When the IRS Levies Your Customers: Accounts Receivable Levies for Payroll Tax Debt

For an operating business with unpaid payroll taxes, the most valuable asset is usually not equipment or real estate. It is the money customers owe. Revenue Officers know it. Accounts receivable are a natural levy target, and a levy served on your customers does more than collect money. It tells them your business owes the IRS.

Understanding the rules will not make an A/R levy pleasant. It will help you prevent one, limit one, and respond to one.

The Levy Power

IRC 6331(a) says that if any person liable to pay any tax neglects or refuses to pay within 10 days after notice and demand, the IRS may collect it by levy upon all property and rights to property belonging to that person, except exempt property, or on which there is a tax lien.

A receivable is a right to property. The customer is "obligated with respect to" it. So the IRS serves a notice of levy on the customer.

What a Receivables Levy Reaches

Section 6331(b) contains the key limit: except as provided for wages and salary in subsection (e), a levy extends only to property possessed and obligations existing at the time of the levy.

So a levy served on a customer reaches what that customer owes you at that moment. It does not automatically capture invoices you send next month. That is different from a wage levy, which section 6331(e) makes continuous until released.

The IRS's answer to that limit is section 6331(c), successive seizures: if property levied is not enough, the IRS may levy again, as often as necessary, on other property, until the amount due is paid. In practice, that can mean repeat levies on the same customers.

There is one major exception for businesses that sell to the federal government. Section 6331(h) allows a continuous levy, if approved, on specified federal payments. For payments due to a vendor of property, goods or services sold or leased to the federal government, the continuous levy can attach to up to 100 percent of the payment.

What Your Customer Must Do

Section 6332(a) requires any person in possession of, or obligated with respect to, property subject to a levy to surrender it, or discharge the obligation, on the IRS's demand.

The statute gives the customer strong reasons to comply:

• Personal liability. Under section 6332(d)(1), a person who fails or refuses to surrender is personally liable for the value of the property not surrendered, up to the tax being collected, plus costs and interest.
• A penalty. Under section 6332(d)(2), if the failure is without reasonable cause, there is an additional penalty of 50 percent of the amount recoverable.
• Protection when they pay. Under section 6332(e), a person who honors the levy is discharged from any obligation to you with respect to the amount surrendered.

That last point is why customers almost always pay the IRS. They are protected if they do and exposed if they do not. Arguing with your customer will not help. The conversation has to be with the IRS.

Bank accounts work a little differently. Section 6332(c) says a bank surrenders deposits only after 21 days after service of the levy.

Notice Before Levy, and the Exception for Repeat Payroll Tax Debtors

Normally, the IRS must give notice before levying. Section 6331(d) requires written notice of intent to levy at least 30 days before the levy. Section 6330(a) requires notice of the right to a Collection Due Process hearing at least 30 days before the first levy for a tax period.

But Congress created an exception aimed squarely at payroll tax. Section 6330(f)(3) says the pre-levy hearing requirement does not apply when the IRS serves a "disqualified employment tax levy." The taxpayer instead gets a hearing within a reasonable time after the levy.

Section 6330(h)(1) defines a disqualified employment tax levy as any levy in connection with the collection of employment taxes for any taxable period if the person subject to the levy, or a predecessor, requested a CDP hearing for unpaid employment taxes arising in the most recent two-year period before the beginning of the taxable period for which the levy is served. "Employment taxes" for this purpose means taxes under chapters 21, 22, 23 or 24, which includes FICA, FUTA and income tax withholding.

In plain terms: if your business used the CDP process for payroll taxes and then ran up new payroll tax debt within two years, the IRS can levy first and hear you later. IRM 5.7.8.5 tells Revenue Officers this kind of levy may be appropriate when a taxpayer previously requested a CDP hearing for employment taxes and pyramided additional liabilities. Our guide on pyramiding payroll taxes explains how the IRS views repeat debt.

What Stops a Levy

Several statutory rules restrict levies:

• Pending installment agreement. Section 6331(k)(2) bars levy while a proposed installment agreement is pending, for 30 days after a rejection and during a timely appeal, while an agreement is in effect, and for 30 days after termination and during a timely appeal.
• Pending offer. Section 6331(k)(1) bars levy while an offer in compromise is pending, for 30 days after rejection and during a timely appeal.
• Timely CDP hearing. Section 6330(e) suspends levy actions that are the subject of a timely requested hearing, outside the disqualified employment tax levy situation.
• Uneconomical levies. Section 6331(f) bars a levy if the estimated expenses of levy and sale exceed the property's fair market value.

Be careful about how an installment request interacts with a levy already in place. IRM 5.14.5.4, revised in July 2026, says a Simple Payment Plan (Business Trust Fund) is not to be granted when the payment plan request is made in conjunction with a request for levy release. In that situation the IRS completes a full financial analysis and any required TFRP determinations. The streamlined path is for businesses that come in before the levy.

How Revenue Officers Find Your Receivables

The IRS learns about your customers largely from you and your records. IRM 5.14.5.4 specifically requires Revenue Officers granting a Simple Payment Plan (Business Trust Fund) to document banking and accounts receivable information in the case file. Bank records, which Revenue Officers routinely review in payroll tax cases, show who pays you.

Be truthful on every financial statement. But understand that disclosure creates a levy map. That is one more reason to resolve the account, or get a qualifying agreement in place, before collection escalates.

Responding to an A/R Levy

1. Get current immediately. The IRS will not release levies for a business still missing deposits. IRM 5.7.8.5 tells Revenue Officers pyramiding must be stopped immediately.
2. Call the Revenue Officer. Bring a proposal backed by numbers: payment plan terms, a designated payment, or both.
3. Talk to your customers carefully. They must follow the levy. Ask them to send the IRS only what was owed on the levy date, as section 6331(b) limits it, and to keep paying you for later invoices unless they receive a new levy.
4. Check hearing rights. If this is a disqualified employment tax levy, you have a post-levy hearing right. Use it.
5. Designate any voluntary payments. Levy proceeds are involuntary and follow the IRS's application rules. Voluntary payments can be designated to the trust fund portion. See our designation guide.

For more about the firm's work with businesses facing payroll tax enforcement, see the main site's payroll tax page.

Your customers will pay whoever has the levy. Make sure the IRS does not need one. If it already has one, call (813) 229-7100. Let's talk.