- 5.11.2 Serving Levies, Releasing Levies and Returning Property
- 184.108.40.206 Overview
- 220.127.116.11 Serving Notices of Levy
- 18.104.22.168.1 General
- 22.214.171.124.2 Preparing the Notice of Levy
- 126.96.36.199.3 Serving Notices of Levy in Person
- 188.8.131.52.4 Serving Notices of Levy by Mail or Fax
- 184.108.40.206.5 Addresses for Mailing Notices of Levy
- 220.127.116.11.6 Levy in Other Territories
- 18.104.22.168.7 Notifying the Taxpayer After Serving the Levy
- 22.214.171.124.8 Examination of Books and Records
- 126.96.36.199.9 Refusing to Comply with a Levy
- 188.8.131.52 Releasing Levies
- 184.108.40.206.1 Legal Basis for Releasing Levies
- 220.127.116.11.1.1 Liability Satisfied
- 18.104.22.168.1.2 Statutory Collection Period Expired
- 22.214.171.124.1.3 Facilitate Collection
- 126.96.36.199.1.4 Economic Hardship
- 188.8.131.52.1.5 Fair Market Value of Property More Than Amount Owed
- 184.108.40.206.1.6 Installment Agreement
- 220.127.116.11.2 Wrongful and Erroneous Levies
- 18.104.22.168.2.1 Wrongful Levy
- 22.214.171.124.2.2 Certain Wrongful Levy Situations
- 126.96.36.199.2.3 Erroneous Levies
- 188.8.131.52.3 Serving Releases of Levy
- 184.108.40.206.4 Forms Used to Release Levies
- 220.127.116.11.5 Levy Release For Credit Card Payment
- 18.104.22.168.6 Levy Releases in Cases of Identity Theft
- 22.214.171.124 Returning Levied Property to the Taxpayer
- 126.96.36.199.1 Current Authority for Returning Levied Property to the Taxpayer
- 188.8.131.52.2 Factors to Consider Before Returning a Levy Payment to the Taxpayer Due to Procedural Errors
- 184.108.40.206.3 Rejecting Requests for Return of Levied Property
- 220.127.116.11.4 Delegation of Authority to Return Levy Payments
- 18.104.22.168.5 Getting the Money Refunded
- 22.214.171.124.6 Effect on Penalty & Interest
- 126.96.36.199 Returning Levied Property to Someone Other Than the Taxpayer
- 188.8.131.52 Disposing of Surplus Proceeds
Part 5. Collecting Process
Chapter 11. Notice of Levy
Section 2. Serving Levies, Releasing Levies and Returning Property
December 08, 2015
(1) This transmits editorial revisions to IRM 5.11.2, Notice of Levy, Serving Levies, Releasing Levies, and Returning Property, to incorporate editorial changes based on ACA provision 1501.
(1) Added reference to the mirrored Shared Responsibility Payment (SRP) Master File Tax (MFT) Code 65 assessment.
IRM 184.108.40.206.2(4): this section has been updated for the Affordable Care Act (ACA) Provision 1501 to include instruction not to include Shared Responsibility Payment MFT 65 modules on a levy.
IRM 220.127.116.11(1): this section has been updated for the Affordable Care Act (ACA) Provision 1501 to not apply surplus levy proceeds to Shared Responsibility Payment MFT 65 modules.
(2) Editorial changes were made throughout this IRM to update website addresses, legal references, and IRM references.
Director, Collection Policy
Purpose: This IRM section describes the process and procedures for preparation or release of the notice of levy. Specifically, the IRM section:
Describes the steps in preparing and serving levies.
Provides guidance and legal basis for releasing levies including wrongful and erroneous levies.
Outlines procedures for determining when levied funds may be returned to the taxpayer.
Provides instruction on handling surplus levy proceeds.
Audience: This IRM is designed for use by revenue officers, Advisory & Insolvency (AI) advisors and their managers.
This section provides procedures for serving notices of levy.
Serve a levy only when there is reason to believe the third party is holding the taxpayer's property.
If the taxpayer owns property with a person not liable for the tax, consider using another source.
Any property in which the taxpayer has an interest is subject to levy, even if the property is jointly owned with another person (e.g., community property, jointly owned bank accounts). However, because wrongful levy suits and claims can result from such levies, consider levying on another available source.
Prepare the levy form that contains the most appropriate instructions for honoring the levy. However, a notice of levy on either form attaches to a taxpayer's property or right to property held by a third party.
Use Form 668–W(ICS) or 668-W(C)DO to levy an individual's wages, salary (including fees, bonuses, commissions, and similar items) or other income. Other income is generally income owed the taxpayer as the result of personal services in a work relationship. See IRM 18.104.22.168.6 Severance Pay, for an example of other income. Form 668-W(ICS) and 668-W(C)(DO) are also used to levy on a taxpayer's benefit or retirement income.
Use Form 668–A(ICS) or 668-A(C)DO to levy other property that a third party is holding. For example, this form is used to levy bank accounts and business receivables.
If And Then the taxpayer is an individual the property to be levied is wages, salary, or other income, use Form 668-W(ICS) or Form 668-W(C)(DO) If Or Then the taxpayer is not an individual the property to be levied isnot wages, salary, or other income, use Form 668-A(ICS) or Form 668-A(C)(DO)
Include all appropriate TINs on the notice of levy. For example, include both the SSN and EIN of a sole proprietor, if they are known. Include both SSNs on a joint income tax liability. ICS users should enter this information in the "Remarks" field. See (4) below.
If additional information will help identify the taxpayer's property, include it on the levy. ICS users should enter this information in the "Remarks" field. This may include:
Merchant account number
Franchise Number or Operator
Location of the branch where the taxpayer works
Any other descriptive information
When manually preparing a Notice of Levy employees must exclude any balances resulting from the individual shared responsibility payment (SRP) (shown as MFT 35 or mirrored MFT 65).
If there is a joint assessment, and there is a restriction that prevents levy against one of the taxpayers' property, include both taxpayers' names on the notice of levy or in the "Remarks" field, but only include the SSN of the taxpayer on whose property you are levying.
