Part 5. Collecting Process
Chapter 11. Notice of Levy
Section 2. Serving Levies, Releasing Levies and Returning Property

5.11.2 Serving Levies, Releasing Levies and Returning Property
5.11.2.1 Serving Notices of Levy
5.11.2.2 Releasing Levies
5.11.2.3 Returning Levied Property to the Taxpayer
5.11.2.4 Returning Levied Property to Someone Other Than the Taxpayer
5.11.2.5 Disposing of Surplus Proceeds
Exhibit 5.11.2-1 Pattern Letter P–548

5.11.2.1 (05-05-1998)
Serving Notices of Levy

This section provides procedures for serving notices of levy.

5.11.2.1.1 (05-05-1998)
General
Serve a levy only when there is reason to believe the third party is holding the taxpayer's property.

If the taxpayer owns property with a person not liable for the tax, consider using another source.

Any property in which the taxpayer has an interest is subject to levy, even if the property is jointly owned with another person (e.g., community property, jointly owned bank accounts.) However, because wrongful levy suits and claims can result from such levies, consider levying on another available source.

5.11.2.1.2 (01-01-2006)
Preparing the Notice of Levy
Prepare the appropriate notice of levy form.

Use Form 668–W(ICS) or 668-W(C)DO to levy an individual's wages, salary or other income. Other income is that owed the taxpayer as the result of personal services in a work relationship.

Use Form 668–A(ICS) or 668-A(C)DO to levy other property that a third party is holding. For example, this is often used for bank accounts and business receivables.

If And Then
the taxpayer is an individual the property to be levied is wages, salary, or other income, use Form 668-W
If Or Then
the taxpayer is not an individual the property to be levied isnot wages, salary, or other income, use Form 668-A

Include all appropriate TINs on the notice of levy. For example, include both the SSN and EIN of a sole proprietor, if they are known. Include both SSNs on a joint income tax liability. ICS users should enter this information in the "Remarks" field. See (4) below.

If additional information will help identify the taxpayer's property, include it on the levy. ICS users should enter this information in the "Remarks" field. This may include:

Contract Number

Franchise Number or Operator

Co-signer's Name

Royalty Owner

Location of the branch where the taxpayer works

Any other descriptive information

If there is a joint assessment, and there is a restriction that prevents levy against one of the taxpayers' property, include both taxpayers' names on the notice of levy or in the "Remarks" field, but only include the SSN of the taxpayer on whose property you are levying.

State on the notice of levy or in the "Remarks" field, "This levy attaches the property and rights to property of (taxpayer's name). It does not attach the property and rights to property of (taxpayer's name)."

Example:
Fred and Janice Blue filed a joint return and owe $3,000. They are divorced now. Janice has filed bankruptcy and the automatic stay prohibits levy on her property. Fred is not a party to the bankruptcy. His property can be levied. When a notice of levy is prepared to collect from Fred, the taxpayer name line will still include both taxpayers' names. However, the notice of levy will also state, "This levy attaches the property and rights to property of Fred Blue. It does not attach the property and rights to property of Janice Blue."

In some states, the taxpayer whose property rights are being levied may have a community property interest in the property of a spouse, and there may be a restriction which prevents levy on that spouse's property. See IRM 5.11.6.11,Levy on Non-Liable Spouse in a Community Property State. In the example above, other language may need to be added to the notice of levy explaining that Fred Blue's property rights that are being levied include Fred's community property interest in Janice Blue's property, although her property rights are not being levied. The result is similar to what would be levied if there were an assessment only against Fred, but his community property interest in Janice's property is being levied.

5.11.2.1.3 (01-01-2006)
Serving Notices of Levy in Person
When a notice of levy is served in person, have the person who receives the notice of levy sign for it. Write, "Receipt Acknowledged, " on the form, and have the person sign after this. If the person will not sign it, leave the form anyway. Document the case file to show the levy was served. An acknowledgment is desirable, but it is not critical.

Note:
If the representative of a financial institution is reluctant to accept service of the levy in person, alert them to the fact the financial institution will be liable for any withdrawals from the account after that date and time. Re-occurring difficulties with a particular financial institution should be addressed by local management.

