IRS Levy on Accounts Receivable: Form 668-A, Appeals, and Release

An IRS levy on accounts receivable is a legal seizure that forces your customers to send the money they owe you directly to the IRS instead of to your business.¹ Unlike a tax lien, which only puts other creditors on notice of the government’s claim, a levy actually takes the funds. The immediate cash loss can make it impossible to cover payroll or pay vendors, which is why the IRS treats receivables levies as a late-stage collection tool rather than an opening move — and why understanding your options in the first 30 days after a notice arrives matters so much.

What the Levy Actually Captures

A receivables levy is a snapshot, not a running net. It attaches only to obligations that are “fixed and determinable” at the moment your customer receives the notice.² If a customer owes you $15,000 for work you’ve already completed, that entire amount goes to the IRS. But a contract signed the next day, or an invoice for work you haven’t performed yet, falls outside that particular notice.

That distinction separates a receivables levy from a wage levy. A wage levy is continuous, grabbing part of every paycheck until it’s released.³ A receivables levy does not automatically reach future invoices. In practice, though, revenue officers often serve fresh Forms 668-A on the same customer week after week as new obligations mature, so the effect can approximate a continuous levy even though the legal mechanism is one-shot.

The “fixed and determinable” standard reaches further than many owners expect. If you’ve completed the work and the customer owes the money, the obligation is fixed even if payment isn’t due for 60 or 90 days. The IRS doesn’t have to wait for the invoice to mature; it just has to show the right to payment existed when the notice was served.²

Factored or Assigned Receivables

If you sell invoices to a factoring company, whether those receivables are still reachable depends on the type of arrangement. In a true sale, where the factor takes the risk of non-payment and you no longer control collection, you’ve parted with the property and the IRS has nothing to levy. In a recourse arrangement, where the factor can come back to you if a customer defaults and you still run the collection process, the IRS can treat the deal as a loan and levy the underlying receivable.⁴

What Your Customers Must Do When They Get Form 668-A

The IRS serves the actual levy on your customer, not on you, using Form 668-A.⁵ Many business owners first learn about a levy when a confused customer calls to ask why the government wants their payment.⁶

Once the notice is served, the customer has no legal room to ignore it, no matter what your contract says. Unlike a bank levy, which forces the bank to hold funds for 21 days before turning them over, a receivables levy has no waiting period.⁷ The customer must pay the IRS as soon as the debt to you comes due, using the remittance instructions on the form.

The penalties for ignoring a levy push customers toward immediate compliance. A customer who refuses becomes personally liable for the lesser of the amount they should have turned over or the total tax debt, plus interest running from the levy date. If there’s no reasonable excuse for the refusal, the IRS can add a penalty equal to 50 percent of the recoverable amount.⁸ With that kind of exposure, most customers pay the IRS the same day. Some will also quietly reconsider whether they want to keep doing business with you, which is a collateral cost beyond the seized cash.

The 30-Day Window Before a Levy

The IRS cannot serve a receivables levy without first sending a Final Notice of Intent to Levy at least 30 days in advance. That notice must inform you of your right to a Collection Due Process (CDP) hearing.⁹ Requesting a CDP hearing in writing within those 30 days generally stops the IRS from levying while the hearing is pending. Miss the deadline and you lose the right to a CDP hearing for that tax period, along with any ability to challenge the levy in Tax Court.¹⁰

Mark the deadline on your calendar the day the Final Notice arrives. This is the single most important date in the whole process.

How To Get the Levy Released

Under Section 6343, the IRS is required to release a levy when any of the following applies. These aren’t matters for negotiation; if you meet a criterion, release is mandatory.

The tax debt, with interest and penalties, is paid in full.
The 10-year collection period has expired. The IRS generally has 10 years from the assessment date to collect; once that closes, any levy must be released.¹¹
The levy is causing economic hardship by preventing the taxpayer from meeting basic necessary living expenses.¹²
You’ve entered into an installment agreement and the levy interferes with the agreed terms.
Releasing the levy will actually make it easier for the IRS to collect the full amount — for instance, by letting the business keep operating.

Economic hardship is the ground most business owners ask about, and it’s the trickiest. The IRS defines hardship in terms of an individual’s ability to pay “reasonable necessary living expenses,” and internal guidance doesn’t lay out separate criteria for an operating business entity.⁵ For a sole proprietor, that means showing the levy leaves you unable to cover housing, food, and transportation. For a corporation or LLC, the argument usually shifts to facilitation of collection: a living business can pay down its tax debt over time; a dead one cannot.

Currently Not Collectible Status

A business that can stay current on new tax obligations but genuinely cannot pay the back taxes may qualify for Currently Not Collectible (CNC) status. The IRS uses CNC when a business has no receivables or other assets worth pursuing. It doesn’t erase the debt, but it stops active collection, including levies, while the 10-year collection clock keeps running. To qualify, the business has to provide detailed financials showing no equity in assets and no distrainable income beyond what current operations require.¹³

Choosing Your Appeal: CDP or CAP

There are two appeal paths, and choosing carelessly can permanently limit your options.

