A wrongful levy happens when the IRS levies property to collect one person's tax, and the property actually belongs to someone else. The classic version: a parent's savings account with an adult child's name on it, frozen for the child's tax debt. Or a business partner's money in a shared account. Or an identity theft victim's account.
If that is you, two things are true. The IRS was allowed to levy first, because the law permits levy on accounts the taxpayer can withdraw from. And you are entitled to get your money back if you can prove it is yours.
What makes a levy "wrongful"
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, citing IRC § 6343(b) and Treas. Reg. § 301.7426-1(b)(1)). Publication 4528 adds that a person may also claim when they believe they have a superior claim to the property that the IRS is not recognizing.
That is different from an "erroneous" levy, which properly targets the taxpayer's own property but violates a procedure or the law, such as a levy issued while a CDP hearing is pending. Erroneous levies are handled under § 6343(d). See getting levied funds returned.
Route 1: Act during the 21-day hold
The best wrongful levy claim is the one that never needs filing because the money never left the bank.
- Call the IRS number on the levy and explain that the funds are yours. The IRM tells employees to treat a co-owner's ownership claim as a potential wrongful levy (IRM 5.11.4.3).
- Ask for the hold to be extended if you need time. The IRM directs employees to ask the bank to hold the funds to a specific date and to give you a deadline to provide proof (IRM 5.11.4.3; IRM 5.11.2.3.2.1).
- Use CAP. Third parties claiming wrongful levy are entitled to a Collection Appeals Program hearing before the proceeds are turned over (IRM 5.1.9.4). See CAP and bank levies.
If the IRS agrees before the bank pays, the IRM says to release the levy as soon as possible (IRM 5.11.2.3.2.1).
Route 2: The administrative wrongful levy claim
Once the bank has paid, the claim is an administrative request for return under IRC § 6343(b).
What the claim must say
Treas. Reg. § 301.6343-2(b) requires a written request containing:
- Your name and address.
- A detailed description of the property levied upon.
- A description of your basis for claiming an interest in it.
- The taxpayer's name and address, the originating IRS office, and the date of the levy as shown on the notice of levy, or a statement of why you cannot provide it.
Publication 4528 (Rev. 3-2018) asks for the same information plus any supporting documents. For a bank account, that means statements, deposit records, pay stubs, and anything showing how the account was set up and who funded it.
Where it goes
Publication 4528 says to send a letter to the IRS Advisory Group for the area where the levy or seizure was made, using the office marked "Other" in Publication 4235. The regulation is strict: a request given to any other office is not effective (Treas. Reg. § 301.6343-2(b)). The IRM confirms the claim belongs with that office, and that an employee who receives it elsewhere should tell you where to send it (IRM 5.11.2.3.2.1).
If something is missing
Under Treas. Reg. § 301.6343-2(c), if the IRS does not notify you within 30 days of receipt that your request is inadequate, it is treated as adequate. If the IRS does notify you, you have 30 days to supply the missing information, and the request is treated as adequate from the original filing date.
What you can get
Under § 6343(b), the IRS may return the specific property, an amount equal to the money levied, or an amount equal to sale proceeds. For money, interest is paid at the overpayment rate from the date the IRS received it to a date no more than 30 days before the return (§ 6343(c); Treas. Reg. § 301.6343-2(d)).
The IRM notes a faster path in some cases. When the IRS levies "a bank account other than the taxpayer's," a revenue officer, after consulting the Advisory office and getting approval, may process a manual refund (IRM 5.11.2.3.2.2).
Route 3: The wrongful levy lawsuit
IRC § 7426(a)(1) lets any person other than the taxpayer who claims an interest in levied property, and claims it was wrongfully levied, sue the United States in federal district court. You do not need to file the administrative claim first (Publication 4528), and the refund-claim prerequisite in § 7422(a) does not apply (§ 7426(f)).
What the court can do (§ 7426(b)):
- Enjoin a levy or sale that would irreparably injure your superior rights.
- Order the return of specific property, or enter judgment for the money levied, with interest (§ 7426(g)).
What the court will not do: decide whether the taxpayer owed the tax. The assessment is "conclusively presumed to be valid" (§ 7426(c)).
Damages are possible but conditional. Section 7426(h) allows damages if an IRS employee recklessly, intentionally, or negligently disregarded the Code, but the exhaustion rule of § 7433(d) applies. Publication 4528 says you may not seek § 7426(h) damages without first filing an administrative claim. See damages claims.
The deadlines
| Action | Deadline | Source |
|---|---|---|
| Administrative claim for money levied | 2 years from the levy (9 months for levies on or before March 22, 2017) | § 6343(b); Pub. 4528; IRM 5.11.2.3.2.1 |
| Lawsuit under § 7426 | 2 years from the levy | § 6532(c)(1) |
| Lawsuit after a timely claim | Extended by the shorter of 12 months from filing the claim or 6 months from a mailed notice of disallowance | § 6532(c)(2) |
Publication 4528 measures the two years for a bank levy from the date the notice of levy is delivered. Do not wait until month 23.
If the claim is denied
A disallowed claim comes with a letter explaining why and your right to sue. The IRM identifies Letter 3974 for most disallowances and Letter 3973 for untimely claims (IRM 5.11.2.3.2.1). You can appeal a denial through CAP, and you can still sue under § 7426 within the extended deadline.
Side issues worth knowing
- Bank charges. A third party's bank charges from a wrongful levy can be considered under the Small Claims Act authority (IRM 5.11.2.3.2.1). See bank fees from a levy.
- The taxpayer's collection statute. Under IRC § 6503(f), the collection period for the taxpayer is suspended for the time the IRS held the wrongfully levied property, plus 30 days, as to the amount returned (IRM 5.11.2.3.2.1).
- Identity theft. The IRM addresses levies in mixed-entity and identity theft cases, including when a non-owner of a TIN may file a wrongful levy claim (IRM 5.11.2.3.6).
Prove whose money it is, put it in writing, send it to the right office, and watch the two-year clock.
Joint accounts have their own wrinkles; see joint accounts and IRS levies. For more on the firm, see getirshelp.com.