IRS levies on unemployment compensation

Official letter (https://www.dol.gov/sites/dolgov/files/ETA/advisories/UIPL/1998/UIPL25-98.html):

U.S. DEPARTMENT OF LABOR
Employment and Training Administration
Washington, D.C. 20210
CLASSIFICATION: UI
CORRESPONDENCE SYMBOL: TEUL
ISSUE DATE: May 1, 1998
RESCISSIONS: None
EXPIRATION DATE: May 1, 1999

UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 25-98

TO: ALL STATE EMPLOYMENT SECURITY AGENCIES
FROM: GRACE A. KILBANE, Director, Unemployment Insurance Service
SUBJECT: Internal Revenue Service (IRS) Levy Authority

Purpose. To advise States of the position currently taken by the IRS with respect to the levy authority on unemployment compensation (UC) provided by the Taxpayers' Relief Act (TPRA) of 1997, and to provide interim instructions for States in handling levy notices.

References. The TPRA of 1997, P.L. 105-34 and Unemployment Insurance Program Letter (UIPL) No. 44-97.

Background. The TPRA, enacted on August 5, 1997, made several changes affecting the UC program, including giving the IRS the authority to impose a continuous levy on UC benefits. In response to the enactment of the TPRA, UIPL No. 44-97 was issued to advise the States of the pertinent amendments affecting UC and of necessary action required of the States.

Federal UC law provides that payments of UC may not be subjected to levy. Although the TPRA did not amend these UC provisions, it authorized the IRS to impose a continuous levy on certain payments by adding new subsection (h) to Section 6331, Internal Revenue Code. Under this authority, the IRS may continuously levy up to 15 percent of "any specified payment", including UC. The amendment applies to levies issued after August 5, 1997, the date of the enactment of the TPRA, and applies to any payment under Federal or State UC law, including UC for Federal employees (UCFE), UC for ex-servicemembers (UCX), the Disaster Unemployment Assistance (DUA) program, as well as trade readjustment allowances (TRA) under the Trade Adjustment Assistance and NAFTA-Transitional Adjustment Assistance programs.

Current IRS position. Although the IRS has the authority to issue levies on UC, it has chosen not to exercise this authority. Consequently, until further notice, there will be no effort on the part of the IRS to levy on UC, except in child support collection cases. IRS employees will be advised of the current IRS position on levies through a levy handbook slated for distribution in the near future.

Action. States may occasionally receive levies issued by the IRS in error. Except for levies that clearly show that the levy is for the collection of child support, notices of levy issued by the IRS should be returned unpaid by the State, with an explanation that current IRS policy limits levy on UC to child support cases. States will be notified of any changes to IRS policy on this matter.

Inquiries. Please direct inquiries to the appropriate Regional Office.

Attachments. Letter from the IRS explaining the current position on levies. Pertinent pages from a draft of the new IRS levy handbook which is expected to soon be printed and distributed.

Attachment I — IRS letter (https://www.dol.gov/sites/dolgov/files/ETA/advisories/UIPL/1998/UIPL25-98_Attach1.pdf):

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

FEB 24 1998

Ms. Grace A. Kilbane
Director, Unemployment Insurance Services
Attn: Darlene Bryant
United States Department of Labor, S-4231
200 Constitution Ave., NW
Washington, DC 20210

Dear Ms. Kilbane:

This confirms a conversation between Darlene Bryant of your staff and Arthur Aron. The Taxpayer Relief Act of 1997 says that a notice of levy can attach up to 15% of certain payments that had previously been exempt from levy. Unemployment Insurance (UI) is one of the payments in this provision. UI had been exempt from levy, except for collecting child support.

The change in the Taxpayer Relief Act would allow an automated method to be used to levy government payments by using computer matching programs rather than handling huge amounts of paper levies. We met with Department of Labor's representatives recently to discuss this.

