5.11.4  Bank Levies

5.11.4.1  (07-26-2002)
Holding Period

  1. A bank must wait 21 calendar days after a levy is served before sending payment. Then, on the next business day, it must turn over the taxpayer's money. The depositor(s) can waive this waiting period. The bank will not send money that is subject to attachment or execution under judicial process. "Bank" includes credit unions, savings and loan associations, trust companies, and others described in IRC 408(n) and Treas. Reg. §301.6332–3(b).

  2. During the holding period, a levy might be released, or the amount owed could decrease.

    Note:

    If the bank receives no release, it must send the payment after the holding period. No additional notice is required.

  3. Consider the holding period when deciding how long to project the accruals on a bank levy.

5.11.4.2  (07-26-2002)
Bank Liaison

  1. The holding period was created to settle disputes about ownership of bank accounts before money is sent.

  2. Assign a bank liaison in each territory to settle these issues quickly.

  3. Sometimes ownership is not settled before the holding period ends. If this happens, ask the bank for more time.

5.11.4.2.1  (09-14-2010)
Multiple Signature Authority for a Bank Account

  1. A levy served to a bank attaches to funds in a bank account for which the taxpayer has an unrestricted right to withdraw funds (signature authority) - even if multiple persons have signature authority for that bank account. As noted in Treasury Regulation 301.6332–1(c)(4) the unrestricted right to withdraw funds is an interest which is subject to levy.

    Example:

    A bank is served with a notice of levy for an unpaid tax liability due from the taxpayer in the amount of $2,000. The bank holds $2,000 in a checking account in the names of a taxpayer and a third party. Although all of the deposits into the account were made by the third party, the taxpayer has an unrestricted right to withdraw the funds from the account. The bank may send the Service the entire account balance at the end of the 21 day holding period. The bank is not liable to the third party for any amount, even if the third party proves that the funds in the account did not belong to the taxpayer, because the taxpayer's unre stricted right to withdraw the funds is an interest which is subject to levy. The third party may, however, seek the return of the funds from the United States by making an administrative wrongful levy claim under IRC 6343(b) or file a suit under IRC 7426(a)(1) should the administrative claim be denied.

  2. A non-liable third party may claim ownership of funds in a bank account when multiple people hold signature authority for that bank account. Treat this dispute as a potential wrongful levy. A wrongful levy is a levy that improperly attaches property belonging to a third party in which the taxpayer has no rights. See IRM 5.11.2.2.2, Wrongful and Erroneous Levies, for the procedures to follow in these situations.

    Reminder:

    For bank levies if additional time is needed beyond the 21 day hold period to determine ownership, request the bank hold the funds. Provide the potentially wrongfully levied party a deadline date for providing substantiation and provide the bank with a specific extension date to forward the funds.

    Reminder:

    Provide the potentially wrongfully levied party Form 4528, Making an Administrative Wrongful Levy Claim Under Internal Revenue Code (IRC) Section 6343(b)

5.11.4.3  (09-14-2010)
Amount that Must be Surrendered

  1. The bank must send the amount in the taxpayer's accounts. A bank levy attaches to any property or rights to property that belong to the taxpayer or on which there is a Federal tax lien, unless it is exempt. See IRC 6331, Levy and Distraint , for legal authority to levy. However, it must send no more than the amount shown on the notice of levy.

    Note:

    By law, banks cannot immediately honor the IRS levy. See IRM 5.11.4.1, Holding Period, for guidance on the holding period after a bank levy.

  2. The notice of levy only reaches the amount on deposit when the levy is received. Money deposited later is not surrendered, including deposits during the holding period. Another levy must be served to reach this money. Also, the levy only reaches deposits that have cleared and are available for the taxpayer to withdraw.

  3. Levy proceeds must not be reduced by any fee charged by the bank for processing the levy. See 5.11.4.3.3 below.

5.11.4.3.1  (05-05-1998)
Interest on Levy Proceeds

  1. The bank must turn over the interest earned on the account(s) during the holding period using the same method for figuring the interest it normally would. Even so, the amount paid is no more than the amount shown on the levy.