State on the notice of levy or in the "Remarks" field, "This levy attaches the property and rights to property of (taxpayer's name). It does not attach the property and rights to property of (other taxpayer's name)."
Fred and Janice Blue filed a joint return and owe $3,000. They are divorced now. Janice has filed bankruptcy and the automatic stay prohibits levy on her property. Fred is not a party to the bankruptcy. His property can be levied. When a notice of levy is prepared to collect from Fred, the taxpayer name line will still include both taxpayers' names. However, the notice of levy will also state, "This levy attaches the property and rights to property of Fred Blue. It does not attach the property and rights to property of Janice Blue."
In some states, the taxpayer whose property rights are being levied may have a community property interest in the property of a spouse, and there may be a restriction which prevents levy on that spouse's property. See IRM 22.214.171.124,Levy on Non-Liable Spouse in a Community Property State. In the example above, other language may need to be added to the notice of levy explaining that Fred Blue's property rights that are being levied include Fred's community property interest in Janice Blue's property, although her property rights are not being levied. The result is similar to what would be levied if there were an assessment only against Fred, but his community property interest in Janice's property is being levied.
When levying on the property of a partnership, the levy form will reflect the name of the partnership.
When levying on the property of a partner for the partnership debt, you can add a statement to the "Remarks" field of the levy application such as, "This notice attaches to all property in the name of (name of partner, TIN, [general] partner)."
If the taxpayer's identification number is not needed by the levied party to identify the taxpayer's assets, redact it from the appropriate parts of the levy form. Examples of assets for which the taxpayer's identification number may not be necessary for the levied party for identification are:
Account or Note Receivable
Chose in action, e.g., a right to recover money or right to pursue a lawsuit
A Revenue Officer is not required to physically sign a levy or a levy release. However these documents must be executed by a person acting under the authority of the Secretary of Treasury. Any signature method that reliably authenticates these documents may be used. For example, a facsimile (stamp) of a revenue officer’s signature stamped by a group secretary may be effective to show a collection document is properly authorized.
A written signature, stamped signature, electronic signature, or systemically printed signature is an acceptable representation of the authority to issue or approve a levy or levy release.
When the use of an electronic signature method is determined to be appropriate during the Levy review process, the following actions should be taken:
The specific forms/letters requiring approval and/or signature must be converted/scanned and saved in .PDF format.
Internal use documents and forms, including Form 13719, Pre-Seizure Checklist and Approval Request and the memorandum required in IRM 126.96.36.199.5, Managerial Approval may be signed (certified with visible signature) using the approval signature method, yet any enforcement document being provided to the taxpayer should include a graphic signature in the signature block. Specific instructions on how to include an image of your handwritten signature in the digital signature selections are available via Adobe Acrobat Help, How to Sign, Create a Signature Appearance.
Prior to serving the notice of levy, print and retain in the Collection case file the IRS File Copy of the levy. For Form 668-(A)(ICS) or Form 668-A(c)(DO) retain part 5 and for Form 668-(W)(ICS) or Form 668-(W)(C)(DO) retain part 6.
When a notice of levy is served in person, have the recipient sign for it. Write, "Receipt Acknowledged," on the form, and have the person sign after this. If the person will not sign it, leave the form anyway. Document the case file to show the levy was served. And document the recipient's refusal to sign an acknowledgement, if applicable. An acknowledgment is desirable, but it is not critical.
If the representative of a financial institution is reluctant to accept service of the levy in person, alert them to the fact that the financial institution will be liable for any withdrawals from the account after that date and time. Recurring difficulties with a particular financial institution should be addressed by local management.
If the levy source is a partnership or a corporation, try to serve the levy on a partner or corporate officer.
Try to find out how much to expect from the levy. Ask for payment when the levy is served, unless there is a reason for a delay, such as,
IRC 6332(c) requires banks to wait 21 days
A levy on wages is not paid until the taxpayer's usual pay day
If payment must be sent later, supply a business reply, self-addressed envelope. Supply more envelopes if there will be several payments.
If nothing is owed to the taxpayer, have this written on the form. Ask the person to sign it and write their title, e.g., partner, vice-president, etc.
Treasury Regulation 301.6331–1(c) permits notices of levy to be served by mail.
Print, "Notice of Levy," on the envelope used to mail levies. This helps large employers and banks route the levy to the right office.
Include a business reply, self-addressed envelope.
When a levy must be served quickly, a fax can be used. First, confirm the person has a fax machine and will accept the levy this way. Document that the levy source agreed to accept the levy by fax.
Some financial institutions, businesses, and government agencies identify one address to be used when sending levies. The financial institution, business, or agency must notify the area director in writing. Consider keeping a central index in the area for these addresses. Then, they can be distributed to all collection employees in the area.
Consider whether other areas and campuses need to know the address. Some large companies and government agencies may get levies from all over the country. Levy Source Information on the Servicewide Electronic Research Program (SERP) under Who/Where provides up-to-date levy source name and address information.
If a bank gives an address for its levies, ask for its EIN and its American Bankers Association (ABA) transit number.
Send the requests, including the EIN and ABA number, to the area office. If the area agrees the information belongs on SERP's Levy Source Information, it will be sent to Headquarters to the Director, Collection Policy, SE:S:C:HQC:P:E, Attn: Levy Analyst, 850 Trafalgar Court, Maitland, FL 32751-4141
A computer program uses the EIN and ABA number to overlay these addresses for many levy sources; however, it is not always able to do this. For example, the updating of the address depends on IDRS having the levy source's EIN or ABA number. Some levy sources do not have these numbers, so sources must still be checked against Levy Source Information on SERP.
Revenue officers can also access National Levy Source (NLS) database through shortcut folder under "ACS NLSWeb" .
When a taxpayer has property in another territory, either,
Mail the notice of levy
Go to the other territory if it is nearby, or
Initiate a Courtesy Investigation, see IRM 5.1.8, Courtesy Investigations.
The receiving territory may find other levy sources. If so, other levies may be served after checking with the originating territory.
After serving a levy in person or faxing it, mail a copy to the taxpayer. Form 668-A(ICS) and Form 668-A(C)(DO) includes two taxpayer copies. Mail Part 4 to the taxpayer. Leave Part 2 with the person who receives the levy. ACS uses Form 668–A(ICS) and mails to the taxpayer Form 8519 (ACS), Taxpayer's Copy of Notice of Levy.
