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 PDF, 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 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.