Many small business owners, freelancers, and independent contractors are surprised to learn that the IRS can levy the payments they receive from clients or vendors. This type of enforcement, known as an accounts receivable levy, is one of the most disruptive actions the IRS can take because it cuts off your income at the source. When the IRS sends a levy notice to a client who owes you money, that client must legally redirect those payments to the IRS instead of paying you. This can happen to anyone with unpaid tax debt, and the impact can be immediate and significant.
What is an IRS Accounts Receivable Levy?
When the IRS issues an accounts receivable levy, it acts much like a wage levy but targets business income instead of a paycheck. The IRS identifies companies or individuals who owe you money and sends them a formal notice requiring them to forward the funds directly to the IRS. This levy continues until it is released, your tax debt is paid, or you enter into a formal agreement.
The most troubling part for many taxpayers is that they often find out about the levy only after a confused client contacts them about the notice.
How an Accounts Receivable Levy Affects Your Business Income
If you receive notice of this type of levy, the most important thing is to act quickly. The IRS typically issues an accounts receivable levy after multiple notices have gone unanswered. Once enforcement starts, clients may feel nervous working with you because they are now part of the collection process. This can damage professional relationships and disrupt future business opportunities.
How to Stop an Accounts Receivable Levy
Fortunately, you may stop the levy by entering into an installment agreement, submitting financial information to request Currently Not Collectible status, or filing an appeal. A Collection Due Process hearing is another option if the IRS recently issued a Final Notice of Intent to Levy. Filing a timely appeal stops enforcement while the IRS reviews your case. This gives you time to propose alternatives such as a reasonable payment plan or Offer in Compromise.
Business owners facing cash flow shortages may also request a levy modification if the levy prevents them from covering essential operating expenses.
Can the IRS Release a Levy Due to Financial Hardship?
If the levy is causing severe financial hardship, the IRS may release it temporarily while evaluating your financial situation. You may need to provide documentation showing that your business cannot survive under the current levy. The IRS often prefers voluntary compliance over aggressive collection, so demonstrating your willingness to resolve the issue can help speed up the release process.
Final Thoughts
An accounts receivable levy is one of the most powerful enforcement tools the IRS uses. It can disrupt your business instantly and cause long-term damage if not addressed quickly. Understanding your rights and knowing how to respond can help you protect your income and stabilize your financial situation. If the IRS is threatening or has issued this type of levy, you can reach out to us at the Law Office of Steven N. Klitzner so we can help you negotiate a resolution and prevent future enforcement.
Steven N. Klitzner, P.A. is a tax attorney based in Miami, Florida. He has been practicing tax law for over 40 years, and currently holds a 10.0 rating by Avvo. Mr. Klitzner was appointed to the IRS Service Advisory Council in 2021 and is... 