If the levy is mailed, do not send the taxpayer copy immediately. Wait long enough so the taxpayer does not get the levy before the levy source does. Consider local experience with mailing times and the promptness of a particular entity's compliance.
Also, see IRM 188.8.131.52.2,Notice to the Non-Liable Spouse, when a taxpayer's community property interest in a non-liable spouse's property or right to property is levied.
Also, see IRM 184.108.40.206.2.3,Written Communication to a Taxpayer’s Representative, to ensure that the POA is authorized to receive taxpayer data on all modules contained in the copy of the levy you plan to send to the POA.
Records about taxpayer property must be provided, if requested by the IRS, when a levy is served or is about to be served. See IRC 6333. A summons could be used, but it may be unnecessary. Sometimes, a cooperative person will show the records if something in writing is given.
Use Form 2270, Notice to Exhibit Books and Records. Do not describe Form 2270 as a summons. Note the date and time the form is served. Also, note the person who receives it.
Form 2270 can be used to solicit information from a financial institution only when a levy is served or is about to be served. Per IRM 220.127.116.11(3), Summons Provisions, the Service may employ an IRC 6333 demand to exhibit books and records, even in the Tenth Circuit (Colorado, Kansas, New Mexico, Oklahoma, Utah, and Wyoming). Counsel takes the position in all circuits that IRC 6333 is a procedure under Title 26 and is therefore an exception to the Right to Financial Privacy Act under 12 U.S.C. sec 3413(c). Also see IRM 18.104.22.168.1, Documents from Financial Institutions in the Tenth Circuit, and IRM 22.214.171.124.2(3)-(4), Notice and Waiting Period Requirements for guidance on requests for information from financial institutions other than by IRC 6333 demand to exhibit books and records, John Doe summons, or collection summons.
If a person refuses to surrender the property, advise them of the provisions of IRC 6332. IRC 6332:
Requires the property to be surrendered
Discharges the person from any liability to the taxpayer and anyone else, and
Describes the person's liability if the levy is not honored
If the person still refuses, serve Form 668-C, Final Demand for Payment.
A Notice of Federal Tax Lien is not required before serving Form 668-C. However, if a suit to enforce the levy is likely, then file the lien.
If Form 668–C is served in person, try to serve it on the same person who received the levy. Complete the Certificate of Service on Part 1. Try to get a signature at the bottom of the form to acknowledge it was received.
If Form 668–C is mailed, send it by certified mail.
Allow the third party 5 days to respond to Form 668-C before taking action to enforce IRC 6332.
Additional information can be found in IRM 126.96.36.199 Action to Enforce a Levy,IRM 188.8.131.52.1 Monies Collected by the Department of Justice and IRM 184.108.40.206Advisory Procedures for Judgments for Assessed and Unassessable Liabilities, for processing the penalty recoverable under section 6332(d)(1).
This section provides procedures for releasing notices of levy.
IRC 6343(a)(1) requires levies to be released when the Service determines the circumstances in this section discussed below exist. Per Teas. Reg. 301.6343-1(a) the Service may require any supporting documentation as is reasonably necessary to determine whether a condition requiring release exists.
Release the notice of levy as soon as one of the circumstances in this section is identified to prevent payments from being received after the notice of levy should have been released. This will avoid the need to return levied property and the inconvenience this may cause for the taxpayer.
After a notice of levy has been sent to a taxpayer's employer, the taxpayer responds and shows that the notice of levy prevents her from paying for basic necessities for her family. Because the levy is causing an economic hardship, release it immediately, so the employer will not send a levy payment on the next pay day.
Section 362(a) of the Bankruptcy Code (Title 11) prohibits levy on the property of a taxpayer in bankruptcy. Generally levying on property when the taxpayer is in bankruptcy violates the automatic stay and the levy must be released. Employees must contact Insolvency immediately if inadvertently a levy is placed on property of a taxpayer in bankruptcy. The Service must initiate corrective actions within two workdays of learning of an actual or potential stay violation.
Any notice of levy that violates the Internal Revenue Code or regulations must also be released, e.g., a levy issued while the taxpayer's CDP hearing is pending.
Under IRC 6343(a)(1)(A), a levy is required to be released when the Service determines the liability is satisfied by full payment, i.e., is no longer owed.
Under IRC 6343(a)(1)(B), a levy is required to be released when the Service determines the levy was issued after the statutory collection period has expired.
A continuous wage levy served before the expiration of the collection statute must be released upon the expiration of the collection statute.
When a notice of levy is served on a taxpayer's right to property, sometimes that includes the right to receive future payments (e.g., pension benefits, Social Security benefits.) If there is a fixed and determinable right to receive those future payments, the levy will attach them when they would have been paid to the taxpayer, even though it is not actually a "continuous" levy. As long as the right to property has been levied before the period for collection runs out, the notice of levy does not have to be released.
Generally, a levy that is not a continuous wage levy, served prior to the expiration of the collection period is enforceable and should not be released. In addition, a levy served after reducing a tax liability to a judgment is valid.
One week before the statutory collection period runs out, a notice of levy is served at the taxpayer's bank. The bank does not have to send the levy proceeds until the 21 day holding period on bank levies expires, and this will be after the period for collection runs out. This levy does not have to be released when the collection period runs out, because it was served timely.
Under IRC 6343(a)(1)(B), a levy is required to be released when the Service determines the release will facilitate collection of the amount that is owed.
A notice of levy is served on the taxpayer's broker. The broker is holding a certain amount of the taxpayer's cash but not enough to pay the tax liability. In addition, the broker is holding the taxpayer's stock options. The stock is worth more than when the option price was set. The cash held by the broker is enough to exercise the option on shares worth more than the tax liability. We arrange to meet the taxpayer and the broker. The release of levy is served, the taxpayer gives the broker an order to use the cash held by the broker to exercise the stock options and to immediately sell the shares. A new notice of levy is served on the broker, so the proceeds of selling the shares will be attached and pay the tax liability.