    If And Then
    A bank levy for $10,000 is served. The taxpayer has $5,000 in the bank. The bank sends $5,000 plus interest earned during the holding period.
    A bank levy for $10,000 is served. The taxpayer has $25,000 in the bank. The bank sends $10,000. No interest is sent. Only $10,000 is frozen during the holding period.
    A bank levy for $10,000 is served. The taxpayer has $9,999 in the bank. The bank sends $10,000 if at least $1 of interest is earned on the account during the holding period.

  2. The date the bank normally credits interest to accounts does not matter. If interest is earned, it must be paid over as shown in (3).

  3. To compute the interest, the bank treats the Service as though:

    • The Service is the depositor.

    • The money is left on deposit during the holding period.

    • On the day the money is being sent, the depositor closes the account.

5.11.4.3.2  (09-14-2010)
Bank Methods Used to Avoid Paying Interest

  1. Before interest was paid on levies, some banks:

    • Moved the levied money from the depositor's account to another account while the depositor was notified, and

    • Paid the depositor no interest while the money was in this "holding" account.

  2. Some banks have rules that they will not pay interest to depositors during holding periods for levies.

  3. Both of these methods may result in a change to the terms of the account and not treating the Service as the depositor because of the levy. These are not grounds to avoid paying interest on levy proceeds.

5.11.4.3.3  (05-05-1998)
Fees for Processing Levies

  1. Many banks charge their customers a fee for processing levies. The bank is not entitled to reduce the levy proceeds to collect the fee.

    If And Then
    A levy is served for $1000. The taxpayer has $1500 in the bank. The bank must send $1000 and collect its fee from the other $500.
    A levy is served for $1000. The taxpayer has $800 in the bank. The bank must send $800 (plus interest).

  2. Letter 4030(CG), Letter to Bank to Remit Service Charge, is available for use when you learn that the levy proceeds have been reduced by a processing fee. The letter informs the financial institution that a charge against levy proceeds is contrary to the provisions of the Internal Revenue Code and failure to remit an amount equal to the service charge may result in the Service filing a suit for failure to honor a levy.

5.11.4.4  (07-26-2002)
Crediting Levy Payments

  1. Credit the levy payment on the date it is received.

  2. Credit the money in the most advantageous way to the government. Generally, apply the money to the oldest assessment first. The taxpayer can not designate how the money is applied because this is not a voluntary payment.

  3. Use designated payment code (DPC) 05 for levy payments. Use DPC 15 for other payments caused by a levy if they are not levy proceeds.

    Example:

    A bank levy is served. When the taxpayer receives a copy, she pays the amount owed. Use DPC 15.

5.11.4.5  (09-14-2010)
Income Deposited in a Bank Account

  1. Part of taxpayer's income is exempt from levy. See IRM 5.11.5.4Exempt Amount . Once income is deposited in a bank, there is no exempt amount. On the other hand, unlike a levy on wages and salary, a bank levy is not continuous.

  2. When an entire paycheck is deposited, an economic hardship may exist because all of the money is levied. If this happens, release the levy in whole or in part, as appropriate, to avoid creating an economic hardship.

    Note:

    See IRM 5.11.2.2.1.4, Economic Hardship, for assistance in determining when a release of levy is required due to economic hardship. A levy is required to be released when the Service determines the levy is creating an economic hardship, i.e., the levy will cause the individual to be unable to pay their reasonable necessary living expenses.

    Note:

    Refer taxpayers to the Taxpayer Advocate Service (TAS) (see IRM Part 13, Taxpayer Advocate Service) when the contact meets TAS criteria (IRM 13.1.7, TAS Case Criteria) and you can't resolve the taxpayer's issue the same day. The definition of "same day" is within 24 hours. "Same day" cases include cases you can completely resolve in 24 hours, as well as cases in which you have taken steps within 24 hours to begin resolving the taxpayer's issue. Do not refer "same day" cases to TAS unless the taxpayer asks to be transferred to TAS and the case meets TAS Criteria. Refer to IRM 13.1.7.4Same-Day Resolution by Operations. When you refer cases to TAS, use Form 911, Request for Taxpayer Advocate Service Assistance (and Application for Taxpayer Assistance Order), and forward to TAS.

