Depositaries requested to adhere to levy compliance rules
The IRS is asking depositaries (banks, credit unions, savings and
loans, and similar institutions) to review and understand the
responsibilities associated with processing levies.
Method of Delivery
Federal
Tax Regulation 301.6331-1(c) authorizes the IRS to provide
depositaries notices of levy by mail. However, the regulation does
not preclude in-person delivery of a levy to a local branch or
office by a revenue officer. Additionally, depositaries may not
designate a specific branch or location for service of
hand-delivered levies.
No matter how a levy is received, by mail or hand delivered,
depositaries are expected to adhere to IRS guidelines by immediately
processing the levy and freezing all affected accounts for the
21-day period required by Internal
Revenue Code Section 6332(c). A mailed levy becomes effective
the date and time the notice of levy is delivered to the depository.
A hand-delivered levy becomes effective the date and time the notice
of levy is hand delivered in person by a revenue officer.
Requests for Account Balance
When the IRS has served or is about to serve a levy, the IRS may
make immediate demand for information about the balance in accounts
maintained by the taxpayer. The 21 day waiting period does not apply
to such requests, and the information should be provided to the duly
authorized and credentialed IRS employee as soon as possible. (IRC
Section 6333)
The IRS has observed that some depositaries have refused to
provide information at the time of levy issuance due to the Right
to Financial Privacy Act, which governs an individual’s rights
to financial privacy. Exceptions to financial privacy are provided
in Section
3402 of the RFPA, including instances in which governmental
access to financial records is allowed. These exceptions include Section
3413. Section
3413(c) provides for the disclosure of financial records
pursuant to US Code, Title 26; the Internal Revenue Code. Therefore,
the RFPA provides an exception for IRC
Section 6333, which requires the production of books and records
(account information) related to the property subject to levy upon
request by the IRS.
Research
The IRS is aware of situations when easily identifiable accounts
have been overlooked. The instructions on Form 668-A, Notice of
Levy, require the recipient to:
Make a reasonable effort to identify all property and
rights to property belonging to this person. At a minimum, search
your records using the taxpayer’s name, address, and identifying
number(s) shown on this form.
The instructions do not require a perfect match of all
information. In some cases, it may be reasonable to identify an
account based on a single matching identifier. In other cases, it
may be appropriate to corroborate one matching identifier by
matching one or more additional identifiers. In the following
examples, it would be reasonable for the depositary to call the
contact number on the levy for guidance.
Examples:
1. A levy is served against:
Ziegfried A. Baderhoffer (fictitious name)
d/b/a Courtesy Motors
123 First St., Anywhere, US 11111
EIN: 10-1234567
The depositary has an account under:
Ziegfried A. Baderhoffer
d/b/a Ziggy’s Pizza
456 B Ave., Anywhere, US 11111
EIN: 11-4567890
Reasonable Determination: The unusual name alone
is sufficient for a match. If there is a question such as whether
the name is a “junior” or a “senior” or whether the lack of
any middle initial makes a difference, the depositary should call
the contact number on the levy for guidance.
2. A levy is served against:
B & Z Enterprises, Inc. (fictitious name)
123 First St., Anywhere, US 11111
EIN: 10-1234567
The depositary has an account under:
B & Z Enterprises, Inc.
123 First St., Anywhere, US 11111
EIN: 11-3456789
Reasonable Determination: The different EIN
numbers do not invalidate a positive identification where the name
is uncommon and the address is the same. If the depositary still
needs additional guidance, a call should be made to the contact
number on the levy.
3. A levy is served against:
X & Z Enterprises (fictitious name)
123 First St., Anywhere, US 11111
EIN: 10-1234567
The depositary has an account under:
X & Z Enterprises, Inc. (fictitious name)
123 First St., Anywhere, US 11111
EIN: 10-1234567
Reasonable Determination: The presence of
“Inc.” on the account should not invalidate a match without a
telephone call to the contact number on the levy for clarification.
4. A levy is served against:
Solarium Magic Cleaners (fictitious name)
123 First St., Anywhere, US 11111
EIN: 10-1234567
The depositary has an account under:
John Doe
Solarium Magic Cleaners
P.O. Box 456, Anywhere, US 11112
EIN: 10-1234567
Reasonable Determination: In light of the
identical names of the business, it would be reasonable to call the
contact number on the levy for clarification.
Processing Fees
All of the funds in a taxpayers’ account up to the amount of
the levy should be turned over to the IRS. The levy instructions
state, “You may not subtract a processing fee from the amount you
send us.”
Any fees due to the depositary must be paid from funds remaining,
if any, after the levy has been satisfied.
Personal Liability
In cases where the IRS learns an account has been overlooked or
information misreported in response to a levy, the IRS may serve a
summons for information to determine the balance of the account at
the time of the levy. The IRS can demand payment of that amount from
the depositary regardless of the current availability of funds in
the account.
The IRS may file a suit for failure to honor the levy if the IRS
does not receive payment. The IRS may impose a 50 percent penalty on
the depository if that failure is unreasonable. There is no statute
of limitations for bringing a levy enforcement suit against a third
party depositary. (IRC
Section 6332(d))
Summary
The IRS wants to ensure the levies attach to the funds due and
owing by the taxpayer named on the levy and appreciates that
depositaries must carefully balance competing interests and legal
duties when processing levies. However, if the depository makes an
error, the aggrieved depositor has recourse against the IRS. In
these rare cases, the IRS provides the complying depositaries with
explicit indemnification from liability.
Any depositary in doubt about any aspect of processing a levy is
encouraged to call the contact number on the levy for clarification.
References/Related Topics
Page Last Reviewed or Updated: 08-Jan-2013