A notice of levy is served on the taxpayer's bank. The amount in the bank is less than the tax liability. The taxpayer needs the federal tax lien released and wants to post a bond to do so. The bank has a bond department, and the amount on deposit at the bank is enough to pay for the bond to get the lien released. A collateral agreement is submitted and approved. We meet the taxpayer at the bank. The notice of levy is released, and the taxpayer has the funds in the bank immediately turned over to the bond department, so the bond that assures payment of the amount owed can be issued and the lien can be released.
Under IRC 6343(a)(1)(D), a levy is required to be released when the Service determines the levy is creating an economic hardship, i.e., the levy will cause the individual to be unable to pay their reasonable necessary living expenses.
In order to obtain a release of levy for economic hardship the taxpayer must act in good faith. Examples of failure to act in good faith include, but are not limited to,
failing to make full disclosure of assets
inflating actual expenses or costs
falsifying financial information.
The determination of a reasonable amount for basic living expenses will be made by the Service and will vary according to the unique circumstances of the individual taxpayer. Unique circumstances, however, do not include the maintenance of an affluent or luxurious standard of living.
The decision to release a levy due to economic hardship requires financial analysis. The financial analysis requires sufficient financial information to confirm the levy is causing the taxpayer to be unable to meet necessary living expenses. To determine whether the financial information submitted by the taxpayer is sufficient to establish an economic hardship each levy should be considered independently.
The taxpayer missed the deadline to provide a CIS and a notice of levy is served on the taxpayer’s bank account and attaches $600.00. The taxpayer contacts you and indicates he is unemployed and his only source of income is social security which was deposited into the bank account we levied. The taxpayer provides you proof of the monthly amount received from social security and an eviction notice for his apartment that reflects $600.00 is due tomorrow to avoid loss of his residence. The notice of levy is released as the financial information submitted by the taxpayer has established that not releasing the levy would cause the taxpayer to be unable to meet necessary living expenses.
The taxpayer missed the deadline to provide a CIS and a notice of levy is served on the taxpayer’s wages. The taxpayer contacts you and indicates he will not be able to pay all his family's necessary living expenses with the $534.62 exemption allowed from his weekly pay check. The taxpayer agrees to complete a CIS over the phone. The expense amounts are reasonable and your financial analysis of the taxpayer’s CIS establish that the taxpayer can pay $400.00 a month. You agree to fax a partial release of levy to the taxpayer employer since the financial information (CIS) established that not releasing the amount greater than $400.00 would cause the taxpayer to be unable to meet necessary living expenses.
Per IRM 220.127.116.11(5), Expectations securing financial information to complete the CIS can occur by phone or correspondence. Necessary living expenses are included in allowable living expenses. See IRM 5.15.1, Financial Analysis Handbook, for guidance regarding financial analysis and allowable living expenses.
Where the financial analysis shows that the taxpayer merits a full or partial levy release to relieve economic hardship, the taxpayer has a statutory right to enough relief to end the hardship. Document the financial analysis in the history and communicate the decision to the taxpayer. The levy release should be faxed or given to the taxpayer to provide to the levy source.
The taxpayer has defaulted on an installment agreement and his wages are levied. The amount being levied creates an economic hardship, (within the meaning of IRC 6343(a)(1)(D)), but a smaller amount would not. Release only enough of the levy to prevent an economic hardship. A release of wages less than $X allows the taxpayer to receive an amount that will not cause a hardship. Anything earned more than that amount is sent as levy proceeds.
When the Service determines that the levy is creating an economic hardship, do not refuse, delay or understate the release amount as a means to secure other compliance, e.g., missing tax returns. When contacted by a taxpayer claiming an inability to meet basic living expenses due to the levy and there are also open Del Rets, do not condition relief of the economic hardship upon receiving the delinquent returns. These are separate collection issues. Inform the taxpayer of the financial information needed to make a collection determination and provide relief of the hardship if appropriate. You may, as a separate issue, inform the taxpayer of the unfiled tax returns and pursue appropriate actions to resolve that separate from the hardship relief issue. You may also inform the taxpayer that before an installment agreement can be established delinquent returns must be filed.
Where the financial analysis shows that the taxpayer does not merit a full or partial levy release to relieve economic hardship, document the financial analysis in the history and communicate the decision to the taxpayer. The taxpayer may appeal as outlined in IRM 5.1.9, Collection Appeal Rights. Additionally, see IRM 18.104.22.168.1(8) for referral to Taxpayer Advocate Service.
Under IRC 6343(a)(1)(E), a levy is required to be released on a portion of the levied property when the Service determines the fair market value of the levied property exceeds the amount owed and a portion of the levied property can be released without hindering collection.
Under IRC 6343(a)(1)(C), a levy is required to be released if the IRS entered into an installment agreement with the taxpayer, unless the agreement allows for the levy.
In response to a bank levy, the taxpayer requests an installment agreement. If the IRS grants the agreement but the agreement expressly provides that the levy should not be released, then the levy should not be released under this statutory provision. Another basis for release under IRC section 6343 could be available.
The IRC distinguishes between "wrongful" levies and other types of improper or "erroneous" levies.
A "wrongful levy" is one that improperly attaches property belonging to a third party in which the taxpayer has no rights. See IRC 6343(b). The Code specifically authorizes release of wrongful levies. See IRM 22.214.171.124.2.1 below for wrongful levy procedures.
An "erroneous" levy is one that properly seeks to capture a taxpayer's property (rather than a third party's property), but for example, nevertheless is served prematurely or otherwise in violation of an administrative procedure or law. See IRC 6343(d). SeeIRM 126.96.36.199.2.3 below for erroneous levy procedures.
IRC section 6343(b) authorizes the return of property or money to its rightful owner (not the taxpayer) when the IRS determines that the property has been wrongfully levied.
Section 6343(b) provides that the IRS may return:
The property that was levied.
Amount of money equal to amount of money levied.
Amount of money equal to that received by United States from a sale of the property.
There are time limitations regarding wrongfully levied property.
Specific property (including identifiable money; coin collections) in possession of the United States may be returned anytime. See IRC 6343(b).
An amount equal to the amount of money levied or received from the tax sale may be returned anytime before the expiration of nine months from the date of levy. See IRC 6343(b).
