Bank levy reaches funds held at the levy time

Plain-English summary

Chief Counsel advised that the exact time of a bank levy matters, not merely the calendar date. A bank must surrender only property it possessed when the levy was served, so money deposited later that same day is outside that levy. Conversely, if the bank lets the taxpayer withdraw funds after service that were present when the levy arrived, the bank can face personal liability and a possible 50 percent penalty. The advice distinguishes bank levies from continuing wage levies, which can attach to future earnings. It notes that proof of timing may be difficult, but a faxed levy and a later documented withdrawal can establish the sequence.

Ruling snapshot

• Question: Must a bank surrender funds deposited later on the same day that an IRS levy was served?
• Outcome: Advice given: no, but the bank can be liable for allowing later withdrawal of funds held when the levy arrived.
• Key authorities: IRC §§ 6331(b) and 6332(c), (d)

Full text (IRS public release)

ID: CCA_2020021009262241
UILC: 6331.00-00, 6332.01-00

Number: 202118010
Release Date: 5/7/2021
From: ----------------
Sent: Monday, February 10, 2020 9:26:22 AM
To: ------------------------
Cc: -----------------------------------------
Bcc:
Subject: Bank Levy Inquiry

You have asked whether it is the date or the specific time that matters when
determining whether a person has failed to honor a levy. Specifically, the question is
whether a bank must surrender amounts in a taxpayer’s account that the taxpayer
deposited on the same day on which the levy was made, but at a time that was after the
levy was made.

Internal Revenue Code section 6332(c) provides that a bank must surrender taxpayer
property only after 21 days after service of the levy. Accordingly, the concern is that a
bank might look retrospectively to the closing balance of a particular account as of the
date of service, but not at a particular time on such date. However, pursuant to the
statute, a bank is only required to surrender taxpayer property that was in its possession
at the specific time when the levy was made. Section 6331(b) explicitly provides
“[e]xcept as otherwise provided in subsection (e), a levy shall extend only to property
possessed and obligations existing at the time thereof” (emphasis added). Accordingly,
a bank would not be required to surrender amounts that were deposited after a levy was
made. And you may contrast bank levies with continuing levies on taxpayers’ wages or
salaries, which would attach to future earnings.

Conversely, a bank would incur personal liability under section 6332(d)(1) to the extent
that it allows a taxpayer to withdraw money from an account on the same day but after a
levy is made. And there would also be the potential for imposition of the 50% penalty
under paragraph (d)(2). In practice, the specific time at which a particular levy was
made or that an amount was withdrawn may not easily be determined. However, if the
time of levy is determinable, for example if the levy is made by fax, and if the specific
time of withdrawal occurs several hours later, then the bank would incur personal
liability pursuant to section 6332(d)(1) to the extent that the amount withdrawn was
needed to satisfy the amount of the levy.

Therefore, the answer to your specific question is that a bank would not be required to
surrender amounts in a taxpayer’s account that the taxpayer deposited on the same day
on which the levy was made, but at a time that was after the levy was made. Rather,
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such amounts would represent taxpayer property that was not in the bank’s possession
for purposes of that particular levy. And this is important both because a bank would
want to avoid section 6332(d) liability, but also because a bank would want the
protection afforded by section 6331(e), which might indemnify the bank vis-à-vis the
taxpayer, and which would not be afforded to the bank to the extent that it remitted
taxpayer property that was not subject to the levy.

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

Regards,

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