. 

Practical Steps to Take When You Receive a Form 668-A 

Receiving a Form 668-A demands immediate action. The first step is to carefully read the form to understand the amount of the tax liability claimed, the tax periods involved, and the contact information for the IRS revenue officer or automated collection system unit that issued the levy. If you believe the levy was issued in error, perhaps because the tax has already been paid or because the IRS failed to follow proper procedures, you should contact the IRS immediately using the phone number on the notice. 

If you have not yet received the Final Notice of Intent to Levy and believe the IRS skipped a required step, this is a strong argument for having the levy released as an erroneous levy. If you have received the final notice and missed the 30-day CDP deadline, you should still contact the IRS to explore collection alternatives, as the IRS retains discretion to release a levy and enter into a resolution even outside the formal CDP process. 

If you are a third party, such as a bank or a business, that has received a Form 668-A and you have questions about whether the funds belong to the named taxpayer, you should contact the IRS at the number on the levy before the 21-day period expires. You should also be aware that you can be held liable if you fail to comply. 

If you found this information valuable, check out our comprehensive guide to dealing with the IRS. Click the button or scan the QR Code below to watch it now.

Ready to take control of your tax situation? Every tax case is unique, and the stakes are high when the IRS is levying your assets. We are ready to review your case, explain your options, and fight for the best possible solution. Book a consultation when you are ready to get started and take the first step toward financial peace of mind.