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Return of Levy Proceeds

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Letter Overview

You received correspondence from the IRS requesting payment for the tax balance owing and the debt remains unpaid. Since you have a balance owing, the IRS is continuing with its collection process by issuing a levy that can seize your property (such as funds from a bank account, Social Security benefits, wages, your car, or your home). However, in certain circumstances a levy can be released and/or levy proceeds returned.

This notice or letter may include additional topics that have not yet been covered here. Please check back frequently for updates.

What does this mean to me?

You have an unpaid tax debt and the IRS has issued a levy, which is a legal seizure of your property or assets. It is different from a lien — while a lien makes a claim to your assets as security for a tax debt, the levy seizes your property (such as funds from a bank account, Social Security benefits, wages, your car, or your home). It also could mean that you have requested the IRS to return funds levied, and your request has been rejected. For specifics, see Levies and Publication 1660.

How did I get here?

You have a balance on your tax account. A notice was sent to you previously letting you know how much you owe, when it was due, and how to pay. Since the IRS did not hear from you it is continuing with its collection process. The IRS can use a levy to satisfy a tax debt when you don’t respond to notices informing you of the debt and asking for payment.

What are my next steps?

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Determine if the IRS sent the notice

The first thing to do is to check the return address to be sure it’s from the Internal Revenue Service and not another agency.

If the levy is from the IRS, and your property or federal payments are seized, call the number on your levy notice or 1-800-829-1040. If you’re already working with and IRS employee, call him or her for assistance. For specifics, see Levies.

  • Levy Relief: You should call the number on the levy notice immediately to resolve your tax liability and request a levy release. The IRS must release a levy if it determines that:
    • You paid the amount you owe.
    • The period for collection ended before it issued the levy.
    • Release of the levy will help you pay your taxes.
    • You enter into an installment agreement and the terms of the agreement allow the levy to be released.
    • The value of the property is more than the amount owed and releasing the levy won’t hinder the IRS’s ability to collect the amount.

If you’re in bankruptcy, the IRS may not be able to levy your assets. Contact the IRS and provide information about your bankruptcy chapter, the filing date, the court where you filed, and the case number.

Be prepared to propose an alternative way to pay your taxes if you’re asking the IRS to release a levy, which may include providing financial information for the IRS to review. If the IRS denies your levy release request, then you can appeal the decision. See Publication 1660 for a full explanation of Collection Due Process (CDP), the Equivalent Hearing process, and Collection Appeal Process (CAP).

  • Wrongful Levy: A wrongful levy occurs if you are not liable for the tax and the IRS has levied property that you believe belongs to you or the levy improperly attaches to property belonging to a third party in which the taxpayer has no rights. A third party believes the levy is wrongful because the property levied belongs to them, or they believe they have superior claim to the property. You must write and file a request to the IRS to return the wrongfully levied property within two years from the date of the levy or seizure. See Publication 1660 under Wrongful Levy and/or Publication 4528, Making an Administrative Wrongful Levy Claim Under Internal Revenue Code (IRC) Section 6343(b).
  • Levy Release (with Economic Hardship): If the levy — on your wages, bank account, or other assets — is creating an immediate economic hardship on you, meaning you’re unable to meet basic, reasonable living expenses, then the levy must be released. Contact the IRS at the number on the levy or notice immediately.

 


Note: The IRS has Collection Financial Standards that help determine your ability to pay your taxes. Often, you’ll need to prepare a financial statement to establish economic hardship.

  • Return of Levy Process: If the IRS issues a levy in violation of the law (for instance, if it issues the levy prior to providing you with Collection Due Process rights), the IRS will return the proceeds. If the levy wasn’t in violation of the law, levy proceeds can be returned at the discretion of the IRS if:
    • The levy was premature or not in accordance with administrative procedures.
    • You now have an installment agreement for the tax liability included on the levy, unless the agreement provides otherwise.
    • Returning the payment will assist in other collection.
    • With your or the National Taxpayer Advocate’s (NTA) consent, returning the payment is in your (as determined by the NTA) and the government’s best interest.