If the levy source is a partnership or a corporation, try to serve the levy on a partner or corporate officer.

Try to find out how much to expect from the levy. Ask for payment when the levy is served, unless there is a reason for a delay, such as,

IRC 6332(c) requires banks to wait 21 days

A levy on wages is not paid until the taxpayer's usual pay day

If payment must be sent later, give the person a business reply, self-addressed envelope. Give the person more envelopes if there will be several payments.

If the person owes nothing to the taxpayer, have this written on the form. Ask the person to sign it and write a title, e.g., partner, vice-president.

5.11.2.1.4 (05-05-1998)
Serving Notices of Levy by Mail or FAX
Treasury Regulation 301.6331–1(c) permits notices of levy to be accepted by mail.

Print, "Notice of Levy," on the envelope used to mail levies. This helps large employers and banks route the levy to the right office.

Include a business reply, self-addressed envelope.

When a levy must be served quickly, a FAX can be used. First, confirm the person has a FAX machine and will accept the levy this way.

5.11.2.1.5 (01-01-2006)
Addresses for Mailing Notices of Levy
Some financial institutions, businesses, and government agencies identify one address to be used when sending levies. The financial institution, business, or agency must notify the area director in writing. Consider keeping a central index in the area for these addresses. Then, they can be distributed to all collection employees in the area.

Note:
Notification of a centralized address for notices of levy by mail does not preclude service in person. See IRM 5.11.2.1.3.

Consider whether other areas and campuses need to know the address. Some large companies and government agencies may get levies from all over the country. Levy Source Information on the Servicewide Electronic Research Program (SERP) under Who/Where provides up-to-date levy source name and address information.

If a bank gives an address for its levies, ask for its EIN and its American Bankers Association (ABA) transit number.

Send the requests, including the EIN and ABA number, to the area office. If the area agrees the information belongs on SERP's Levy Source Information, it will be sent to Headquarters to the Director, Collection Policy, SE:S:C:CP:GPPA, Attn: Systemic Levy Analyst.

A computer program uses the EIN and ABA number to overlay these addresses for many levy sources; however, it is not always able to do this. For example, the updating of the address depends on IDRS having the levy source's EIN or ABA number. Some levy sources do not have these numbers, so sources must still be checked against Levy Source Information on SERP.

5.11.2.1.6 (05-05-1998)
Levy in Other Territories
When a taxpayer has property in another territory, either,

Mail the notice of levy

Go to the other territory if it is nearby, or

Initiate a Courtesy Investigation, see IRM 5.1.8 , Courtesy Investigations.

The receiving territory may find other levy sources. If so, other levies may be served after checking with the originating territory.

5.11.2.1.7 (01-01-2006)
Notifying the Taxpayer After Serving the Levy
After serving a levy in person or faxing it, mail a copy to the taxpayer. Form 668–A includes two taxpayer copies. Mail Part 4 to the taxpayer. Leave Part 2 with the person who receives the levy. ACS uses Form 668–A(C) and mails Form 8519, Taxpayer's Copy of Notice of Levy, to the taxpayer.

If the levy is mailed, do not send the taxpayer copy immediately. Wait long enough so the taxpayer does not get the levy before the levy source does. Consider local experience with mailing times and the promptness of a particular entity's compliance.

Note:
This is not necessary for a levy on wages, salary, or other income. The statement of exemptions and filing status notifies the taxpayer of the levy.

Also, see IRM 5.11.6.11.2, Notice to the Non-Liable Spouse,when a levy is served on a non-liable spouse in a community property state.

5.11.2.1.8 (01-01-2006)
Examination of Books and Records
Records about taxpayers' property must be provided when a levy is served or is about to be served. See IRC 6333. A summons could be used, but it may be unnecessary. Sometimes, a cooperative person will show the records if something in writing is given.

Note:
If there are concerns about the appropriateness of an entity's compliance with the levy, follow-up with a summons for records to verify compliance and pursue the appropriate next action as warranted, e.g., suit for failure to honor a levy.

Use Form 2270, Notice to Exhibit Books and Records. Do not describe this as a summons. Note the date and time the form is served. Also, note the person who receives it.