5.11.4.6  (09-14-2010)
Mortgage Escrow Accounts

  1. Banks generally require a portion of property taxes and insurance to be paid with each mortgage payment. This is held in escrow until the tax and insurance are paid. As long as the taxpayer can not withdraw money in these accounts, a levy can not reach it.

  2. Sometimes the account is overpaid. The taxpayer may have the option to get this refunded. A levy can reach this.

  3. Also, when property is sold, there may be escrow money that will be refunded to the taxpayer. A levy can reach this, too.

5.11.4.7  (09-14-2010)
Schools' Bank Accounts

  1. Bank accounts may be levied to collect taxes that colleges, universities, and other schools owe. These schools' accounts may include money belonging to the Department of Education (ED). ED gives money to some schools for student aid. This is not the school's money.

  2. If the bank honors the levy process the payment and take the following actions:

    1. Call the regional ED office, and tell them about the levy. See Exhibit 5.11.4–1. Mail a copy of the levy to the regional office.

    2. Allow ED 60 days to look into this and certify its interest in the money. Another time period can be agreed on, as well.

    3. ED will send a notice of the amount and nature of its money in the account. The letter will explain how it determined this.

    4. Refund ED's money.

  3. If the bank does not honor the levy because of ED funds in the account, take the following actions:

    1. Call the regional ED office, and tell them about the levy. Mail a copy of the levy to the regional office.

    2. Allow ED at least 60 days to look into this.

    3. Release or enforce the levy after ED certifies its interest in the account.

  4. A bank might not honor a levy on a school official because of ED's interest in an account. Handle this as in (3).

5.11.4.8  (09-14-2010)
Reimbursing Bank Charges Because of Erroneous Levies

  1. Policy Statement P–5–39 ( IRM 1.2.14.1.11) says taxpayers will be reimbursed for bank charges caused by erroneous levies.

    • The Service must have caused the error.

    • Taxpayers must not have contributed to continuing or compounding the error.

    • Before the levy, taxpayers must have responded timely to contacts and given information requested to establish their position.

    Example:

    The taxpayer paid the amount owed, but the payment was not posted timely.

    Example:

    An installment agreement was secured, but it was not loaded on IDRS timely.

  2. Reimburse the taxpayer for fees the bank charged for

    • Processing the levy, and

    • Bad check charges directly caused by the levy

    Reminder:

    See IRM 3.17.10.5,Reimbursement of Bank Charges Due to Service Loss or Misplacement of Taxpayer Checks

5.11.4.8.1  (03-30-2001)
Filing the Claim

  1. The claim must be filed within one year after the fees are charged.

  2. The claim is filed on Form 8546, Claim for Reimbursement of Bank Charges Incurred Due to Erroneous Service Levy or Misplaced Payment Check.

5.11.4.8.2  (09-14-2010)
Processing the Claim

  1. Approving officials are shown in IRM 1.2.40.4,Delegation Order Number 1–4 Authority is delegated to Compliance Territory Managers and Compliance Technical Support Managers (second level).

  2. The approving official may ask for a memorandum to explain what happened. This may not be needed if:

    • The case file is readily available.

    • An employee familiar with the case can orally brief the approving official.

    • The claim is too small to warrant a memorandum.

  3. A claim may be missing some of the required information. Rather than just rejecting it, try to get the missing information from the taxpayer.

    Example:

    Proof of the bank charges must be included with the claim.

