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IRS Issues a Bank Levy After First Issuing Notices CP504 and Letter 1058-Final Intent to Levy Notice

What is a Bank Account Levy?

An IRS levy is the actual action taken by the IRS to collect taxes.  For example, the IRS can issue a bank levy to obtain your cash in checking and savings accounts.

Code Sec. 6331 provides the authority to the Secretary of the Treasury to collect delinquent taxes by levy.  This authority has in turn been delegated to Revenue Officers and the Automated Collection Systems (ACS) of the IRS.    

When the IRS levies a bank account, the levy attaches only to the amount of funds available on the day the notice is received by the bank.  The bank is required to capture funds up to the amount listed on the Notice of Levy. The bank must hold onto the funds for 21 days before mailing your money to the IRS.  

Example

You receive a Notice of Levy in the mail from the IRS dated August 28. Your bank receives the notice on August 30.  The Notice of Levy lists the periods of 2006, 2007 and 2008 with $28,000 owed for back taxes.  Your bank account has a balance of $2,000 available on August 30.  The bank seizes this amount and will hold it for 21 days before mailing a check to the IRS.  On September 1 you are free to deposit money into this account that will be available for your use.  The IRS must issue a subsequent Notice of Levy to the bank before it can seize any more money from your account. 

When the IRS issues a 668-W or 668-A many employers and companies do not understand how to treat these notices.  Here are common questions and answers how to treat each notice:

Form 668-W

This is a continuous notice of levy on Wages, Salary and Other Income. 

Question-  I understand that Wages and Salary pertain only to employees, not independent contractors but can you define what "Other Income" is? 

The most common type of "other income" is bonuses and commissions.  Many people in the real estate industry for example are independent contractors and receive "commissions" after they close a sale.  Many owners think that this is the other income that the IRS is referring to because they use the word "commission".   However, this is not the case.

Commission refers only to employees, ie. people who receive a W-2 at the end of the year, not a 1099-MISC. 

Therefore if the company you contract with receives notice 668-W it is not continuous! Only funds that are due at the time the levy notice is received should be sent to the IRS (and really for this the IRS should send Notice 668-A).

A 668-A is a one time levy that should never be treated as continuous in any circumstance.  Only the funds that are due at the time the levy is received apply to the levy.  If the contractor makes money after the initial notice the IRS would need to send another Notice 668-A.

From the Internal Revenue Manual:

5.11.5.3  (09-14-2010)
Continuous Effect of Levy on Salary and Wages

  1. Unlike other levies, a levy on a taxpayer's wages and salary has a continuous effect. It attaches to future payments, until the levy is released. Wages and salary include fees, bonuses, commissions, and similar items. All other levies only attach to property and rights to property that exist when the levy is served.

Example:

If a bank account is levied, it only reaches money in the account when the levy is served. It does not reach money deposited later.

  1. When other income is levied, the levy reaches payment the taxpayer has a fixed and determinable right to. If the taxpayer's right to that payment is not dependent upon the performance of future services, then the levy will reach the future payments as well. Also see IRM 5.11.6.1, Retirement Income.

Example:

A Form 668-W is issued to levy an author's royalties. The author has a fixed and determinable right to royalties for books that have already been published. The levy reaches royalties for sales of those books in the future. The levy does not reach royalties for books that are written and published later. A new levy must be served to take those royalties

Once these notices are sent it is a good idea to hire professional representation to help you level the playing field with the IRS and to finally resolve your back tax issues entirely.  Contact me at 720.340.4065 or email me and we can get started!

How to Protect Yourself from Being a Victim of IRS Bank Levies

The most common plans the IRS accepts are listed below. 

In some cases it may be helpful to utilize the Office of Appeals and/or the National Taxpayer Advocate Service.  For information on these programs please click on the links below.

  • Collection Appeal
  • Taxpayer Assistance Order

Samples of some of the recent IRS levy release notices:

 

 

 

 



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