A relatively brief CCA issued this month discusses the IRS’s ability to levy on the right to receive rent payments beyond the date of the levy. The CCA explores the rationale as to why a single levy may have continuous legal effect that will extent to the right to receive future payments, a topic I discussed recently in Levy on Social Security Benefits: IRS Taking Payments Beyond Ten Years of Assessment Still Timely. It also explores whether the IRS is required to use a Form 668-A to effectuate the levy, as it appears that an IRS employee had arguably mistakenly served a Form 668-W. Form 668-W is typically associated with continuous wage levies.
As Keith has patiently explained to me (and readers of both the blog and the Saltzman and Book treatise), there are two types of levies: 1) one-time events and 2) continuous wage levies. The one time event levies come in two varieties: 1) bank levies where the IRS gets what is in the bank that day or other similar levies where the IRS reaches a static asset and 2) levies that reach an asset with future fixed payments. Lots of people have trouble distinguishing between continuous wage levies and levies with fixed future payments, and it appears that the mistaken form IRS used reflects some of that confusion.
read more...The levy involved in this CCA reaches an asset with fixed future payments. As the CCA explains, “rental income is generally subject to a levy with continuous effect meaning that, to the extent that future rental liabilities are fixed and determinable, meaning the terms are provided for in a rental contract, the single levy reaches both current and future rental payments.”
There are a handful of cases that apply this principle in the context of rental income, including United States v. Halsey, Civ. A. No. 85-1266, 1986 U.S. Dist. LEXIS 24130 (C.D.Ill.1986). One wrinkle in the CCA is that the lease was a month-to-month, but as the CCA explains
that [the] lease was a month-to-month lease does not affect the levy’s attachment to future payments. The levy was effective to reach future payments not by reason of the fact that it continued to operate beyond the time at which it was made, which it does not, but rather because the levy reached Plaintiff’s then existing right to the future payments under the lease, not the future payments themselves.
The CCA concludes that the Service’s use of the Form 668-W (meant for wages and allowing for exemptions under 6334(a)) in the context of rental income does not invalidate the levy, relying on there essentially being no material harm by the use of the improper form and that there is no authority concluding that the Service use a particular form for effectuating the levy.
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As the CCA explains, “rental income is generally subject to a levy with continuous effect meaning that, to the extent that future rental liabilities are fixed and determinable, meaning the terms are provided for in a rental contract, the single levy reaches both current and future rental payments.”
So if the rent goes either up or down by $1 in a manner that was not fixed and determinable at the time of the levy, the levy does not reach future rental payments after the rent changes.
It should be the same for social security. A few weeks ago I tried to post a question asking if there haven’t been enough court rulings that social security benefits are not fixed and determinable because Congress can change them at will. It’s not like a contract where a party has to go bankrupt or in some manner benefit from a court changing the terms at will.
If the IRS levied my right to future wages from employers who went bankrupt, would the levy be satisfied by several decades of wages that an employer owes me?
Excellent post. One of the problems that I encounter is that banks, particularly smaller ones, don’t understand the difference between a one-time levy and a continuous levy. These banks just freeze the account until the IRS releases it. Often you either cannot reach the revenue officer (or their manager) who issued the levy or they are slow to respond. On those occasions, I also find it is difficult to reach someone at the bank who will actually listen and also has the power to release the freeze. Oftentimes these banks just refer you to their lawyer who is often equally ignorant about one-time and continuous levies and typically wants some sort of indemnity agreement before they will instruct their bank-client to release the freeze. I developed a canned letter to these banks but my results are mixed.
What I found interesting was the CCA’s last paragraph, which indicates that the question came from somewhere in a Taxpayer Advocate office:
“Because this TAO review included a request for Chief Counsel Advice (CCA), in accordance with CCA procedures, please include a copy of the email and the attached letter with the TAS response to the taxpayer – note, while the letter references privileged and/or taxpayer specific information, no such information was included in this email advice, so no redactions are necessary.”
(The CCA does redact the first name and address of the TA employee who asked for it.) Does this suggest a “back door” for getting an answer from Chief Counsel when the question might otherwise be ignored?
If the landlord transfers the property to a related party – for example, from an individual to a 100%-owned corporation – what happens to the levy? Is the IRS procedural rule of “Oh no you don’t” superseded by the temporary policy of “We don’t have time to mess with this”?