Caution:
Form 2270 must not be used to solicit information from a financial institution within the Tenth Circuit or in any circumstance where a suit can be filed against the U.S. Government within the Tenth Circuit. See IRM 25.5,Summons Handbook, for information on those circumstances.

IRC 7611(b) requires 15 days notice before examining records of churches, church conventions, and church associations when determining a liability.

However, if tax has already been assessed and a levy is or is about to be served, IRC 6333 allows records to be examined without advanced notice.

5.11.2.1.9 (05-05-1998)
Refusing to Comply with a Levy
If a person refuses to surrender the property, discuss IRC 6332. This section of the IRC

Requires the property to be surrendered

Discharges the person from any liability to the taxpayer and anyone else, and

Describes the person's liability if the levy is not honored

If the person still refuses, serve Form 668–C, Final Demand.

A Notice of Federal Tax Lien is not required before serving Form 668-C. However, if a suit to enforce the levy is likely, then file the lien.

Try to serve Form 668-C on the same person who received the levy. Complete the Certificate of Service on Part 1. Try to get a signature at the bottom of the form to acknowledge it was received.

5.11.2.2 (05-05-1998)
Releasing Levies
This section provides procedures for releasing notices of levy.

5.11.2.2.1 (01-01-2006)
Legal Basis for Releasing Levies
IRC 6343(a)(1) requires levies to be released in the following circumstances.

The liability is no longer owed

The statutory collection period has run out

Note:
Generally, a levy served prior to the expiration of the collection period is good and should not be released. In addition, a levy served after reducing a tax liability to judgment is valid.

Example:
One week before the statutory collection period runs out, a notice of levy is served at the taxpayer's bank. The bank does not have to send the levy proceeds until the 21 day holding period on bank levies expires, and this will be after the period for collection runs out. This levy does not have to be released when the collection period runs out, because it was served timely.

Exception:
A continuous wage levy served before the expiration of the collection statute should be released after the expiration of the collection statute.

Example:
When a notice of levy is served on a taxpayer's right to property, sometimes that includes the right to receive future payments. If there is a fixed and determinable right to receive those future payments, the levy will attach them when they would have been paid to the taxpayer, even though it is not actually a "continuous" levy. As long as the right to property has been levied before the period for collection runs out, the notice of levy does not have to be released.

The release will facilitate collection of the amount that is owed.

Example:
A notice of levy is served on the taxpayer's broker. The broker is holding a certain amount of the taxpayer's cash but not enough to pay the tax liability. In addition, the broker is holding the taxpayer's stock options. The stock is worth more than when the option price was set. The cash held by the broker is enough to exercise the option on shares worth more than the tax liability. We arrange to meet the taxpayer and the broker. The release of levy is served, the taxpayer gives the broker an order to use the cash held by the broker to exercise the stock options and to immediately sell the shares. A new notice of levy is served on the broker, so the proceeds of selling the shares will be attached and pay the tax liability.

Example:
A notice of levy is served on the taxpayer's bank. The amount in the bank is less than the tax liability. The taxpayer needs the Notice of Federal Tax Lien released and wants to post a bond to do so. The bank has a bond department, and the amount on deposit at the bank is enough to pay for the bond to get the lien released. A collateral agreement is submitted and approved. We meet the taxpayer at the bank. The notice of levy is released, and the taxpayer has the funds in the bank immediately turned over to the bond department, so the bond that assures payment of the amount owed can be issued and the lien can be released.

The levy is creating an economic hardship, i.e., the levy will cause the individual to be unable to pay their necessary living expenses

The fair market value of the levied property is much more than the amount owed. A portion can be released without risking collection.

The taxpayer makes an installment agreement, unless the agreement allows for the levy

Example:
In response to a bank levy, the taxpayer contacts the assigned revenue officer for an installment agreement. If the revenue officer extends the taxpayer an installment agreement, but, using the same judgment required in considering any levy release, determines the levy will not be released, then the installment agreement must be noted accordingly.

Release the notice of levy as soon as one of the circumstances in (1) is identified to prevent payments from being received after the notice of levy should have been released. This will avoid the need to return levied property and the inconvenience this may cause for the taxpayer.

