Banks in Violation of the Taxpayer Bill of Rights

WASHINGTON - The Internal Revenue Service today expressed concern that banks are sending payments to the IRS for levies on accounts of delinquent taxpayers before the required 21-day holding period expires.

The IRS said that based on reports received from regional offices, up to 50 percent of proceeds from notices of levy are being sent to the IRS by banks well before the 21-day holding period expires. This deprives taxpayers of time they may need to resolve problems.

Under the Taxpayer Bill of Rights, the 21-day holding period took effect July 1, 1989. The holding period begins when the bank receives the levy from the IRS. The bank then notifies the taxpayer, who is afforded this time to contact the IRS to resolve questions before the bank sends any money.

Once the 21 days pass, if the bank has not received a release from the IRS, it must then send payment for the levy. Interest that the taxpayer earned during the 21 days must be included in the payment, if there is not otherwise enough in the taxpayer's account to pay the amount owed.

Before this law went into effect, the IRS had been asking banks not to send payments if there was less than $100 in an account. This was intended to prevent incidents in which the wrong person's money was being sent to the IRS -- for example, when a child's account was mistakenly levied to satisfy the tax liability of the parents. Such incidents sometimes occurred in the past because the delinquent parent's social security number was on the child's account and the bank could not readily determine that the account did not belong to the parent. The IRS said the 21-day holding period will more effectively help settle questions about ownership of the account and the amount owed.

The IRS said that if banks have questions about the new rules for levies, they should contact the local IRS office in their area to speak to the bank liaison officer in the Collection function. The IRS has two publications to help taxpayers understand their rights during the collection process: Publication 586A, "The Collection Process (Income Tax Accounts)," and Publication 594, "The Collection Process (Employment Tax Accounts)." Both are available by calling the IRS forms distribution center at 1-800-424-3676.

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