  4. Area Counsel (General Legal Services) must review all claims and recommend:

    • approval

    • rejection

    • compromise

5.11.4.8.3  (09-14-2010)
After the Claim is Approved

  1. If the amount that the taxpayer claims is approved, send Letter 2180 to the Beckley Finance Center (BFC), and enclose Form 8546, Claim for Reimbursement of Bank Charges Incurred Due to Erroneous Service Levy or Misplaced Payment Check, and Financial Management Service (FMS) Form 197. Form 8546 needs to be sent so BFC has a signed agreement from the taxpayer accepting the payment as settlement for the claim.

  2. If the claim is approved for an amount that is different from what the taxpayer claimed, send Letter 2179 to the taxpayer. Enclose three copies of FMS Form 197 with the letter. The FMS form includes a place for the taxpayer to sign accepting the amount as settlement of the claim. After the signed copies are received from the taxpayer, send Letter 2180 to BFC, and enclose the Forms 197.

  3. The FMS forms are available at the web site http://www.fms.treas.gov/judgefund/index.html.

  4. If the claim will be paid by check, rather than electronic funds transfer (EFT), enter the taxpayer's address in the space on Form 197 for, "Agency/Office Mailing Address."

    Note:

    Remind the taxpayer, payment by EFT is faster, safer, and more convenient.

  5. Each Form 197 will be sent for payment on a Form 3210, Document Transmittal, and have a unique claim number. The number will be the first initial of the Business Operating Division that issues the number, then the Area Office Number, followed by the fiscal year (FY) the claim is approved and a sequential number.

    Example:

    The first claim approved in SBSE Area Office 23 during FY 2007 is S-23–2007–1.

  6. At the Area Director's discretion, claim numbers can be issued by each territory. If that is done, the territory number will be added after the Area Office Number, so each claim will have a unique number.

    Example:

    The first claim approved in Territory 01 of SBSE Area Office 23 during FY 2007 is S-23–01–2007–1.

5.11.4.9  (09-14-2010)
Deposit Secured Loans

  1. IRC § 6323(b)(10) provides a super-priority status for a financial institution as described in IRC sections 581 or 591 that takes a deposit, share, or other account, to the amount of the loan made by the institution, provided the following conditions exist,

    • The loan is made to a depositor;

    • The depositor pledged an account as collateral;

    • The institution making the loan and the institution holding the account are one and the same;

    • The financial institution had no actual knowledge of the lien; and

    • The loan is a commercial loan.

  2. If the lending institution did not have actual notice of the tax lien, then the super-priority status is valid against both the statutory lien and a filed notice of federal tax lien.

  3. The bank is not required to have exclusive control over the deposit account; therefore, the debtor may have access to funds in the account, but the bank retains a super-priority interest to the extent of the funds on deposit.

  4. Despite their similarity to checking accounts, cash management accounts held by a broker are specifically excluded from provisions relating to deposit secured loans.

  5. The bank's super-priority is not a defense to a levy. However, the levy may be released in whole or in part if the bank satisfactorily proves the bank meets the state requirement for having a security interest and alleges that it had no actual knowledge of the Federal tax lien when the loan was made. If the bank fails to honor the levy and does not prove the above points, then consider initiating a suit for failure to honor a levy.

5.11.4.10  (09-14-2010)
Bank Compliance and the Levy Process

  1. While banks may request all notices of levy by mail be sent to a centralized address, this does not mean a notice of levy cannot be served in person at a local branch or office. A notice of levy may be served in person upon a person authorized to accept receipt. The expectation is the authorized person will acknowledge receipt, immediately process the levy and freeze the affected accounts. If a bank employee refuses to accept service, leave the levy at the bank and inform the employee that the bank will be liable for all funds on deposit as of that date and time.

    Note:

    "Bank" includes credit unions, savings and loan associations, trust companies, and other entities described in IRC 408(n).

  2. If a levy has been served or is about to be served and the bank employee refuses to provide account balance information or other records as provided by IRC 6333, consider following up the levy with a summons for information to determine if the correct amount of levy proceeds were remitted. See IRM 25.5.2.4,Description of Information Requested. If a lesser amount was remitted, the bank will be liable for the difference. See IRM 5.17.4.12,Action to Enforce a Levy.