Example:
After a notice of levy has been sent to a taxpayer's employer, the taxpayer responds and shows that the notice of levy prevents her from paying for basic necessities for her family. Because the levy is causing an economic hardship, release it immediately, so the employer will not send a levy payment on the next pay day.

Section 362(a) of the Bankruptcy Code (Title 11) prohibits levy on the property of a taxpayer in bankruptcy. A levy on this property is generally illegal and must be released. Contact Technical Services for advice if you inadvertently levy on property of a taxpayer in bankruptcy.

Any notice of levy that violates the Internal Revenue Code or regulations must also be released.

5.11.2.2.2 (01-01-2006)
Wrongful and Erroneous Levies
A wrongful levy is one that attaches property to which the taxpayer has no rights. IRC 6343(b) authorizes release of wrongful levies. When a claim is received from the wrongfully levied party, contact Technical Services-Advisory (TS-ADV) about the taxpayer's rights to the levied property.

If the proceeds have already been forwarded, and it has been determined that returning the proceeds is appropriate, complete and process Form 5792, Request for IDRS Generated Refund.

If a notice of levy is served erroneously, release it immediately. Send Pattern Letter P–548 to the taxpayer. See Exhibit 5.11.2–1. The taxpayer can give this to people who received levies. See IRM 5.11.4.8,Reimbursing Bank Charges Because of Erroneous Levy, about reimbursing bank charges for erroneous levies.

Example:
A notice of levy is served.. The taxpayer shows a canceled check used to full pay the tax liability. When IDRS is researched, the check is found among unidentified remittances. Release the levy. Any related bank charges may be reimbursed.

5.11.2.2.3 (05-05-1998)
Serving Releases of Levy
Generally, levy releases are mailed to save resources. Sometimes, though, they may be served in person.

When a levy must be released quickly, it can be faxed. Confirm that the person has a FAX machine and is willing to accept the release this way.

5.11.2.2.4 (01-01-2006)
Forms Used to Release Levies
Use Form 668–D, Release of Levy/Release of Property from Levy, to release a levy served on Form 668–A or 668–W. Use Form 668–E, Release of Levy, to release seized property when Form 2433, Notice of Seizure, cannot be used.

Form 668–D can be used to release the levy in part or in full.

Example:
A taxpayer who has defaulted on an installment agreement, ultimately has his wages levied. The amount being levied creates a hardship, but a smaller amount would not. A release of wages less than $X allows the taxpayer to receive an amount that will not cause a hardship. Anything earned more than that amount is sent as levy proceeds each pay day.

Example:
After failing to respond to the CDP notice, a taxpayer's wages are levied. The taxpayer contacts the revenue officer assigned the case and a monthly payment amount is agreed to. A payroll deduction agreement to avoid default is the preferred disposition of the case, but the employer is reluctant to agree. A partial release of wages more than $X, sets a fixed amount that will be sent as levy proceeds each pay day. Anything more is paid to the taxpayer.

5.11.2.3 (08-01-2004)
Returning Levied Property to the Taxpayer
Before July 30, 1996, once levy proceeds were deposited, there was no authority to return the money regardless of the circumstances.

5.11.2.3.1 (01-01-2006)
Authority for Returning Levied Property
On July 30, 1996, Taxpayer Bill of Rights 2 (TBOR2) was enacted. This added subsection (d) to IRC 6343.

Now levy proceeds can be returned at the discretion of the service if:

The levy is premature

IRS procedures were not followed

Example:
Some companies notify the Service of an address for serving notices of levy. See IRM 5.11.2.1.5. A levy is sent to another address by mistake. The company forwards it to the correct address, and a levy payment is sent. The taxpayer may claim the payment must be returned, because procedures were not followed. This is not the case. The error is trivial, and returning the payment is unwarranted

An installment agreement is made for a liability included on the levy, unless the agreement provides otherwise

Example:
Subsequent to the levy, the taxpayer enters into an installment agreement that will full pay the entire outstanding liability. The revenue officer verifies the taxpayer is financially able to meet all the terms of the agreement. An amount of money equal to the amount of money levied and applied toward the taxpayer's liability may be returned to the taxpayer.

