Sometimes the 21 days run out. The release did not get faxed in time, or the IRS said no, or nobody knew about the levy until the money was gone. The bank paid the IRS on the next business day, as Treas. Reg. § 301.6332-3(c)(1) requires.
That is not always the end. The Code has two separate return provisions, one for other people's money and one for yours. Both are slower than a release, both run on a two-year clock, and both reward people who put the request in writing.
Release vs. return
A release under IRC § 6343(a) tells the bank to stop. It works while the money is still at the bank. Treas. Reg. § 301.6343-1(e) says that if property has not yet been surrendered, a release relieves the holder of any obligation to surrender it.
A return under § 6343(b) or (d) is the IRS sending back money it already received and applied. Once levy proceeds post to your account, they are credited to your tax, usually to the oldest assessment first. The IRM notes that a levy is not a voluntary payment, so you cannot designate how it is applied (IRM 5.11.4.5).
Return to a third party: wrongful levy, § 6343(b)
If the money belonged to someone other than the taxpayer, the levy was "wrongful." IRC § 6343(b) lets the IRS return the specific property, an amount equal to the money levied, or an amount equal to the sale proceeds. The IRM defines a wrongful levy as one that improperly attaches property belonging to a third party in which the taxpayer has no rights (IRM 5.11.2.3.2).
Key features:
- Interest is paid. Under § 6343(c), at the overpayment rate, from the date the IRS received the money to a date no more than 30 days before the return.
- The request is a written claim sent where IRS Publication 4528 says to send it, with the information listed in Treas. Reg. § 301.6343-2(b).
- A lawsuit is an alternative. The owner can sue the United States in district court under IRC § 7426(a)(1). Under § 6532(c), the suit must generally be filed within two years from the levy, extended if an administrative claim is filed.
That route is covered step by step in wrongful levy claims.
Return to the taxpayer: § 6343(d)
When the money was yours, § 6343(d) is the door. The IRS may return levied property if it determines that:
- The levy was premature or otherwise not in accordance with administrative procedures (§ 6343(d)(2)(A)).
- You entered into an installment agreement for the liability, unless the agreement provides otherwise (§ 6343(d)(2)(B)).
- Return will facilitate collection (§ 6343(d)(2)(C)).
- With your consent or the National Taxpayer Advocate's, return is in your best interest (as determined by the NTA) and the government's (§ 6343(d)(2)(D)).
The statute treats these returns "in the same manner as if such property had been wrongly levied upon," with one big exception: no interest under § 6343(c). (Section 6343(f)(4) makes an exception for certain levies on retirement plans.)
When return is mandatory, and when it is discretionary
The IRM draws a clear line.
Levies in violation of the law. IRM 5.11.2.4.1, citing Treas. Reg. § 301.6343-3(d), says erroneous levy proceeds will be returned if the levy violated the law, subject to the time limit. The IRM's examples: a levy made without giving the taxpayer notice of a right to a hearing under § 6330, and a levy made while an offer in compromise was pending, in violation of § 6331(k)(1). The IRS may keep the proceeds only with the taxpayer's written permission.
Procedural errors. For violations of administrative procedure, return is discretionary. IRM 5.11.2.4.2 lists factors the IRS weighs, including:
- How significant the procedural error was.
- Whether the IRS released the levy because it found economic hardship.
- Whether the levy recipient got bad instructions about how much to send.
- Whether there is an inequity in keeping the payment.
- Whether the levy would have been released if all the facts had been known before the payment was received.
- Whether the taxpayer is a pyramiding, delinquent trust fund repeater.
The IRM also warns that trivial errors may not justify a return. Its example is a levy mailed to the wrong address at a company that forwarded it anyway (IRM 5.11.2.4.1). Do not lead with a technicality if you have a real argument.
Three situations where return is worth fighting for
You set up a payment plan right after the levy
The IRM gives this example: after a levy, the taxpayer enters an installment agreement that will fully pay the liability, and the revenue officer verifies the taxpayer can meet its terms. An amount equal to the levied money may be returned (IRM 5.11.2.4.1). If the levy took operating cash a business needs to make the plan work, say so.
The levy caused a hardship from the start
The IRM's example involves a levy on Social Security benefits. The taxpayer showed economic hardship, and the information confirmed the hardship existed when the levy was first issued. The levy was released and proceeds were returned (IRM 5.11.2.4.1). If a bank levy took your rent money, the same logic applies. See economic hardship release.
The IRS skipped a required step
No CDP notice for a period on the levy. A pending offer or installment request. An open CDP hearing. A bankruptcy stay. These are not "please" requests. Check the sequence in the assessment-to-levy timeline.
The two-year deadline
Specific property, like an identifiable coin collection, can be returned at any time. Money is different. The Tax Cuts and Jobs Act changed the period in § 6343(b) from nine months to two years, and the IRM applies the longer period to § 6343(d) returns too (IRM 5.11.2.4.1):
| Date of levy | Deadline to request return of money |
|---|---|
| On or before March 22, 2017 | 9 months from the levy |
| On or after March 23, 2017 | 2 years from the levy |
The IRM adds that the IRS can return proceeds without a request while the period is open, and that it may investigate an oral request, but taxpayers should be told to submit a written request within the period (citing Treas. Reg. § 301.6343-3(h)). Put it in writing. IRS Publication 5149 explains how to make an administrative return of property claim under § 6343(d), and the IRM points taxpayers to it (IRM 5.11.2.3.2.3).
If the IRS says no
A written request that is rejected gets a written answer, Letter 3975, Rejection of Request for Return of Levied Property (IRM 5.11.2.4.3). From there:
- Collection Appeals Program. CAP covers the disallowance of a taxpayer's request to return levied property under § 6343(d) (IRM 5.1.9.4). See CAP and bank levies.
- CDP or equivalent hearing, if you have timely rights under § 6330 (IRM 5.11.2.4.3).
- The Taxpayer Advocate, especially for the best-interest ground, which requires the NTA's determination. See the Taxpayer Advocate.
A release is a phone call and a fax. A return is a written claim and a record. Build the record.
For a broader view of levy relief, see the firm's tax levies page. And if the levy is still inside its 21 days, stop reading this and go to how to get the levy released.