We are considering whether to pursue an automated match to levy UI benefits. In the meantime, although the law does not preclude levy on 15% of UI by using paper levies, the state agencies should continue treating levies as in the past. If the levy form shows “Child Support,” “CSO,” or some other indication that child support is being collected, the UI agencies should follow the instructions on the form for determining the amount that is exempt, and send the rest of taxpayer's benefit payments to the IRS. Otherwise, they can return the levy without payment and explain that UI can not be levied, unless our National Office notifies you that the UI agencies should begin honoring levies by turning over 15% of beneficiaries' payments.

For your reference, we have enclosed the instruction about this which will appear in our new “Notice of Levy” handbook. We expect this handbook will be printed and distributed to our field offices in March.

If there are any questions, please have a member of your staff call Arthur Aron at 202-622-6936.

Sincerely,

Dennis Reaves
Director, Field Programs

Enclosure

cc: Regional Chief Compliance Officers; Regional Chiefs Customer Service; Service Center Directors; Assistant Commissioner (International) CP:IN

Attachment II — excerpts from draft IRS levy handbook (https://www.dol.gov/sites/dolgov/files/ETA/advisories/UIPL/1998/UIPL25-98_Attach2.pdf):

Chapter 3 — Restrictions on Levy, page 3-1

3.1 Property Exempt from Levy

(1) IRC 6334 describes property that is exempt from levy. Some are property that would be taken by seizure procedures, if not for the exemption. See seizure instructions about these. Others are income that would be taken by a notice of levy, if they were not exempt. The exempt income sources are:

• Unemployment benefits,
• Certain annuity and pension payments, including payments under the Railroad Retirement Act, Railroad Unemployment Insurance Act, Special Pensions for Medal of Honor Winners, and Retired Serviceman's Family Protection Plan and Survivor Benefit Plan,
• Workers Compensation,
• Judgment for support of minor children, if the judgment is before the date of the levy,
• Minimum exemption for wages, salary, and other income,
• Certain military service connected disability payments,
• Certain public assistance payments,
• Assistance under the Job Training Partnership Act.

Note: The Taxpayer Relief Act of 1997 allows for levy on 15% of certain previously exempt government payments. However, the intent of this provision was to make a computer match possible between tax liabilities and records of payments from the government's disbursing agencies, so a flat percentage of the payments could be attached. Continue refraining from issuing notices of levy on the payments listed above.

(2) See IRC 6334 and the Legal Reference Guide for Revenue Officers for additional information about property exempt from levy.

(3) Members of the military and Public Health Service employees may deposit money in a Special Treasury Fund. Money can be deposited while the employees are outside the U.S. and its possessions. This money can not be levied. See Subsection 1035 of Title 10 of the U.S. Code.

(4) No other property is exempt from levy. No state or local law can exempt property from levy to collect federal tax.

Example: Even if property is exempt under a state homestead exemption law, it is not exempt from federal levy.

3.2 Property Exempt from Levies Used to Collect Child Support TDAs

(1) When child support TDAs are being collected, three of the things in 3.1:(1) are not exempt from levy.

• Unemployment benefits
• Certain annuity and pension payments
• Amount of income needed to pay a judgment for the support of minor children. However, income withheld for a judgment for child support is not levied, if the judgment is dated before the levy.

(2) Use Letter 1696 (P) to explain the exemptions that do not apply for [excerpt ends here in the supplied page]

Notice of Levy, page 3-5 — Exhibit 3-1
Letter 1696(P) (Rev. 1-90)

(Reference 3.2)

Taxpayer's Name:
Address:
Social Security Number:
Person to Contact:
Telephone Number:

(Name and Address of Levy Source)
(Salutation):

The enclosed notice of levy is for the collection of a delinquent child support obligation as authorized by section 6305 of the Internal Revenue Code. The following exemptions from levy under Code sections 6334(a)(4), (6), and (8) listed on the back of Part (Insert 4, if Form 668W(C)(DO) is enclosed. Insert 1, if Form 668A(C)(DO) is enclosed.) of the levy do not apply:

1) Unemployment benefits,
2) Certain annuity and pension payments, and
3) Judgments for support of minor children unless the funds are actually withheld because of a garnishment under the judgment.

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

Sincerely yours,

(Place for signature)

Title

Enclosures:
Notice of levy
Envelope