You must write and file a request to the IRS to return the levied property within two years from the date of the levy. Since levies on wages and Social Security benefits are ongoing, it is important to timely ask the IRS to return the proceeds based on when the levy started. See Publication 5149, Making an Administrative Return of Property Claim Under Internal Revenue Code (IRC) Section 6343(d); Publication 594, The IRS Collection Process; and Publication 1660.

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If the IRS has already issued a CDP notice

If the IRS has already issued a CDP notice for that particular tax debt and you disagree with the IRS employee’s decision regarding any levy or seizure; you can still appeal the decision. You can do so by asking to have a conference with the employee’s manager. If you disagree with the manager’s decision, you may request the IRS Independent Office of Appeals (Appeals) review your case under the Collection Appeals Program as outlined in Publication 1660 within three business days of the meeting. You can request Appeals consideration in writing, verbally or via Form 9423, Collection Appeal Request.

You can also ask that the IRS manager review your case informally. You can obtain the manager’s name and phone number by contacting the employee listed on your notice. IRS employees are required to give you their manager’s name and phone number. For specifics, see Levies for further information.

If you need a tax professional to represent you, you can hire an attorney, certified public accountant (CPA), or enrolled agent (EA). If you need a tax professional but can’t afford one, you may be able to get help from a Low Income Tax Clinic (LITC).

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Some Special Situations

If the tax being levied is the result of an audit where you didn’t know you were audited (never got a notice), you didn’t meaningfully participate, or you disagree with the findings, you may be able to ask for audit reconsideration.

If the tax being levied stems from the filing of a joint return and you believe your current or former spouse should be solely responsible for an incorrect item or an underpayment of tax on the return, you may be eligible for relief as an Innocent Spouse.

Where can I get additional help?

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If you still need help

The Taxpayer Advocate Service is an independent organization within the IRS that helps taxpayers and protects taxpayers’ rights. We can offer you help if your tax problem is causing a financial difficulty, you’ve tried and been unable to resolve your issue with the IRS, or you believe an IRS system, process, or procedure just isn’t working as it should. If you qualify for our assistance, which is always free, we will do everything possible to help you.

Visit www.taxpayeradvocate.irs.gov or call 1-877-777-4778.

Low Income Taxpayer Clinics (LITCs) are independent from the IRS and TAS. LITCs represent individuals whose income is below a certain level and who need to resolve tax problems with the IRS. LITCs can represent taxpayers in audits, appeals, and tax collection disputes before the IRS and in court. In addition, LITCs can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Services are offered for free or a small fee. For more information or to find an LITC near you, see the LITC page on the TAS website or Publication 4134, Low Income Taxpayer Clinic List.

Related Notices and Letters

  • Levy Relief
    • Form 668-A, Notice of Levy (bank)
    • Form 668-B, Levy (seize a taxpayer’s property)
    • Form 668-D, Release of Levy / Release of Property from Levy (third party holders of taxpayers’ wages or properties)
    • Form 668-E, Release of Levy (seized taxpayer’s property)
    • Form 668-W, Notice of Levy on Wages, Salary, and Other Income (wage)
    • Form 2433, Notice of Seizure
  • Wrongful Levy
    • Letter 3788C, Rescission Letter – Notice of Intent to Levy Filed Erroneously Withdrawal Required (levy premature)
    • Letter 3973, Wrongful Levy Claim Rejection Letter – Untimely Claim
  • Levy Release (with Economic Hardship)
    • LP68, We Released the Taxpayer Levy
    • Form 668-A, Notice of Levy (bank)
    • Form 668-B, Levy (seize a taxpayer’s property)
    • Form 668-D, Release of Levy / Release of Property from Levy (third party holders of taxpayers’ wages or properties)
    • Form 668-W, Notice of Levy on Wages, Salary, and Other Income (wage)
  • Return of Levy Process
    • Letter 3975, Rejection of Request for Return of Levied Property
    • Letter 3975C, Rejection of Request for Return of Levied Property