IRS Levied My Client Trust Account – What Attorneys and Fiduciaries Need to Know
If the IRS Hits a Client Trust Account, You Must Respond Immediately
If you’re an attorney, fiduciary, trustee, or legal professional responsible for a client trust account, and the IRS just issued a levy—this is more than an administrative issue. It’s a professional risk.
The IRS has the legal power to issue levies under IRC §6331, but when the target is an IOLTA or other fiduciary-controlled account, improper enforcement can result in violations of state bar rules, fiduciary duties, or trust obligations.
This post explains what to do when the IRS levies a client trust account, how to protect both your client and your professional license, and how to work with the IRS without violating ethical responsibilities.
Can the IRS Levy a Client Trust Account?
Yes—but only under specific conditions.
The IRS may attempt to levy a trust account if:
- The taxpayer has a present, enforceable right to the trust property
- The trust is nondiscretionary, and distributions are mandatory
- The funds are not clearly designated as belonging to third parties
- There is evidence of commingling or improper account titling
- Discretionary trusts or IOLTA accounts with clear fiduciary control may offer protection from levy, depending on IRS findings and applicable state law.
Related: IRS Levy vs IRS Lien – What’s the Difference?
Why This Is So Serious for Attorneys and Fiduciaries
If client funds are levied, you risk:
- Violating your fiduciary duty
- Breaking state bar trust accounting rules
- Creating civil liability to clients
- Facing possible malpractice claims or ethics investigations
This is especially dangerous for:
- Law firms holding settlement funds
- Conservators and trustees
- Real estate attorneys holding escrow
- CPAs or EAs managing third-party funds
Step 1: Confirm the Nature of the Levy
Was the levy issued:
- Against you personally?
- Against your client’s tax ID?
- Against the entity managing the trust?
If the IRS mistakenly issued the levy to the wrong party, you may be able to have it reversed or released quickly.
Related: IRS Garnished My Wages Without Notice – Is That Legal?
Step 2: Notify the IRS of Fiduciary Ownership
Respond to the IRS levy notice with a written explanation that:
- The funds belong to a third party
- You are not the taxpayer subject to collection
- The account is a designated trust account (e.g., IOLTA)
Attach documentation such as:
- Bank account title
- Trust account ledgers
- Client transaction records
Step 3: File a Wrongful Levy Claim (If Needed)
If funds were already seized, file a wrongful levy claim under IRC §6343:
- Submit a letter to the IRS Advisory Office
- Include proof of fiduciary ownership
- Request prompt return of funds to preserve trust integrity
Related: IRS Seized My Bank Account – Can I Get the Money Back?
Step 4: Consider Taxpayer Advocate Involvement
If the IRS refuses to reverse the levy or delays resolution, file Form 911 – Request for Taxpayer Advocate Service Assistance.
They can escalate the case to prevent trust account misuse or damage to your fiduciary relationships.
How to Prevent IRS Levies on Client Funds
- Never commingle personal and client funds
- Use properly titled trust accounts (IOLTA, retainer, escrow)
- Avoid naming yourself as co-owner unless required by law
- Respond to IRS notices immediately to prevent levy escalation
- Maintain clear, current client ledgers
We Help Orange County Professionals Respond to IRS Trust Account Levies
At Boulanger CPA and Consulting PC, we:
- Respond to IRS levies on IOLTA and client trust accounts
- File wrongful levy claims under IRC §6343
- Help attorneys and fiduciaries comply with ethical obligations
- Resolve underlying IRS debt for you or your clients
📞 Call (657) 218-5700 or request help at www.orangecounty.cpa
FAQ: IRS Client Trust Account Levies
Can the IRS take money from a client trust account?
Only if the account belongs to the taxpayer and the funds are not clearly identified as third-party property.
Can I be held personally liable?
Yes—if you fail to respond or release funds improperly, you may be liable to both the IRS and your client.
What if the IRS already took the money?
You can file a wrongful levy claim and request a refund, especially if the funds were trust assets.
Can I just pay the IRS and settle the matter?
Not with client funds. You must not use third-party assets to resolve your own or another party’s IRS debt.
📣 About the Author
Marc Boulanger, CPA is the founder of Boulanger CPA and Consulting PC, a boutique tax resolution firm based in Orange County, California and trusted by high-income individuals and business owners across Southern California.
He is the author of Defend What’s Yours: A California Taxpayer’s Guide to Beating the IRS and FTB at Their Own Game, available now on Amazon. The book offers a step-by-step plan for resolving IRS and FTB tax debt without losing your business, your home, or your peace of mind.
With over a decade of experience resolving high-stakes IRS and State tax matters, Marc brings strategic insight to complex cases involving wage garnishments, bank levies, unfiled returns, and six-figure tax debts. He is known for helping clients reduce or eliminate tax liabilities through expertly negotiated settlements and compliance plans.
Marc is a Certified Public Accountant licensed in California and Oklahoma and holds the designation of Certified Tax Representation Consultant. He is a member of the American Society of Tax Problem Solvers (ASTPS) — the national organization founded by the educators and practitioners who have trained thousands of CPAs, EAs, and tax attorneys in IRS representation strategy.
Every case is handled with discretion, proven methodology, and direct CPA-led representation — not call center scripts.
📍 Learn more at www.orangecounty.cpa or call (657) 218-5700.
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