Getting Seized Property Released or Returned Under IRC 6343

IRC 6343 is titled Authority to release levy and return property. It does three different jobs: it requires the IRS to release levies in certain situations, it allows the IRS to return property that was wrongfully levied, and it allows return of property in some situations where the levy was not wrongful but returning it makes sense. Each job has its own standard and its own timing.

Mandatory release under IRC 6343(a)

Under IRC 6343(a)(1), the IRS shall release a levy on all or part of the property, and promptly notify the person on whom the levy was served, if:

• the liability is satisfied or becomes unenforceable by lapse of time;
• release will facilitate collection of the liability;
• you have entered into an installment agreement under IRC 6159, unless the agreement provides otherwise;
• the IRS has determined the levy is creating an economic hardship due to your financial condition; or
• the fair market value of the property exceeds the liability and releasing part of it will not hinder collection.

The installment agreement trigger has one limit: the IRS is not required to release if release would jeopardize its secured creditor status. And under IRC 6343(a)(3), releasing a levy does not prevent a later levy on the same property.

For seized business equipment, IRC 6343(a)(2) requires an expedited determination when the levy would prevent you from carrying on your trade or business. The procedure is in seizure of business assets.

When release is required immediately

IRM 5.10.4.14 lists situations where the IRS must release and return seized property immediately because the seizure was prohibited, including:

• an automatic stay in bankruptcy;
• a pending installment agreement (unless it provides otherwise), a pending offer in compromise, or a pending request for innocent spouse relief;
• lack of taxpayer equity in the seized property;
• a Collection Due Process notice that was not given, a CDP hearing that is pending, or a CDP notice issued fewer than 30 days before the levy.

The IRM also requires release if directed by Appeals after a Collection Appeals Program review, by a Taxpayer Assistance Order (unless it is being appealed), or by the group manager after review.

That list is worth checking line by line. If you had an offer pending or a CDP hearing pending when the seizure happened, you are not asking for a favor. You are pointing out a prohibited seizure.

Return of wrongfully levied property under IRC 6343(b)

If the IRS determines property has been wrongfully levied upon, IRC 6343(b) allows it to return the specific property, an amount of money equal to the money levied, or an amount equal to what the United States received from selling the property. Property may be returned at any time. Money may be returned at any time before the expiration of two years from the date of the levy. If the property was bought in by the United States at the sale, the amount treated as received is the minimum price or, if larger, the amount received on resale.

"Wrongful" in this context usually means the property was not the taxpayer's. IRM 5.10.4.15 describes wrongful seizures as including property in which the taxpayer had no interest when the lien arose or afterward, property owned by a purchaser against whom the tax lien is invalid under IRC 6323, and sales that would destroy or irreparably injure a third party's interest that is senior to the federal tax lien.

A third party claims return by written request, signed under penalties of perjury, addressed to the area director, with the claimant's name and address, a description of the property, the basis for the claim, the taxpayer's name and address, the originating IRS area, and the date of the lien or levy. The IRM directs the IRS to halt further action on the seizure and sale until the claim is resolved.

Interest is paid on returned money at the overpayment rate under IRC 6343(c).

Release and return are not the same thing

People use the words interchangeably, but the Code does not. A release under IRC 6343(a) ends the levy's effect going forward. It stops the IRS from continuing to hold or sell property it has not yet disposed of. A return under IRC 6343(b) or (d) gives back the property itself, or money in place of it, after the IRS already has it.

The difference shows up in timing. Before a sale, release usually gets you the property back. After a sale, the property belongs to the buyer, and what can come back is money: the amount levied or the amount the government received from the sale. IRM 5.10.4.16 and the related IRS forms, including Form 668-E, Release of Levy, document these steps. Ask for the right one, and ask early, because the sale date changes which remedy is still available.

Wrongful levy lawsuits

A third party does not have to file an administrative claim before suing. IRC 7426 allows a civil action for wrongful levy, and IRM 5.10.4.15 notes the third party may sue without first filing a claim, but must exhaust administrative remedies before seeking damages under IRC 7426(h).

Timing comes from IRC 6532(c), as summarized in IRM 5.19.9.3.7.1: if no administrative claim is filed, suit must be brought within two years from the date of the levy; if a claim is filed, the period is extended to the shorter of 12 months from the claim or six months from its disallowance.

This is the remedy for a spouse whose separately owned car was taken for the other spouse's debt, a business partner whose equipment was seized as the taxpayer's, or a non-liable spouse whose share of a state refund was levied, as described in the State Income Tax Levy Program.

Return when the levy was not wrongful: IRC 6343(d)

IRC 6343(d) lets the IRS return levied property, using the same mechanics as for wrongful levies, if it determines that:

• the levy was premature or otherwise not in accordance with IRS administrative procedures;
• you have entered into an installment agreement for the liability, unless the agreement provides otherwise;
• returning the property will facilitate collection; or
• with your consent or the National Taxpayer Advocate's, returning the property would be in your best interest, as determined by the Advocate, and the government's.

No interest is paid on returns under subsection (d). IRM 5.10.6.15.1 gives an example of a premature seizure: one conducted less than 30 days after the notice of intent to levy was sent.

Retirement accounts get special treatment

If the IRS levied a retirement account and later returns the money as wrongful or as a premature or procedurally improper levy, IRC 6343(f) lets you put it back. You can contribute the returned amount, plus interest paid, into the plan if it permits, or into an IRA, by the due date of your return, without extensions, for the year the money is returned. The contribution is treated as a rollover, and income tax on the levied distribution is not assessed or is refunded, with an exception for contributions into a Roth account from a non-Roth plan.

How to ask

Practical requests for release usually go through the revenue officer or the IRS sale staff, with a supervisor's review if needed. If the answer is no, use the Collection Appeals Program on Form 9423. If the situation causes hardship and the IRS will not act, the Taxpayer Advocate Service can issue assistance orders. Document everything: the dates of any pending offer, agreement or hearing request, the seizure date, and the facts supporting hardship or third-party ownership.

The cleanest path to release is often the simplest one in the statute: an installment agreement. The firm's main site has an overview of installment agreements. Get one in place, ask for release under IRC 6343(a)(1)(C), and if the property has not been sold, ask for its return under IRC 6343(d). Release is not a loophole. It is how the Code is supposed to work once collection moves onto a better track.