IRS Levy and Seizure — Complete Practitioner Defense Guide

Understanding IRS Levy Authority

The IRS levy is one of the most powerful collection tools available to any government agency. Under IRC §6331, the IRS can seize virtually any property or right to property belonging to a delinquent taxpayer — wages, bank accounts, accounts receivable, retirement accounts, real property, vehicles, and even Social Security benefits. Unlike most creditors, the IRS does not need a court order to levy — it can act unilaterally after providing required notices.

The levy process: Before levying, the IRS must: (1) assess the tax and send a Notice and Demand for Payment (typically the CP14 notice); (2) the taxpayer must neglect or refuse to pay within 10 days; and (3) the IRS must send a Final Notice of Right to a Hearing (Letter 1058 or LT11) at least 30 days before the levy. The 30-day notice triggers the taxpayer's right to a Collection Due Process (CDP) hearing — one of the most important taxpayer rights in the collection process.

How to Stop a Levy — Emergency Procedures

When a client calls with a levy in progress, time is critical. The following emergency procedures should be initiated immediately.

Bank levy (21-day hold): When the IRS levies a bank account, the bank is required to hold the funds for 21 days before turning them over to the IRS. This 21-day window is the practitioner's opportunity to negotiate a release. Immediately: (1) file Form 2848 if not already on file; (2) call the IRS Revenue Officer or Automated Collection System (ACS) at 1-800-829-7650; (3) propose an alternative resolution — installment agreement, OIC, or CNC status; and (4) document any hardship that would justify a levy release under IRC §6343.

Wage levy: A wage levy (Form 668-W) is continuous — it attaches to each paycheck until released. The employer is required to comply and withhold the levied amount from each paycheck. To release a wage levy: (1) enter into an installment agreement or other resolution; (2) demonstrate economic hardship under IRC §6343(a)(1)(D); or (3) file a CDP hearing request if the taxpayer has not previously had a CDP hearing for the tax period.

CDP hearing request: If the taxpayer has not previously had a CDP hearing for the tax period, filing a timely CDP hearing request (within 30 days of the Final Notice) automatically stays the levy. The CDP hearing is conducted by the IRS Appeals Office and allows the taxpayer to propose alternative collection arrangements. This is one of the most powerful tools for stopping a levy — the stay is automatic upon filing a timely request.

Levy Release Under IRC §6343

Even after a levy has been executed, the IRS is required to release it under certain circumstances. IRC §6343 provides six grounds for mandatory levy release: (1) the liability has been satisfied or is unenforceable; (2) release will facilitate collection; (3) the taxpayer has entered into an installment agreement; (4) release will not jeopardize collection; (5) the levy is creating economic hardship; or (6) the fair market value of the property exceeds the liability and release will not jeopardize collection.

Economic hardship release: The most commonly used ground is economic hardship under IRC §6343(a)(1)(D). The IRS must release a levy if it determines that the levy is creating economic hardship — meaning the taxpayer is unable to meet basic living expenses. Practitioners should document the hardship with a Collection Information Statement (Form 433-F or 433-A) and a written hardship statement.

Wrongful levy: If the IRS levies property that belongs to a third party (not the taxpayer), the third party can file a wrongful levy claim under IRC §7426. The claim must be filed within 9 months of the levy. If successful, the IRS must return the property or pay the third party the fair market value of the property.

Case Study: Emergency Bank Levy Release

Client profile: Thomas B., age 51, restaurant owner. The IRS levied his business checking account for $43,000 in unpaid payroll taxes. The levy froze $38,000 in the account — funds needed to make payroll the following Friday. Thomas called the practitioner on a Tuesday morning, 3 days before payroll was due.

Emergency response: The practitioner: (1) filed Form 2848 electronically; (2) called the IRS ACS at 1-800-829-7650 and explained the emergency; (3) submitted a Form 433-B showing the business's financial position; (4) proposed a streamlined installment agreement for the full $43,000 over 24 months; and (5) documented that releasing the levy was necessary to allow the business to make payroll and continue operating (which would generate future tax compliance).

Result: The IRS released the levy within 24 hours, citing IRC §6343(a)(1)(B) (release will facilitate collection) and the imminent payroll obligation. The installment agreement was approved, and the business made payroll on Friday. The practitioner charged $1,800 for the emergency representation — a service the client described as "saving my business."

Frequently Asked Questions