Can levied funds be returned to the taxpayer?

Yes. If the IRS agrees to release the levy within the 21-day holding period, the bank or other third party will not send the funds, and they will remain available to the taxpayer. Once funds are sent to the IRS, recovery is more difficult but not impossible under certain hardship exceptions.
Once levied funds are sent to the IRS it is nearly impossible to have them returned to the taxpayer, so it is critical that any release be done as quickly as possible.