Wrongful levy claims may be filed on property attached by:
Notices of Levy, Form 668-A and Form 668-W and/or
Notices of Seizure, Form 668-B.
A wrongful levy claim may be filed when:
The levied property is still in the hands of a third party (e.g., bank levy) or under seizure prior to sale
The levied amount has posted to the taxpayer’s account, or
An amount of money has posted to the taxpayer’s account that is equal to the amount received by the IRS from the sale of property.
Upon receipt of a written wrongful levy claim, send the claim to the AI-Advisory office where the levy or seizure was made. AI-Advisory will evaluate the claim. Generally, third parties file wrongful levy claims when they believe that the levy is wrongful because the property levied belongs to them, or they believe they have a superior claim to the property that is not being recognized by the IRS. If the claim is disallowed, Al- advisory should notify the third party in writing of the reason for disallowing the claim and of the right to bring suit against the government. If the claim is disallowed because it was not made within nine months from the date of the levy, AI-Advisory should send Letter 3973, Wrongful Levy Claim Rejection Letter - Untimely Claim via certified mail. If the claim is disallowed for another reason, Al-Advisory should send the claimant Letter 3974, Wrongful Levy Claim Rejection Letter via certified mail. Disallowance of the claim may be appealed through the Collection Appeals Program (CAP).
The regulations require that the third party file the claim with the Advisory Group Manager for the area where the levy or seizure was served. If the third party submits an original claim for processing to an RO or someone other than the Advisory Group Manager, the IRS employee should notify the third party that the proper place for filing the claim is with the Advisory Group Manager for the area where the levy or seizure was made and provide the third party with the correct mailing address.
The third-party claimant may also choose to file suit under IRC § 7426(a). A claim is not required prior to filing suit. However, if the claimant is also seeking damages under IRC § 7426(h), an administrative claim must be filed first.
Third parties claiming property was wrongfully levied are entitled to CAP before the levy proceeds are turned over to the Service. Once the levy proceeds are turned over, the third party must submit an administrative claim to Advisory under the procedures described in Pub. 4528, Making an Administrative Wrongful Levy Claim Under Internal Revenue Code (IRC) Section 6343(b). If the administrative claim is denied, the third party can request a CAP hearing about the denial.
If the levy source has not forwarded the levy proceeds and AI-Advisory determines that the potential levy proceeds are not the taxpayer's, then do the following:
Process a full release of the levy as soon as possible to avoid the receipt of property that is not the taxpayer’s. If levy proceeds are received because the levy is not released in sufficient time, the levied property or funds should be returned immediately. See IRM 188.8.131.52.2.2,Certain Wrongful Levy Situations.
For bank levies, if additional time is needed beyond the 21 day hold period to determine ownership, request the bank hold the funds. Provide the bank a specific extension date to forward the funds. If substantiation is required from the potentially wrongfully levied party or the taxpayer, provide a deadline date for providing the substantiation.
For levies that are not bank levies, the levy source may be requested to hold the levy proceeds if additional time is needed to determine ownership. Provide the levy source with a specific extension date to forward the funds. If substantiation is required from the potentially wrongfully levied party or the taxpayer, provide a deadline date for providing the substantiation.
If the levy source has forwarded the levy proceeds and AI-Advisory preliminarily determines that the levy proceeds are not the taxpayer's, do the following:
Notify the third party that the IRS has determined that the levy was wrongful and that the IRS is working on returning the levy proceeds.
Provide the wrongfully levied party Pub 4528, Making an Administrative Wrongful Levy Claim Under Internal Revenue Code (IRC) Section 6343(b).
Document in the ICS history that the wrongfully levied party was provided Pub 4528. Pub 4528 contains the proper procedures for a third party to make an administrative claim and file a suit under IRC 7426(a)(1) should the administrative claim be denied.
See IRM 184.108.40.206.2.2,Certain Wrongful Levy Situations, for situations where the revenue officer may process a manual refund of wrongful levy proceeds, after securing proper approval.
Under IRC 6503(f), the period of limitation on collection is suspended for a period equal to the period from the date property is wrongfully seized or received to the date returned under IRC 6343(b) or the date on which a judgment is secured under IRC 7426, plus an additional 30 days. The suspension is only applicable to an amount equal to the amount of money or the value of the property returned. See IRM 220.127.116.11,Wrongful Seizure — Payment of Claims After Sale.
In certain wrongful levy situations, the Revenue Officer, after consultation with AI-Advisory, may process a manual refund. These procedures apply only to the following situations:
The Service levies on a bank account other than the taxpayer's.
The Service sells property that does not belong to the taxpayer.
The Service levies in ID Theft situations identified in IRM 18.104.22.168.6Levy Releases in Cases of Identity Theft.
When a wrongful levy is confirmed and the levy source already forwarded the proceeds to the Service, do the following:
Verify with AI-Advisory the wrongfully levied party's right to the levied property. (See above).
Document in the ICS history AI-Advisory's concurrence.
If it is determined that returning the proceeds is appropriate, complete and process Form 5792, Request for IDRS Generated Refund. See IRM 22.214.171.124,Manual Refund, for guidance on completing and processing Form 5792.
The Area Director is authorized to approve manual refunds, including manual refunds via Form 5792 in wrongful levy situations per Delegation Order 3-1 (Rev. 2) contained in IRM 126.96.36.199, Delegation Order 3-1 (Rev. 2).
By filing Form 14031, Wage and Investment Customer Account Services Submission Processing, the Area Director may designate "authorized certifying officers" to review and approve Form 5792. The signature of the Area Director's designee(s) must be on file with the Submission Processing Center before the Form 5792 is submitted for processing. (See IRM 188.8.131.52 for information and procedures for processing Form 5792.)
The authority to make determinations to return levy payments and determine wrongful levy claims is delegated to SBSE Territory Managers and AI Territory Managers per Delegation Order 5–3 (Rev. 1) contained in IRM 184.108.40.206, Delegation Order 5–3 (Rev. 1). However the procedure to return levy payments is through the "manual refund" process. The routing of the approval of Form 5792 through the Territory Manager to the Area Director or the Area Director's designee per IRM 220.127.116.11,Manual Refund, is sufficient to meet the requirements of Delegation Order 3-1 (Rev. 2) and Delegation Order 5–3 (Rev. 1).