Collection Due Process Hearing

A CDP hearing is a statutory right you get once per tax period for a levy. You must request it in writing within 30 days of the Final Notice of Intent to Levy.⁹ At the hearing you can challenge the underlying tax liability (if you haven’t had a prior opportunity to do so), propose alternatives like an installment agreement or offer in compromise, or argue that the IRS didn’t follow proper procedures. If you disagree with the outcome, you can petition the Tax Court. That judicial review is the CDP hearing’s most valuable feature.

The downside is speed. CDP hearings historically average around 196 days to resolve.¹⁴ The IRS generally cannot levy during that time, which can be a strategic benefit if you need breathing room to restructure finances.

Collection Appeals Program

The Collection Appeals Program (CAP) is faster. The IRS targets resolution within five business days, though actual cycle times average closer to 13 days. You trigger it by requesting a managerial conference, then filing Form 9423 within three business days of that conference.¹⁵ CAP is available both before and after a levy is served, and it covers situations CDP doesn’t, like the rejection or termination of an installment agreement.

The trade-offs are significant. CAP provides no judicial review, and you cannot challenge the underlying tax liability or propose an offer in compromise. It’s purely a procedural check on whether the IRS followed its own rules. More importantly, if a CAP hearing resolves an issue before you file a CDP appeal, that same issue may be blocked from consideration in the CDP hearing.¹⁴ Using CAP first can quietly weaken a later CDP case, so talk to a professional before choosing your path.

Wrongful Levy Claims

Sometimes a levy sweeps up money that isn’t the taxpayer’s — a third party’s own funds, or property already transferred. When that happens, the IRS has authority to return the specific property or refund the amount seized. A claim for return of money must be made within two years from the date of the levy.¹² That clock runs whether or not anyone realizes the levy was wrongful, so third parties who suspect an error should move quickly.

When To Bring In the Taxpayer Advocate Service

When normal channels aren’t working — you can’t reach the revenue officer, harm is imminent, or the bureaucracy is grinding you down — the Taxpayer Advocate Service (TAS) can sometimes intervene. TAS is an independent organization within the IRS with authority to issue Taxpayer Assistance Orders that can temporarily halt collection actions. To request help, file Form 911. You’ll generally need to show you’ve already tried resolving the problem through regular IRS channels and that the levy is causing financial hardship or that an IRS system failure is blocking resolution.¹⁶ TAS isn’t a substitute for the formal appeals above, but it can be a lifeline when those processes move too slowly for the damage being done.

Practical Steps To Protect Your Business

The worst time to learn this process is after your biggest customer calls. A few habits limit the damage or prevent it entirely.

Respond to every IRS notice promptly. The collection sequence has multiple off-ramps, each with its own window for negotiation. Most businesses that face a receivables levy ignored earlier correspondence.
File all returns, even if you can’t pay. The IRS treats non-filers far more aggressively than filers who owe, and filing keeps installment agreements and offers in compromise on the table.
Track the 30-day CDP deadline the moment the Final Notice arrives. Missing it forfeits your right to a hearing and to judicial review for that tax period.
Don’t use CAP before talking to a professional. The issue-preclusion risk can permanently narrow your options in a later CDP hearing.
Communicate with your customers. If a levy is served, they’ll have questions, and proactive contact preserves relationships better than silence.
Budget for professional help. Tax attorneys and enrolled agents who handle IRS collection matters typically charge between $200 and $800 per hour. A skilled representative can often get levies released faster than a business owner working alone, and the fee is usually a fraction of what a poorly handled levy will cost in lost receivables and damaged customer relationships.

1
Internal Revenue Service. What’s the Difference Between a Levy and a Lien?
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Internal Revenue Service. IRM 5.17.3 – Levy and Sale
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Office of the Law Revision Counsel. 26 USC 6331 – Levy and Distraint
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Internal Revenue Service. Factoring of Receivables Audit Technique Guide
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Internal Revenue Service. Internal Revenue Manual 5.11.2 – Serving Levies, Releasing Levies and Returning Property
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Internal Revenue Service. What if I Get a Levy Against One of My Employees, Vendors, Customers, or Other Third Parties
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Internal Revenue Service. IRM 5.11.4 – Bank Levies
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Office of the Law Revision Counsel. 26 USC 6332 – Surrender of Property Subject to Levy
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Office of the Law Revision Counsel. 26 USC 6330 – Notice and Opportunity for Hearing Before Levy
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eCFR. 26 CFR 301.6330-1 – Notice and Opportunity for Hearing Prior to Levy
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Office of the Law Revision Counsel. 26 USC 6502 – Collection After Assessment
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Office of the Law Revision Counsel. 26 USC 6343 – Authority to Release Levy and Return Property
13
Internal Revenue Service. IRM 5.16.1 – Currently Not Collectible
14
Taxpayer Advocate Service. 2015 Annual Report to Congress – Collection Appeals Program (CAP)
15
Internal Revenue Service. Collection Appeal Request (Form 9423)
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Taxpayer Advocate Service. Submit a Request for Assistance