What Constitutes a Wrongful Levy

A wrongful levy occurs when the IRS seizes property to satisfy a tax debt, but the property either does not belong to the taxpayer who owes the tax or someone else has a superior claim to the property. For example, if the IRS levies a bank account in your name to collect another person’s tax debt, and you are not liable for that debt, this may be a wrongful levy.

Administrative Wrongful Levy Claim under IRC Section 6343(b)

Who can file:
Any person (other than the taxpayer who owes the tax) who claims an interest in or superior claim to the levied property may file an administrative wrongful levy claim.

How to file:

• Submit a written request to the IRS Advisory Group for the area where the levy or seizure was made.

• The claim should include:

• Your name and address.

• Detailed description of the levied or seized property.

• Detailed description of your basis for claiming an interest in the property.

• Name and address of the person against whom the tax was assessed.

• The IRS office that issued the levy or made the seizure.

• The date of the levy, as shown on the notice of seizure or notice of levy.

• Explanation if any of the above information is unavailable.

• Any supporting documents .

Where to file:
Send your claim to the IRS Advisory Group office listed in IRS Publication 4235 for the area where the levy or seizure occurred.

Time limits:

• If the property has not been sold, a claim may be made at any time.

• If tangible property has been sold, the claim must be made within 2 years from the date the notice of seizure is given.

• If cash has been or will be turned over to the IRS, the claim must be made within 2 years from the date the notice of levy is delivered.

• For levies or seizures before March 22, 2017, the deadline was 9 months.

Appeal rights:
If the IRS rejects your administrative wrongful levy claim, you may appeal through the Collection Appeals Program (CAP), as explained in IRS Publication 1660.

Suing the IRS in Federal District Court under IRC Section 7426.

If your administrative claim is denied, or if you choose not to file one, you may bring a civil action against the United States in federal district court under Section 7426 This is known as a wrongful levy suit.

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 and alleges that the property was wrongfully levied upon.

Time limits:

• The suit must be filed within 2 years from the date the notice of levy or seizure is delivered.

• If you filed an administrative claim within the 2-year period, the time to file suit is extended to the shorter of 12 months from the date of filing your request or 6 months from the date the IRS mails a notice of disallowance .

Relief available:
The court may:

• Order the return of specific property if the United States still possesses it.

• Award a judgment for the amount of money levied upon.

• If the property was sold, award a judgment for the greater of the amount received by the United States from the sale or the fair market value of the property immediately before the levy.

Interest:
Interest is allowed at the overpayment rate established under IRC Section 6621, from the date the IRS received the money or the date of sale to the date of payment of the judgment.

Rights of Third Parties

Third parties whose property was levied have the right to:

• File an administrative wrongful levy claim with the IRS.

• Bring a wrongful levy suit in federal district court under IRC Section 7426.

• Seek return of the property or proceeds, and, if successful, recover interest .

Exclusive remedy:
For third parties, a wrongful levy suit under IRC Section 7426 is generally the exclusive judicial remedy for challenging a levy on their property to satisfy another’s tax debt.

Damages for Reckless or Intentional IRS Conduct

If, in a wrongful levy action, the court finds that an IRS officer or employee recklessly, intentionally, or negligently disregarded any provision of the Internal Revenue Code, the United States is liable for the lesser of $1,000,000 ($100,000 in the case of negligence) or the sum of:

• Actual, direct economic damages sustained by the plaintiff as a proximate result of the reckless, intentional, or negligent disregard (reduced by any damages awarded under the main relief provisions), and

• The costs of the action.

Exhaustion of administrative remedies:
To recover damages, you must first exhaust all administrative remedies by filing an administrative claim before filing suit.

IRS Procedures and Publications

• IRS Publication 4528: Explains how to make an administrative wrongful levy claim and the process for seeking relief.

• IRS Publication 1660: Explains Collection Appeal Rights.

• IRS Publication 4235: Lists addresses for IRS Advisory Group offices.

Summary

• If you believe the IRS has wrongfully seized your property, you can file an administrative claim with the IRS and/or sue in federal district court.

• Strict time limits apply—generally 2 years from the date of levy or seizure.

• Third parties have specific rights and remedies, but must follow the procedures in IRC Sections 6343(b) and 7426.

• Damages may be available if the IRS acted recklessly, intentionally, or negligently, but only if administrative remedies are exhausted first.

References:

• IRC § 6343(b), § 7426(a)

• IRS Publications 4528, 1660, 4235

• Treasury Regulation § 301.6343-2 

• Rev. Rul. 2005-49