Letter 3974, Wrongful Levy Claim Rejection Letter, means the IRS reviewed your claim that it levied property belonging to you rather than to the taxpayer who owes the tax, and decided against you. This comes up with joint bank accounts, business accounts, property titled in more than one name, and funds held for someone else.
Appeal Through CAP
IRM 5.11.2 provides that disallowance of a wrongful levy claim may be appealed through the Collection Appeals Program. A CAP appeal is quick and gets an Appeals officer to look at the ownership facts. CAP decisions cannot be taken to court, but CAP is often enough when the ownership evidence is clear.
Sue in District Court
The judicial remedy is a wrongful levy action in federal district court under IRC Section 7426. The deadline under IRC Section 6532(c) is generally two years from the date of the levy. When a timely administrative claim was filed, the deadline is extended to the earlier of 12 months from the date you filed the claim or 6 months from the date of the disallowance. Calendar that date now.
Proving Ownership
These cases turn on who actually owned the money or property. Deposit records, source-of-funds documentation, title documents, and account agreements matter more than anything else.
If you received Letter 3974, call us at (813) 229-7100.