If a notice of levy is served erroneously, do the following:
Release it immediately.
Send Letter 4262 to the taxpayer. The taxpayer can give this to people who received levies. See IRM 18.104.22.168,Reimbursing Bank Charges Because of Erroneous Levies, if the taxpayer incurred a bank charge due to the erroneous levy.
A taxpayer who claims that the levy is "erroneous" (Refer to IRM 22.214.171.124.2, Wrongful and Erroneous Levies) is entitled to a CAP before the levy proceeds are turned over to the Service. Once the levy proceeds are turned over the taxpayer is not entitled to CAP rights and the taxpayer must make an administrative claim under Treasury Reg. 301.6343-3(h). If the administrative claim is denied, the taxpayer would then have the right to request a CAP appeal about the denial.
Generally, levy releases are mailed to save resources. Sometimes, though, they may be served in person.
When a levy must be released quickly, it may be faxed. Confirm that the levy source has a fax machine and is willing to accept a faxed release.
When paper levies issued to the Social Security Administration (SSA) need expedited release, print “EXPEDITE IMMEDIATELY” on the top of the release of levy form. Fax the release to the SSA office that issued the taxpayer's social security number. See the Servicewide Electronic Research Program (SERP), Who/Where, Levy Source Information for the SSA office fax numbers http://ts00363.tcc.irs.gov:10001/NLSD/. Phone contacts for SSA Paper Levy issues are listed on SERP on the IRWeb, Who/Where, SSA Paper Levy Contacts, http://serp.enterprise.irs.gov/databases/who-where.dr/ssa-paper-levy-payments.htm .
Use Form 668–D, Release of Levy/Release of Property from Levy, to release a levy served on Form 668–W(ICS), 668-W(C)DO, Form 668–A(ICS), or 668-A(C)DO. Use Form 668–E, Release of Levy, to release seized property when Form 2433, Notice of Seizure, cannot be used.
Form 668–D can be used to release the levy in part or in full.
A taxpayer who has defaulted on an installment agreement, ultimately has his wages levied. The amount being levied creates a hardship, but a smaller amount would not. A release of wages less than $X allows the taxpayer to receive an amount that will not cause a hardship. Anything earned more than that amount is sent as levy proceeds each pay day.
After failing to respond to the CDP notice, a taxpayer's wages are levied. The taxpayer contacts the revenue officer assigned the case and a monthly payment amount is agreed to. A payroll deduction agreement to avoid default is the preferred disposition of the case, but the employer is reluctant to agree. A partial release of wages greater than $X, sets a fixed amount that will be sent as levy proceeds each pay day. Anything more is paid to the taxpayer.
After pyramiding employment taxes and failing to submit a CIS a taxpayer's bank account is levied. The taxpayer contacts the revenue officer on Friday and submits all the required financial information. The taxpayer agrees to make all current FTDs by next Wednesday when a contract is paid and requests release of $X funds to cover payroll. A partial release of bank deposits up to the amount of $X is released to cover payroll and the levy continues to attach to all amounts greater than $X.
Taxpayers can make tax payments by credit card. See IRM 126.96.36.199.3,Payment by Credit Card or Debit Card (General). Credit card payments are a source of guaranteed funds; the line of credit is authorized before the confirmation number is issued.
If releasing a levy when the taxpayer states they paid by credit card, secure the confirmation number. The confirmation number is provided to the taxpayer by the service provider at the end of the transaction.
Additional payment verification can be obtained by the taxpayer on the service provider's website.
While rare in instances of tax payments, fraudulent use of credit cards does occur and will result in a manual refund of the payment to the processor.
A person may inappropriately provide a Taxpayer Identification Number (TIN) that is not their own to an employer to secure employment. This person will be referred to in this section as the non-owner of the TIN. The legal owner of the TIN will be referred to in this section as the victim.
Cases involving multiple taxpayers using the same TIN are classified generally as mixed entity, Scrambled SSN cases or True Scrambled SSN cases. These cases will be referred to in this section as mixed entity cases.
A levy attaching the assets of the victim in a mixed entity case must be immediately released. Accounts should be adjusted and all pre-levy notices properly issued before levy re-issuance. See IRM 188.8.131.52, Collection Activity in Identity Theft Cases, for actions after levy release. See IRM 184.108.40.206, Multiple Individuals Using the Same TIN, for appropriate adjustment actions.
If no account adjustment is required and all pre-levy notices were properly issued a levy may remain in effect unless a circumstance outlined in IRM 220.127.116.11.1, Legal Basis for Releasing Levies , is present. Also see IRM 5.1.28, Identity Theft for Collection Employees for required actions on cases involving ID Theft.
A levy attaching to assets of the non-owner of the TIN for which
the Service assessed the liability in the name of the non-owner of the TIN,
the Service issued all pre-levy notices properly to non-owner of the TIN,
the Service assessed the liability under the TIN/SSN of the victim,
the assessment is based solely on the income of the non-owner of the TIN,
and there are no credits (payment offset etc.) attributable to the victim for the assessment listed on the levy,
may remain in effect unless a circumstance outlined in IRM 18.104.22.168.1, Legal Basis for Releasing Levies, is present. The assessment is not invalid for the sole reason that it was made under the victim's TIN/SSN.
The assessment will need to be adjusted. See IRM 22.214.171.124, Multiple Individuals Using the Same TIN, for appropriate adjustment actions. However, if unable to determine if the liability of the non-owner of the TIN is satisfied then release the levy until the account can be adjusted to ensure the levy is not enforced on a satisfied liability. Also see IRM 5.1.28, Identity Theft for Collection Employees for required actions involving ID Theft.
The non-owner of the TIN may file a wrongful levy claim for return of levy proceeds (from the assets of the non-owner of the TIN) already received and processed by the Service. A wrongful levy claim may be appropriate when
the assessment is based solely on the victim's income, since the levy improperly attaches to property belonging to a third party (the non-owner of the TIN)
the assessment is based on the combined income of the non-owner of the TIN and the victim's, since the levy may have improperly attached to property belonging to a third party (the non-owner of the TIN).
the assessment is based on the combined income of the non-owner of the TIN and the income of other non-owners using the TIN, or is based on the combined income of other non-owners using the TIN and the victim’s income, since the levy may have improperly attached to property belonging to a third party (the non-owner of the TIN).
