IRS Levied a Customer of Mine – What Business Owners Need to Know

When the IRS Comes After Your Customer, You Get Caught in the Middle

As a business owner, you may be surprised—and confused—when you receive an IRS levy notice addressed to one of your customers, vendors, or subcontractors.

The letter typically instructs you to redirect payment for that person’s or entity’s services directly to the IRS. And if you ignore it, you could be held personally liable.

In this post, we explain what this type of levy is, why you're being contacted, and what steps you should take to protect your business and stay compliant.

Why Did the IRS Contact You?

If the IRS levied a customer, vendor, or contractor of yours, they likely believe:

• The person or business owes back taxes
• You are making payments to that taxpayer
• You may be in possession of funds or receivables owed to them

This is common in industries like:

• Construction (subcontractor payments)
• Freelance or gig work (1099 contractors)
• Real estate commissions
• Vendor relationships involving long-term contracts

What Kind of Levy Is This?

This is an accounts receivable levy. The IRS is using its power under IRC §6331 to seize any payments you owe to the delinquent taxpayer.

You likely received:

• Form 668–A(c)(DO) – Levy on wages, salary, commissions, or other income
• Or a custom levy letter instructing you to remit funds directly to the IRS

Related: IRS Levy vs IRS Lien – What’s the Difference?

What Are You Required to Do?

You must comply with the levy—failure to do so can result in you being liable for the full amount of the taxpayer’s debt (plus penalties).

Steps:

1. Do not pay the levied customer, vendor, or contractor
2. Freeze pending payments to them
3. Send payments to the IRS as directed in the notice
4. Complete and return any required forms (usually within 10 days)

What If You Already Paid Them?

If you made payment after receiving the levy, you may be liable.

If you paid before the levy was issued or received, document that thoroughly with:

• Payment records
• Invoices and cleared checks
• Proof of delivery or service dates

This can help defend against a wrongful liability assessment.

What If You Don’t Think the Levy Is Valid?

You’re not required to challenge the validity yourself—but if you believe:

• You don’t actually owe the levied party any money
• The IRS is mistaken about your role
• The relationship ended long ago

…you can respond in writing, provide documentation, and request clarification. It’s smart to consult a CPA or tax attorney before taking further action.

Related: IRS Garnished My Wages Without Notice – Is That Legal?

Can This Happen Again?

Yes. Once the IRS identifies your business as a payment source, you may receive multiple levy notices in the future if the taxpayer’s debt remains unresolved.

Your only defense is clear documentation, timely response, and ongoing communication with the IRS.

We Help Orange County Businesses Handle IRS Levy Notices Properly

At Boulanger CPA and Consulting PC, we:

• Respond to IRS third-party levy notices on your behalf
• Communicate with IRS revenue officers and collection teams
• Protect your business from improper liability
• Resolve confusion over customer/vendor relationships

Call (657) 218-5700 or request IRS levy defense at www.orangecounty.cpa

FAQ: When the IRS Levies a Customer or Vendor

Q: Why did I receive a levy notice for someone else’s tax debt?
A: Because the IRS believes you owe money to that person or entity (usually through business payments or commissions).

Q: Do I have to comply?
A: Yes. Ignoring the levy could make you personally liable for the amount the IRS intended to seize.

Q: What if I no longer do business with that person?
A: You must document and inform the IRS promptly—in writing—with proof.

Q: Can I be reimbursed for time or losses if the levy was incorrect?
A: Possibly, but generally not unless the IRS made a legal error or you suffered documentable harm.

📣 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.