Child-care provider payments are not exempt from levy

Plain-English summary

A public-assistance program paid participating child-care providers directly on behalf of eligible low-income working families. The IRS levied the payments owed to a day-care center to collect the center's employment-tax liabilities. Chief Counsel advised that IRC § 6334(a)(11) did not exempt the payments because the provider was neither an individual nor the recipient of public assistance; the families were the recipients. It also advised that the cited state statute could not override the federal levy authority and, in any event, did not apply to the situation.

Ruling snapshot

• Question: Were payments from a needs-based child-care program to a provider exempt from an IRS levy against the provider?
• Outcome: Advice given
• Key authorities: IRC §§ 6331, 6332, 6334(a)(11), 6334(c)

Full text (IRS public release)

       Office of Chief Counsel
       Internal Revenue Service
       memorandum
       Number: 201547005
       Release Date: 11/20/2015
       CC:PA:03:CMPearson
       POSTN-118842-15

UILC: 6334.00-00

date: August 06, 2015

 to:   Lauren N. May
       Attorney (Chicago, Group 1)
       (Small Business/Self-Employed)

from: Micah A. Levy
Senior Counsel
(Procedure & Administration)

subject: I.R.C § 6334(a)(11) and ------------------------------------

       This Chief Counsel Advice responds to your request for assistance. This advice may
       not be used or cited as precedent.

       This writing may contain privileged information. Any unauthorized disclosure of this
       advice may undermine our ability to protect the privileged information. If disclosure is
       determined to be necessary, please contact this office for our view.

                                                       ISSUES

          1. Whether the payments made by the -----------------------------------------------------------
             -------------------------------------------------------------------pursuant to the --------------------
             ----------------------------are exempt from levy under I.R.C. § 6334(a)(11).

          2. Whether the payments made by the -----------------------------------------------------------
             -------------------------------------------------------------------pursuant to the --------------------
             -----------------------------are exempt from levy under -----------------------------------------
             -----------------------------------------------------------------------------------------------------.

                                                  CONCLUSIONS

          1. The payments are not exempt under I.R.C. § 6334(a)(11) because the payments
             are not being made to the recipients of public assistance.

POSTN-118842-15 2

2. The payments are not exempt under -------------------------------------because a state
   statute does not take precedence over the Service’s authority to levy.


                                         BACKGROUND

The ---------------------------------------------------------------created the --------------------------------
------------------------, which provides low-income, working families with access to quality,
affordable child care. To participate in ---------, applicants must be eligible public
assistance recipients. Once eligibility is determined, ---------- makes payments (as
determined by a cost-share sliding scale) directly to participating child care providers on
behalf of the public assistance recipient.

The Service served a notice of levy on the -------- to collect the employment tax liabilities
of -------------------------------------------------------------------------------. This day care center is
a participating child care provider in ---------. Upon receipt of the notice of levy, the -------
------- sent a letter to the Service’s revenue officer responsible for this case, stating that
it would not comply with the levy on the belief that state and federal law precluded it
from complying with the levy. The -------- asserted that because ---------- makes
payments directly to the day care center as part of the administration of ---------, any
payments pursuant to that program made to the day care center are exempt from levy.
The -------- relied on I.R.C. § 6334(a)(11) and -------------------------------------as reason for
its decision not to comply with the Service’s levy.

You requested our advice as to whether I.R.C. § 6334(a)(11) and -----------------------------
-----------actually exempted the payments made to the day care center pursuant to --------

• from levy.-------

                                        DISCUSSION
  

  1. Section 6334(a)(11) does not exempt the -------- from complying with an IRS levy
     because the payments are not being made to the recipients of the public
     assistance.

Section 6331(a) grants the Service broad authority to collect unpaid federal taxes (and
associated interest, penalties, and costs) by levy. See also I.R.C. § 6334(c). Any
person who possesses or is obligated with respect to levied property or rights to
property must surrender the property to the Service as long as the property or obligation
exists at the time of the levy. I.R.C. § 6332(a); Treas. Reg. § 301.6331-1(a)(1). An
obligation exists when the obligated person’s liability to pay is “fixed and determinable”
even if payment is not due until a later date. Treas. Reg. § 301.6331-1(a)(1).

Under section 6334, certain property is exempt from levy, including “any amount
payable to an individual as a recipient of public assistance under State or local
POSTN-118842-15 3

government public assistance or public welfare programs for which eligibility is
determined by a needs or income test.” I.R.C. § 6334(a)(11)(B).

In this case, the payments made to daycares under ---------are not exempt from levy
pursuant to section 6334(a)(11). -----------------------------helps low-income, working
families pay for child care services. The state makes payments to the daycares directly.
The daycares though, are not “recipient[s] of public assistance,” and they are not
“individuals;” the low-income, working families are individuals and the recipients.
Therefore, any payments from the -------- to the daycares, pursuant to --------- are not
exempt from levy.

2. -------------------------------------does not exempt the -------- from complying with an
   IRS levy because a state statute does not take precedence over the Service’s
   authority to levy.

Even if a provision of law specifically placed the type of funds at issue beyond the reach
of creditors, the Service’s authority to levy still takes precedence, regardless of whether
the provision is found in a federal or a state statute. Federal statutory provisions are
ineffective to bar a federal tax levy, except as provided by the express exceptions
enumerated in section 6334(a), which are not applicable here. See I.R.C § 6334(c)
(“notwithstanding any other law of the United States . . . no property or rights to property
shall be exempt from levy [other than those specifically made exempt in I.R.C.
§ 6334(a)]”); Drye v. United States, 528 U.S. 49, 56 (1999) (“[t]he enumeration [of
exceptions] contained in § 6334(a) . . . is exclusive”); Cisneros v. Alpine Ridge Grp., 508
U.S. 10, 18 (1993) (stating that generally, “the use of a ‘notwithstanding’ clause clearly
signals the drafter’s intention that the provisions of the ‘notwithstanding’ section override
conflicting provisions of any other section”). Thus, for example, a federal statute that
protects Thrift Saving Plan assets from levy except as expressly provided in that statute
does not protect such assets from federal tax levies under sections 6331 and
6334. See Memorandum Opinion For The Chief Counsel, Applicability Of Tax Levies
Under 26 U.S.C. § 6334 To Thrift Savings Plan Accounts (Opinions of the Office of
Legal Counsel, U.S. Dep’t. of Justice, Vol. 34, May 3, 2010).
Similarly, a state statute would not take precedence over the Service’s authority to levy.

---------------------------------------------------------------------------------------------------------------------

------------------- The plain language of this statute does not purport to take precedence
over the Service’s authority to levy pursuant to I.R.C. § 6331(a). See also U.S. Const.
art. IV, cl. 2 (“the Laws of the United States . . . shall be the supreme Law of the Land . .
. any . . . Laws of the State to the contrary notwithstanding”). Even if this statute could
take precedence over the Service’s authority to levy, it would not be applicable in this
situation. -------------------------------------------------------------------------------------------------------

------------------------------------------------. While acknowledging that there is little case law
POSTN-118842-15 4

regarding this particular provision of the -----------------------------------, and also that what
case law there is concerns the statute’s predecessor, we believe that the previously
mentioned case and I.R.C. § 6334(a) jurisprudence demonstrate that -------------------. ----
-----------------does not exempt the --------------------payments from levy.

In sum, neither I.R.C. § 6334(a) nor -------------------------------------exempt the -------- from
complying with an IRS levy in this situation.

If you have any further questions or require additional assistance in this matter, please
contact Chelsey Pearson directly at (202) 317-6875