If the IRS has seized your property to collect a tax debt, and you believe the seizure was improper or wrongful, you may wonder if you have any legal recourse. The answer is yes: under certain circumstances, you can challenge the IRS’s actions and even sue for the return of your property or for damages. Here’s what you need to know about your rights and the procedures involved.
What Is a “Wrongful Levy” or Seizure?
A “levy” is the legal process by which the IRS seizes property to satisfy a tax debt. A levy can attach to wages, bank accounts, retirement accounts, or even physical property like a car or house. A levy is considered “wrongful” if the IRS seizes property that:
- Does not belong to the taxpayer who owes the tax,
- Is exempt from levy under the law,
- Is subject to a superior claim by another party, or
- Is seized in violation of IRS procedures or the law.
Administrative Remedies: Requesting Return of Wrongfully Seized Property
Before heading to court, you can (and often should) pursue administrative remedies with the IRS:
- Administrative Wrongful Levy Claim: If you are not the taxpayer but believe your property was wrongfully seized, you can file a written claim with the IRS requesting the return of your property or proceeds from its sale. Your claim should include your name and address, a detailed description of the property, your basis for claiming an interest, the name and address of the taxpayer, the IRS office that issued the levy, the date of the levy, and any supporting documents.
- Where to File: Send your claim to the IRS Advisory Group for the area where the levy or seizure occurred. Addresses are listed in IRS Publication 4235.
- Time Limits: If the property has not been sold, you may file at any time. If the property has been sold or cash has been turned over, you generally have 2 years from the date of the notice of seizure or levy to file your claim.
If the IRS denies your claim, you can appeal through the Collection Appeals Program (CAP).
Judicial Remedies: Suing the IRS in Federal Court
If administrative remedies do not resolve the issue, or if you prefer, you may file a lawsuit against the United States (not the IRS or its employees personally) in federal district court under Internal Revenue Code.
Who Can Sue?
- Any person (other than the taxpayer against whom the tax is assessed) who claims an interest in or lien on the property that was wrongfully levied upon.
What Relief Can the Court Grant?
The court may:
- Issue an injunction to stop the levy or sale if your rights are superior to the IRS’s.
- Order the return of the specific property if the United States still possesses it.
- Award a judgment for the amount of money levied upon or the greater of the amount received by the United States from the sale or the fair market value of the property before the levy.
- Award surplus proceeds from a sale if you have a junior interest.
Damages
If the court finds that an IRS officer or employee recklessly, intentionally, or negligently disregarded the law, you may be entitled to actual, direct economic damages and costs, up to $1,000,000 ($100,000 for negligence), but only if you first exhausted administrative remedies.
Time Limits
You must file your lawsuit within 2 years of the date the notice of levy or seizure was delivered.
What Makes a Levy “Wrongful”?
A levy is wrongful as to a third party if:
- The property is exempt from levy (see IRC),
- The taxpayer had no interest in the property at the time the lien arose or thereafter,
- The third party is a purchaser or lienholder with priority over the IRS,
- The levy or sale destroys or irreparably injures the third party’s senior interest.
Practical Steps If Your Property Is Seized
- Contact the IRS Immediately: Call the number on your levy notice to discuss the situation.
- File an Administrative Claim: Submit a written claim for the return of your property as soon as possible.
- Appeal if Denied: Use the Collection Appeals Program if your claim is denied.
- File Suit if Necessary: If administrative remedies fail or time is running out, file a lawsuit in federal district court under IRC.
Key Takeaways
- You can sue the IRS (actually, the United States) for wrongful seizure of property.
- You must generally exhaust administrative remedies before seeking damages.
- Strict time limits apply—act quickly if you believe your property was wrongfully seized.
- The law provides for both the return of property and, in some cases, damages.
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