CCA 1350036: bank must surrender levied taxpayer funds after the waiting period

Plain-English summary

Chief Counsel Advice addresses a bank's refusal to surrender funds in a taxpayer's account after receiving a notice of levy. The advice explains that the bank has two relevant defenses: it may not possess the taxpayer's property, or the property may be subject to attachment or execution under judicial process when the levy is served. Neither defense appeared to apply on the stated facts. The bank must surrender the taxpayer's property after the applicable 21-day waiting period, and failure to honor the levy can create independent liability and a 50-percent penalty when there is no reasonable cause.

Ruling snapshot

• Question: Must a bank surrender a taxpayer's funds after receiving a notice of levy?
• Outcome: Advice given
• Key authorities: IRC §§ 6331, 6332(c), 6332(d), 6332(e), 6334; United States v. National Bank of Commerce, 472 U.S. 713 (1985)

Full text (IRS public release)

ID: CCA_2013102309230857
UILC: 6332.01-00, 6331.00-00

Number: 201350036
Release Date: 12/13/2013
From:
Sent: Wednesday, October 23, 2013 9:23:09 AM
To:
Cc:
Bcc:
Subject: RE: levy question

A levy is only a provisional remedy that protects the government’s interest until a claim
to the subject property is resolved. The RO should advise the bank that there are only
two defenses to its refusal to surrender property and that neither is implicated
here. The first is that the bank is not in possession of the taxpayer’s property, which is
not the case because you have indicated that there are funds in the taxpayer’s
account. The second is that at the time of service of the Notice of Levy, the property
was subject to attachment or execution under judicial process, which does not appear
to be the case from the brief summary of facts you submitted. See United States v.
National Bank of Commerce, 472 U.S. 713, 721-22 (1985). The RO may also advise
the bank that the bank will be held harmless if it honors the levy pursuant to I.R.S. sec.
6332(e). Finally, the RO should warn the bank that its failure to honor the levy may
result in independent liability as well the imposition of the 50-percent penalty for failing
to surrender property without reasonable cause. See I.R.C. sec. 6332(d). The bottom
line is that the section 6334 levy exemptions do not constitute third-party defenses and
the bank is required by statute to surrender all of the taxpayer’s property that was in its
possession as of the date of levy, but not until after the section 6332(c) 21-day waiting
period applicable to banks.

I would direct your attention to Lesson 11 of the 2013 GL-1 materials, which can be
found on the PA website (as well as the Training website, I believe) and which has a
detailed discussion of the procedures for levying banks and the available defenses to
levy (as well as the section 6334 exemptions from levy).

Feel free to call me directly if you have any questions or further want to discuss.

Regards,