See IRM 126.96.36.199.2, Wrongful and Erroneous Levies, for appropriate action. Contact AI-Advisory to determine if the non-owner of the TIN would qualify for wrongful levy claim consideration.
The levy is considered an erroneous levy when a levy is served prematurely or otherwise in violation of an administrative procedure or law. If the levy is in violation of law the Service must return levy proceeds. If the levy is in violation of administrative procedure the Service may determine to return levy proceeds. Contact AI-Advisory to verify the levy is erroneous. See IRM 188.8.131.52.2, Wrongful and Erroneous Levies, for appropriate action.
The levy attaches to the wages of the non-owner of the TIN for an assessment in the victim's name. All pre-levy notices were sent to the victim. The assessment is based on the income of the non-owner of the TIN. The levy is premature as the assessment must be in the name of the non-owner of the TIN and all pre-levy notices must be sent to the last known address of non-owner of the TIN in order for the levy to appropriately attach to the wages of the non-owner of the TIN.
Before July 30, 1996, once levy proceeds were deposited, there was no statutory authority permitting the return to a taxpayer of monies obtained by erroneous levy, even though the levy might have been issued in violation of law or administrative procedures. Congress has since enacted such authority.
On July 30, 1996, Taxpayer Bill of Rights 2 (TBOR2) was enacted. This added subsection (d) to IRC 6343.
Now erroneous levy proceeds can be returned to the taxpayer at the discretion of the Service if:
The levy is premature
IRS procedures were not followed.
Some companies notify the Service of an address for mailed notices of levy. See IRM 184.108.40.206.5, Addresses for Mailing Notices of Levy. A levy is sent to another address by mistake. The company forwards it to the correct address, and a levy payment is sent. The taxpayer might claim the payment must be returned because procedures were not followed. This is not the case. It is within the discretion of the Service to determine that the error is trivial and returning the payment is unwarranted.
Erroneous levy proceeds will be returned to the taxpayer if the levy is in violation of the law per Treas. Reg. 301.6343-3(d). However, the Service may keep the levy proceeds if the taxpayer provides written permission to do so.
Although not considered erroneous, proceeds from levies issued in the last 9 months can be returned to the taxpayer at the discretion of the Service if:
An installment agreement is made for a liability included on the levy, unless the agreement provides otherwise.
Subsequent to the levy, the taxpayer enters into an installment agreement that will full pay the entire outstanding liability. The revenue officer verifies the taxpayer is financially able to meet all the terms of the agreement. An amount of money equal to the amount of money levied and applied toward the taxpayer's liability may be returned to the taxpayer.
Returning levy proceeds facilitates collection.
With the consent of the taxpayer or the National Taxpayer Advocate (NTA), returning the levy proceeds is in the best interests of the taxpayer (as determined by the NTA) and the government.
Taxpayer owes income tax for 2008 and 2009. IRS issues a levy to attach to social security benefits. Taxpayer responds to a levy and a collection information statement is completed that IRS determines establishes economic hardship. Further, the taxpayer’s information confirms that the levy created an economic hardship for the taxpayer at the time the levy was initially issued. The IRS releases the levy on the social security benefits. Additionally, an amount equal to the amount levied and applied to the taxpayer’s liability may be returned to the taxpayer unless it is determined the return of property is not in the best interest of the government. Generally, it will be in the best interest of the government to return such payments when the IRS levy created an economic hardship for a taxpayer. However, it is not in the best interest of the government to return levy proceeds received prior to the taxpayer’s request for the release of the levy if the facts show that the taxpayer did not respond to IRS attempts to contact them prior to levy and the taxpayer does not have reasonable cause for not responding.
If multiple levies have been issued with respect to a taxpayer’s liability and only one of the levies has been confirmed to create the economic hardship, only the proceeds from that levy should be returned.
If Then IRS makes a determination that return of property is in the best interest of the United States AND in the best interest of the taxpayer with taxpayer consent (no NTA involvement) IRS will return the levied property. IRS makes a determination that return of property is in the best interest of the United States and the NTA also determines that return of the property is in the best interest of the taxpayer IRS will return the levied property. IRS makes a determination that return of the property in NOT in the best interests of the United States (regardless of NTA determination or taxpayer consent) IRS will NOT return the levied property.
The taxpayer can file a request for the return of levied property up to nine months from the date of the levy. Requests made after nine months cannot be considered.
The Service can refund levy proceeds without a request from the taxpayer within nine months of the date of levy, so if the taxpayer makes an oral request, the IRS may still choose to investigate the request. However, the IRS should advise the taxpayer that he or she must submit their written request within the nine months in order to comply with written requirement under the regulations. If the taxpayer makes a written request for the return of money within nine months from the date of the levy, the Service may return the money after the nine month period ends if time is needed to investigate and process the request. The money may, then, be refunded on some date after the nine month period.
Except for a levy in violation of the law (IRM 220.127.116.11.1), there are no rigid rules for deciding whether to return a levy payment. The decision is made on a case-by-case basis. At least one of the conditions in IRM 18.104.22.168.1(2) must exist. Some things to consider include:
How significant is a procedural error? In the first example in IRM 22.214.171.124.1(3), the error is harmless and insignificant.
The IRS released the levy because it determined that the levy was creating an economic hardship.
Did the person who received the levy get bad instructions about how much to send?
Is there an error that affects whether the levy should have been issued?
Is there an inequity in keeping the payment?
Would the levy have been released if all facts were known before the payment was received?
Is the taxpayer a pyramiding, delinquent trust fund repeater?
When a written request is rejected, give the taxpayer Letter 3975, Rejection of Request for Return of Levied Property, signed by the group manager.
A written rejection is not required unless a written request is made.
The taxpayer may appeal the rejection using Collection Appeal Program (CAP) procedures, or, if Collection Due Process (CDP) rights exist under IRC 6330(f) and are timely exercised, by raising the issue at a CDP hearing or an equivalent hearing, whichever may be applicable.