Returning the payment facilitates collection

With the consent of the taxpayer or the Taxpayer Advocate, returning the payment is in the best interest of the taxpayer (as determined by the National Taxpayer Advocate [NTA]) and the government

Example:
Taxpayer owes income tax for 2000 and 2001. Levy issued to attach social security benefits. Taxpayer responds to levy and a collection information statement is completed that reflects a hardship. The levy on the social security benefits is released. After the levy is released, but before the Social Security Administration receives it, additional levy payments are received and applied to the liability. The taxpayer can file a request for return of an amount equal to the amount applied to the liability after the levy was released. That amount may be returned by the Commissioner unless it is determined the return of property is not in the best interest of the government. Generally, after the IRS releases a levy due to hardship and receives post-release payments because of a delay in receiving the release, it may be in the best interest of the government to return such payments.

If Then
IRS makes a determination that return of property is in the best interest of the United States AND in the best interest of the taxpayer with taxpayer consent (no NTA involvement) IRS will return the levied property.
IRS makes a determination that return of property is in the best interest of the United States and the NTA also determines that return of the property is in the best interest of the taxpayer IRS will return the levied property.
IRS makes a determination that return of the property in NOT in the best interests of the United States (regardless of NTA determination or taxpayer consent) IRS will NOT return the levied property.

The taxpayer can file a request for the return of property up to nine months after the levy. Requests made after nine months cannot be considered.

Note:
The Service can refund levy proceeds without a request from the taxpayer. If the taxpayer requests the return of money within nine months of the levy, the Service may return the money after the nine month period ends if time is needed to investigate and process the request. The money can, then, be refunded after nine months.

5.11.2.3.2 (07-26-2002)
Factors to Consider Before Returning a Levy Payment
Except for a levy in violation of the law ( See IRM 5.11.2.3.1), there are no rigid rules for deciding whether to return a levy payment. The decision is made on a case-by-case basis. At least one of the conditions in IRM 5.11.2.3.1(2) must exist. Some things to consider include:

How significant is a procedural error? In the first example in IRM 5.11.2.3.1(3), the error is harmless and insignificant.

Did the person who received the levy get bad instructions about how much to send?

Is there an error that affects whether the levy should have been issued?

Is there an inequity in keeping the payment?

Would the levy have been released if all facts were known before the payment was received?

Is the taxpayer a pyramiding, delinquent trust fund repeater?

5.11.2.3.3 (01-01-2006)
Rejecting Requests for Return of Levied Property
When a written request is rejected, give the taxpayer Letter 3975, Rejection of Request for Return of Levied Property, signed by the group manager.

A written rejection is not required, unless a written request is made.

The taxpayer may appeal the rejection using Collection Appeal Program (CAP) procedures, or, if Collection Due Process (CDP) rights were not previously exercised, by requesting a CDP hearing or an equivalency hearing, whichever may be applicable.

5.11.2.3.4 (08-01-2004)
Delegation of Authority to Return Levy Payments
See Delegation Order 191 to determine who can approve returning levy proceeds.

5.11.2.3.5 (08-01-2004)
Getting the Money Refunded
See IRM 5.1.15.7,Requests for Manual Refunds, for general instructions for issuing a manual refund.

Note:
Although IRM 5.1.15.7.2 mentions only the Territory Manager, returning levy proceeds can be approved by the people listed in Delegation Order 191 under the delegated authority to return levy payments.

Unlike money that has been wrongfully levied, no interest is paid on the refund.

5.11.2.3.6 (07-26-2002)
Effect on Penalty & Interest
When levy proceeds are returned, the delinquent tax is not forgiven. The taxpayer is still obligated to pay the amount owed, and the Service is obligated to collect it.

However, the taxpayer will not be charged failure to pay penalty and interest during the period that the Service held the money. After the payment is returned to the taxpayer, penalty and interest start to accrue again.

The taxpayer owed $10,000.
On April 10, 1998, $2,500 was collected as levy proceeds.
On May 4, 2000, the $2,500 was returned.

