A relatively brief IRS CCA briefly highlights some confusion concerning the effect of a continuous levy on wages on the ten-year statute of limitations on collections.
That there is some confusion on the topic is not surprising.
read more…For example we have previously discussed problems the IRS has struggled to properly compute the SOL; see Keith’s post NTA Highlights Errors in IRS Calculation of Collection Statute of Limitations.
Taxpayers also can get hung up, especially when there is a levy that may relate to a fixed payment stream that may continue well beyond the ten-year period. See for example Levy on Social Security Benefits: IRS Taking Payments Beyond Ten Years of Assessment Still Timely where I discussed Dean v US. In Dean the taxpayer alleged that the IRS recklessly disregarded the law by continuing to levy on a taxpayer’s Social Security payments beyond the ten-year SOL on collections.
Dean held that the ten-year collection statutes of limitation period does not prevent collection beyond ten years from assessment when there is a continuous levy relating to a fixed and determinable income stream that is made before the ten-year period expires.
The IRS is authorized to issue continuous levies on wages and certain other federal payments disbursed by U.S. Bureau of Fiscal Service. One way to contrast the wage levy with one-time levy is to compare the wage levy with the levy on a bank account. If the IRS levies on a bank account, it only recovers from the levy the funds in the account at the time the levy is issued. If money comes into the bank account the next day, the debtor gets to keep it unless (until) the IRS levies again.
By contrast, a levy on salary is continuous from the date such levy is first made until such levy is released. Most taxpayers cannot financially survive a wage levy. In many ways a wage levy usually motivates otherwise recalcitrant taxpayers to work with the IRS. The recent CCA briefly discusses some IRS confusion concerning the effect of a continuous levy on wages.
A continuous levy on salary and other recurring steams is continuous from the date such levy is first made until such levy is released. Unlike social security payments at issue in Dean, however, the right to receive wages is not fixed and determinable. The CCA notes that a revenue officer technical advisor had initially believed that a continuous wage levy under Section 6331(e) would remain in effect even if the collection statute (CSED) “had run so long as the levy was made prior to the end of the CSED.”
As the CCA discusses, the taxpayer’s absence of a right to receive wages beyond the ten-year period means that once the ten year SOL runs, the IRS is required to release the continuous levy. Unless IRS goes to the bother of getting a judgment, the IRS cannot reach wages after the ten-year period elapses.
There are other payment streams that are fixed and determinable that will allow a continuous levy to remain in effect beyond the ten-year period. For example, when there are royalties relating to a published book an author has a fixed and determinable right to royalties. A levy reaches royalties for sales of those books in the future. A note payable provides another example of a stream of payments. If the IRS levies on the note, it reaches all future payments whether or not the payments are due prior to the expiration of the statute of limitations. The levy does not accelerate the payments but merely places the IRS in the shoes of the taxpayer.
The key inquiry is whether payment is not dependent upon the performance of future services. There can be disputes as to whether the stream is truly independent of future services, as Keith and I discuss in more detail in Saltzman and Book ¶14A.15, which addresses property exempt from levy. Here, the IRS technical advisor confused the continuous nature of the wage levy with the effect of a levy on property for which the taxpayer is due a stream of payments. The CCA sets the IRS employee straight, but the confusion is easy to understand.
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CERTIFIED TRANSCRIPTS V. UNCERTIFIED TRANSCRIPTS
Nancy Ortmeyer Kuhn, Jackson & Campbell, P.C.
The Federal District Court for the District of Columbia issued a Memorandum Opinion and Order on Friday, August 13, 2021, denying in part the government’s Motion for Summary Judgment in an IRS collection case. A rare loss for the government in a collection case converting tax liability to judgment. In the Complaint, DOJ relied upon uncertified transcripts of account for the final liability amounts at issue while trying to make it seem as if they were relying upon the certified transcripts. Defendant taxpayers pointed out DOJ’s duplicity and the Court agreed. The Court held: “The distinction between the certified and uncertified transcript is salient because ‘a certified copy of the taxpayer’s Form 4340 triggers [a] presumption of correctness in favor of the government.'” [citations omitted]. The court went on to agree with Defendant taxpayers that: “[t’he uncertified account transcript on which Plaintiff relies appears to be, as Defendants note, ‘merely a computer print-out and seemingly not reviewed by anyone, let alone certified as correct.'”
The IRS and DOJ have essentially taken the position that the certified transcripts are not correct. However, DOJ did not file a Reply to Defendants’ response to DOJ’s Motion, and so perhaps they are rethinking their overall position in this Collection case. [The court noted: “Plaintiff does not provide an explanation in its Motion or its Opposition to Defendants’ Motion, and it did not submit a reply to Defendants’ Response at all.”]
As Counsel for Defendants, I am still amazed that this shoddy work by the IRS made it through review and through DOJ so that they agreed to take the case. Taxpayers are more than willing to push this to trial to force the IRS to admit that their arguments depend upon their position that the certified transcripts are incorrect. This could provide a taxpayer-favorable precedent and make it more difficult for the IRS to rely so heavily on certified transcripts without more.
The case is: United States v. Davitian, Case No. 18-cv-2992 (APM). United States District Court for the District of Columbia.