IRS Form 668-C: Final Demand Notice, 5-Day Deadline, 50% Penalty

IRS Form 668-C is the “Final Demand for Payment” the IRS serves on a third party — an employer, bank, or client — that has already received a levy notice and failed to turn over the taxpayer’s money or property. It is not the form that takes money out of your paycheck. That is Form 668-W, the Notice of Levy on Wages, Salary, and Other Income. Form 668-C comes later in the sequence, after the original levy has been ignored, and it carries real teeth: the holder has roughly five days to comply or face personal liability for the full amount plus a 50% penalty.¹

What Form 668-C Is and Who Gets It

Form 668-C is an enforcement escalation. The IRS sends it to a person or business that is holding someone else’s property and that has already been served with a levy — typically Form 668-A for a one-time grab on a bank account or receivable, or Form 668-W for continuing wages. When that first notice gets ignored or refused, Form 668-C is the follow-up: comply now, or the IRS will come after you personally.¹

Because the form carries the word “wages” nowhere in its title, confusion is common. If you’re a worker whose paycheck is being taken, the form in play is almost certainly Form 668-W, not 668-C. If you’re an employer or bank that already got a levy notice and set it aside, Form 668-C is the IRS telling you the window for voluntary compliance is closing.

The form can be served in person or by certified mail. In-person service is limited to commercial locations. A federal tax lien does not need to be on file beforehand.

The Five-Day Deadline and the 50% Penalty

Once Form 668-C is served, the holder has five days to respond before the IRS moves to enforce the levy through a federal court proceeding under IRC 6332. If the refusal continues without reasonable cause, two things happen under the statute. First, the third party becomes personally liable for the value of the property it should have surrendered, up to the full tax debt, with interest at the underpayment rate running from the date of the levy. Second, the IRS can tack on an additional penalty equal to 50% of that amount.²

The 50% add-on is pure punishment. It does not reduce the underlying tax owed by the actual taxpayer. The holder pays it on top of making the IRS whole for what should have been turned over in the first place.

How Form 668-C Fits Into the Levy Sequence

To understand where 668-C sits, it helps to see the forms in order:

Form 668-A: a one-time levy served on a bank or other party holding fixed funds. The holder takes a snapshot of what is in the account on the day of service and surrenders that.
Form 668-W: a continuing levy on wages, salary, bonuses, commissions, and similar income. It attaches to every paycheck from the date of service forward until the IRS releases it.³
Form 668-C: the Final Demand, served only after a 668-A or 668-W has been served and the holder has not surrendered the property.

So 668-C never comes out of the blue. There is always an earlier levy behind it. If you believe you’ve received a 668-C without ever seeing the underlying levy, that is the first fact to establish, because the deadline and personal liability flow from the original service.

If You’re the Third Party Holding the Funds

An employer or bank receiving Form 668-C has essentially no discretion left. The time to raise questions about the levy was when the 668-A or 668-W arrived. At the 668-C stage, the practical options are narrow.

Surrender the property. Follow the remittance instructions on the original levy, include the taxpayer’s identifying information, and send the funds. For a wage levy, that means beginning withholding immediately using the Publication 1494 tables and remitting each pay period going forward.

Document reasonable cause if you have it. The 50% penalty only applies when the refusal to surrender lacks reasonable cause. Property that is subject to a prior perfected security interest, funds that were not actually in your possession on the levy date, or an employee who no longer works for you are the kinds of facts that can defeat liability. Put the explanation in writing and respond before the five-day window closes.²

Do not take direction from the taxpayer. An employee or account holder insisting that the tax debt is wrong is not a defense. The holder’s obligation runs to the IRS; the taxpayer’s dispute belongs in a separate proceeding between the taxpayer and the IRS.

If You’re the Taxpayer Behind the Debt

If Form 668-C has been served on your employer or bank, the underlying levy against you is already in force and already being enforced more aggressively. The ways to stop it are the same ways you would stop any IRS levy, and they operate on the levy itself rather than on the 668-C.

Pay the Balance in Full

The fastest release. Once the IRS receives the full tax, penalties, and interest, it is required to release the levy and notify the holder.⁴

Set Up an Installment Agreement

If you owe less than $50,000 in combined tax, penalties, and interest, you can request a long-term plan of up to 72 months.⁵ The IRS is generally required to release the levy once the agreement is in place, with a narrow exception for cases where release would jeopardize the government’s secured position.⁴

Submit an Offer in Compromise

An Offer in Compromise lets you settle for less than the full amount owed. The IRS accepts offers on three grounds: doubt as to liability, doubt as to collectibility, or effective tax administration where full collection would be unfair.⁶ An application fee applies, waived for low-income taxpayers and for doubt-as-to-liability offers. You must stay current on filing and payment obligations while the offer is pending. Acceptance releases the levy.

Claim Economic Hardship

If the levy is leaving you unable to cover basic living expenses — housing, food, utilities, medical care — you can ask for release under IRC 6343(a)(1)(D).⁴ Expect to document your income, expenses, and assets, typically on Form 433-A. If the IRS agrees that enforced collection is unsustainable, it can release the levy and move the account to Currently Not Collectible status, which pauses collection until your situation changes.⁷

Appeal

If you missed the original 30-day window to request a Collection Due Process hearing after the Final Notice of Intent to Levy, that door is largely closed. You can still ask for review through the Collection Appeals Program, which is faster but less formal and carries no right to petition the Tax Court afterward.⁸

Where to Get Help

If normal IRS channels are not producing a response and the levy is causing serious financial harm, the Taxpayer Advocate Service is an independent organization within the IRS that can intervene. TAS handles cases involving financial difficulty, unresponsive IRS processes, or procedures that appear to be failing.⁹ The service is free, and the number is 1-877-777-4778. For a holder facing a 668-C deadline or a taxpayer whose wages have already started disappearing, calling TAS is often the most practical next move.

1
Internal Revenue Service. Internal Revenue Manual 5.11.2 – Serving Levies, Releasing Levies and Returning Property
2
Office of the Law Revision Counsel. 26 USC 6332 – Surrender of Property Subject to Levy
3
Internal Revenue Service. What if I Get a Levy Against One of My Employees, Vendors, Customers or Other Third Parties
4
Office of the Law Revision Counsel. 26 USC 6343 – Authority to Release Levy and Return Property
5
Internal Revenue Service. IRS Payment Plan Options
6
Internal Revenue Service. Topic No. 204, Offers in Compromise
7
Internal Revenue Service. Internal Revenue Manual 5.16.1 – Currently Not Collectible
8
Internal Revenue Service. Collection Due Process (CDP) FAQs
9
Taxpayer Advocate Service. Levies