When a verbal statement is received investigate whether the property should be returned to the taxpayer based on the verbal information. Advise the taxpayer they need to make a written request if you determine that none one of the conditions in IRC 6343(d) applies. The claimant must submit a written claim before the expiration of the 9-month period.
The Area Director is authorized to approve manual refunds via Form 5792, including manual refunds in wrongful levy situations per Delegation Order 3-1 (Rev. 2) contained in IRM 126.96.36.199 , Delegation Order 3-1 (Rev. 2). By filing Form 14031, Wage and Investment Customer Account Services Submission Processing - Manual Refund Signature Authorization Form the Area Director may designate "authorized certifying officers" to review and approve Form 5792. The signature of the Area Director's designee(s) must be on file with the Submission Processing Center before the Form 5792 is submitted for processing.
The authority to make determinations to return levy payments and determine wrongful levy claims is delegated to SBSE Territory Managers and AI Territory Managers per Delegation Order 5–3 (Rev. 1) contained in IRM 188.8.131.52, Delegation Order 5–3 (Rev. 1). However the procedure to return levy payments is through the "manual refund" process. The routing of the approval of Form 5792 through the Territory Manager to the Area Director or the Area Director's designee per IRM 184.108.40.206,Manual Refund, is sufficient to meet the requirements of Delegation Order 40 (Rev. 6) and Delegation Order 3–1 (Rev. 2).
Complete and process Form 5792,Request for IDRS Generated Refund (IGR) to issue a manual refund. See IRM 220.127.116.11,Manual Refund, for guidance on completing and processing Form 5792, Request for IDRS Generated Refund (IGR).
Unlike money that has been wrongfully levied, no interest is paid on the refund.
When levy proceeds are returned, the delinquent tax is not forgiven. The taxpayer is still obligated to pay the amount owed, and the Service is obligated to collect it.
However, the taxpayer will not be charged a failure to pay penalty or interest during the period the Service held the money. After the payment is returned to the taxpayer, penalty and interest start to accrue again.
On April 10, 2008, $2,500 was collected as levy proceeds.
On May 4, 2010, the $2,500 was returned.
Compute accrued interest on $10,000 through April 10, 2008. Then, compute interest on $7,500 for the period April 11, 2008, though May 4, 2010. Assess the total interest from these two steps using transaction code (TC) 340. Have the TC 340 input with the COMP-INT-AMT and INT-TO-DT fields complete. The COMP-INT-AMT is the amount still owed, so IDRS and master file should continue computing interest on this. In this example, it would be the amount still owed on May 4, 2010. The INT-TO-DATE is the date that the interest has been computed through which in this example would be May 4. This will allow IDRS and master file to compute interest after that so it will not have to be done manually.
Compute the failure to pay penalty that accrued from April 11, 2008, through May 4, 2010, on $2,500. Input this amount using TC 271 with Reason Code 62. This will allow IDRS and master file to compute the penalty after that so it will not have to be done manually.
Generally, if levied property must be returned, it is given back to the taxpayer(s) who owed the tax that was credited with the payment. Typically, if a levy payment is applied to a liability owed by John and Mary Smith, and it must be returned later, the refund check would be in the names John and Mary Smith.
Sometimes the name(s) on the check can not be the same as the name(s) on the delinquent account because the money must be returned to the third party who was wrongfully levied upon.
Fred Jones owes delinquent tax for tax year 2007, when his filing status was single. In addition, Fred and Mary Jones owe delinquent tax for returns they filed jointly for tax years 2008 and 2009. One notice of levy is mistakenly issued for all three tax years showing Fred and Mary Jones as the taxpayers. This results in money from Mary's bank account being used to pay all three liabilities. The payment that is applied to tax year 2007 is for a liability owed by Fred Jones, but the refund check for that payment must be issued in the name Mary Jones. This example assumes the bank account is not community property.
Sam Wilson's Social Security benefits are levied. After five levy payments have been sent, the Social Security Administration finds out that Sam had died and was only eligible for benefits during the first three months. The other two months' levy payments must be returned to the Social Security Administration.
See IRM 18.104.22.168,Manual Refund, for instructions about how to get the manual refund check issued.
A wrongful levy is one in which the levy proceeds are money that belonged to someone other than the delinquent taxpayer, such as in the first example in (2), above. Or when the levy destroyed the interest of a lien senior to the federal tax lien. In these cases, the person to whom the money is returned is entitled to interest. Using the overpayment rate in IRC 6621, interest runs from the date the levy payment was received to the refund schedule date. The date the interest runs through can be no earlier than thirty days before the money is actually returned.
When a wrongful levy on a third party's property is not involved, as illustrated in the second example in (2), above, no interest is paid.
Every reasonable effort will be made to release a notice of levy timely. However, sometimes surplus levy proceeds are received. Surplus proceeds are payments greater than the amount still owed for the liabilities listed on the notice of levy. Surplus levy proceeds may not be applied to individual SRP modules (shown as MFT 35).
The payment should be returned to the levy source when there is no remaining balance due. Once a payment is applied to the taxpayer's account there is currently no legal provision to return the funds to the levy source.
If surplus proceeds are received, and taxes are owed that were not listed on the notice of levy, the surplus can be offset to those taxes, excluding SRP accounts (MFT 35 or mirrored MFT 65). In this situation, directly applying the surplus proceeds directly to the taxes, excluding SRP account, not listed on the notice of levy is still considered an offset. However, use levy proceeds to pay the taxes listed on the levy, first. The surplus may then be offset to taxes not listed on the notice of levy, even if all the notices in IRM 22.214.171.124.2, Required Notices, have not been given to the taxpayer for those taxes. The notice of levy must be released as soon as possible once the periods covered by the levy have been satisfied. If additional liabilities not covered by the original levy exist, a new notice of levy must be issued to collect those liabilities. Please note that all statutory requirements, such as sending of a notice of intent to levy and a right to a hearing, must be met with regard to the new notice of levy if the taxpayer has not had an opportunity for a CDP hearing under IRC 6330 for the remaining liabilities. See IRM 126.96.36.199, Pre-Levy Actions, for the statutory pre-levy requirements.