Compute accrued interest on $10,000 through April 10, 1998. Then, compute interest on $7,500 for the period April 11, 1998, though May 4, 2000. Assess the total interest from these two steps using transaction code (TC) 340. Have the TC 340 input with the COMP-INT-AMT and INT-TO-DT fields complete. The COMP-INT-AMT is the amount still owed, so IDRS and master file should continue computing interest on this. In this example, it would be the amount still owed on May 4, 2000. The INT-TO-DATE is the date that the interest has been computed through, i.e. in this example, May 4. This will allow IDRS and master file to compute interest after that, so it will not have to be done manually.

Compute the failure to pay penalty that accrued from April 11, 1998, through May 4, 2000, on $2,500. Input this amount using TC 271 with Reason Code 62. This will allow IDRS and master file to compute the penalty after that, so it will not have to be done manually.

5.11.2.4 (07-26-2002)
Returning Levied Property to Someone Other Than the Taxpayer
Generally, if levied property must be returned, it is given back to the taxpayer(s) who owed the tax that was credited with the payment. Typically, if a levy payment is applied to a liability owed by John and Mary Smith, and it must be returned later, the refund check would be in the names John and Mary Smith.

Sometimes the name(s) on the check can not be the same as the name(s) on the delinquent account because the money must be retuned to the third party who was wrongfully levied upon.

Example:
Fred Jones owes delinquent tax for tax year 1997, when his filing status was single. In addition, Fred and Mary Jones owe delinquent tax for returns they filed jointly for tax years 1998 and 1999. One notice of levy is mistakenly issued for all three tax years showing Fred and Mary Jones as the taxpayers. This results in money from Mary's bank account being used to pay all three liabilities. The payment that is applied to tax year 1997 is for a liability owed by Fred Jones, but the refund check for that payment must be issued in the name Mary Jones. This example assumes the bank account is not community property.

Example:
Sam Wilson's Social Security benefits are levied. After five levy payments have been sent, the Social Security Administration finds out that Sam had died and was only eligible for benefits during the first three months. The other two months' levy payments must be returned to the Social Security Administration.

See IRM 5.1.15.7,Requests for Manual Refunds, for instructions about how to get the manual refund check issued.

A wrongful levy is one in which the levy proceeds are money that belonged to someone other than the delinquent taxpayer, such as in the first example in (2), above or when the levy destroyed the interest of a lien senior to the federal tax lien. In these cases, the person the money is returned to is entitled to interest. Using the overpayment rate in IRC 6621, interest runs from the date the levy payment was received to the refund schedule date. The date the interest runs through can be no earlier than thirty days before the money is actually returned.

When a wrongful levy is not involved, as in the second example in (2), above, no interest is paid.

5.11.2.5 (01-01-2006)
Disposing of Surplus Proceeds
Every reasonable effort will be made to release a notice of levy timely. However, sometimes surplus levy proceeds are received. Surplus proceeds are payments greater than the amount still owed for the liabilities listed on the notice of levy.

Example:
A refund posts after the levy source has already sent payment for the levy

The payment should be returned to the levy source when there is no remaining balance due.

If surplus proceeds are received, and taxes are owed that were not listed on the notice of levy, the surplus can be offset to those taxes. However, use levy proceeds to pay the taxes listed on the levy, first. The surplus may be offset to taxes not listed on the notice of levy, even if all the notices in IRM 5.11.1.2.1 have not been given to the taxpayer for those taxes.

Exhibit 5.11.2-1 (05-05-1998)
Pattern Letter P–548
(Reference 5.11.2.2.2)

Person to Contact:
Employee Identification Number:
Contact Telephone Number:
Date:

Dear (Name of Taxpayer):

  We apologize for the concern and inconvenience we caused you by the erroneous serving of a notice of levy, dated ______ , that attached assets, belonging to you, in the possession or control of
______ , at ______ .

  We are enclosing a copy of this letter, since you may want to furnish it to your employer, bank, or other individual or organization.

  If you have any questions, please contact the person whose name and telephone number are shown above.

Sincerely yours,


Area Director
By

   (Signature and title)

Enclosures:
Copy of this letter
Copy of Release of Levy