  3. A summons may also be used to obtain relevant information to determine if the bank did a thorough search for all accounts belonging to the taxpayer.

  4. When serving a notice of levy by certified mail, return receipt requested, the date of delivery on the receipt is considered the date the levy is made.

  5. When serving a notice of levy by regular mail, the date and time the authorized person signs the levy form is considered the date and time the levy is made in the absence of proof to the contrary.

  6. Collection Field function local management should attempt to resolve recurrent compliance problems with a local bank.

5.11.4.10.1  (09-14-2010)
Bank Identification of Property and Rights to Property

  1. 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 the event there is a question regarding what the levy attaches, the bank should contact the revenue officer or IRS employee whose name appears on the levy.

    Note:

    A bank levy attaches to the property of the taxpayer named on the levy; even though the TIN on the bank account does not match the TIN on the levy. The TIN is not the sole indicator of the taxpayer's property or right to property in a bank account. Multiple factors may be considered to validate ownership, including similar names, addresses, entity types and other identifying characteristics.

  2. In some cases, it may be reasonable for the depository to identify an account based on a single matching identifier. In other cases, it may be appropriate for the depository 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.

    Example:

    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.

    Example:

    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.

    Example:

    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
    < br/>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.

    Example:

    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 for the depository to call the contact number on the levy for clarification.

  3. Consult with your manager, AIQ Advisory, and/or area counsel if the taxpayer’s property or right to property in the bank account is in question. After consulting with your GM to determine the appropriate action, review IRM 5.11.2.1.9 , Refusing to Comply with a Levy, for guidance.

Exhibit 5.11.4-1 
Department of Education Regional Offices

(Reference 5.11.4.7)
 
Region I and Region II: CT, MA, ME, NH, RI, VT,?NJ, NY, PR, VI, Panama Canal Zone
Regional Director/Institutional Review Branch Chief
U. S. Department of Education
Federal Student Aid
32 Old Slip, 25th Floor
New York, New York 10005–3534
(646) 428–3905
 
Region III:?DE, DC, MD, PA, VA, WV
Regional Director/Institutional Review Branch Chief
U. S. Department of Education
Federal Student Aid
The Wanamaker Building,
100 Penn Square East, Suite 511
Philadelphia, PA 19107
(215) 656–6010
 
Region IV:?AL, FL, GA, MS, NC, SC
Regional Director/Institutional Review Branch Chief
U. S. Department of Education
Federal Student Aid
61 Forsyth Street, SW
Room 18T20B
Atlanta, GA 30303
(404) 974–9450
 
Region V:?IL, MN, OH, WI
Regional Director/Institutional Review Branch Chief
U. S. Department of Education
Federal Student Aid
500 W Madison
Room 1576
Chicago, IL 60661
(312) 730–1700
 
Region VI:?AR, LA, NM, OK, TX
Regional Director/Institutional Review Branch Chief
U. S. Department of Education
Federal Student Aid
1999 Bryan Street, Suite 1410
Dallas, TX 75201–6817
(214) 661–9500
 
Region VII:?IA, KS, MO, NE, KY, TN
Regional Director/Institutional Review Branch Chief
U. S. Department of Education
Federal Student Aid
8930 Ward Parkway, Suite 2028
Kansas City, MO 64114–3392
(816) 268–0400
 
Region VIII:?CO, MI, MT, ND, SD, UT, WY
Regional Director/Institutional Review Branch Chief
U.S. Department of Education
Federal Student Aid
1244 Speer Boulevard, Suite 201
Denver, CO 80204–3158
(303) 844–3544
 
Region IX and Region X: AK, ID, IN, OR, WA,?CA, AZ, NV, HI, the Pacific Islands of Guam, Micronesia, Marshall Islands, Northern Marianas, Palau, American Samoa
Regional Director/Institutional Review Branch Chief
U.S. Department of Education
Federal Student Aid
50 Beale St
Suite 9800
San Francisco, CA 94105–1863
(415) 486–5700
 

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