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.

Discretionary trusts or IOLTA accounts with clear fiduciary control may offer protection from levy, depending on IRS findings and applicable state law. For clients, understanding IRS levy vs lien differences is critical to knowing what actions the IRS may take and how to defend against them.

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. Attorneys often encounter situations like IRS bank account levy in California, where professional or fiduciary accounts are frozen without proper review.

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

Many professionals call us after saying, IRS seized my bank account, not realizing that trust funds can sometimes be recovered with the right filings.

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. For clients already under levy, we explain can you stop an IRS levy after it starts and what options remain available.

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

For taxpayers, sometimes using Currently Not Collectible status to stop levies is the best defense if cash flow cannot support repayment. In more serious cases, settling tax debt with an IRS Offer in Compromise can permanently resolve the liability.

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

For deeper strategies and professional safeguards, explore more in Defend What’s Yours or reach out today for personalized guidance.

📞 Call (657) 218-5700 or request help at www.orangecounty.cpa

📣 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.