We all know that the IRS isn’t particularly known for its speed. Audits can drag on for months while criminal investigations can drag on for years. File an IRS whistleblower claim and it isn’t unusual for things to take 7 years or more. So how fast must a bank or other business respond to an IRS levy notice? A U.S. District Court suggested the bank has less than two hours to respond!
Let’s understand some facts first. The IRS is allowed to issue a bank levy if they feel the collection of tax is in jeopardy. Most states have similar laws. According to the court’s opinion, James Waterman received a tax refund for which he was not entitled. Worried that the taxpayer might spend the money before the Service could make him pay it back, the IRS sent a revenue officer to his home.
The IRS demanded Waterman return the money. Not getting the money, the officer went to the bank and served a levy notice. The court’s opinion says the officer was at the bank within 20 minutes of leaving Waterman’s home. The bank is Chase.
Like many big banks, Chase has internal procedures that need to be followed when being served with IRS levy notices, wage garnishments and the like. The banker followed procedures and faxed the levy to the home office. Two days later the bank froze the account.
End of story? No! About two hours after the IRS left his home, Waterman drove to Chase and withdrew $40,000 from his account.
The IRS sued Chase claiming the bank was too slow in freezing Waterman’s account. In other words, the IRS says the bank should have acted within 2 hours. The bank objected and said that two days was reasonable.
Who wins? The government. The court said the bank should have acted within 2 hours.
Why is this case important? The tax code and regulations don’t specify how much time a bank has in responding to an IRS levy notice. Most banks take at least a day and some take longer. Even though it was the taxpayer who did wrong, the bank becomes responsible for the consequences if it fails to honor a levy notice. Many would say that isn’t fair.
The opinion is silent on exactly how much time is reasonable. Is it an hour? 15 minutes? We only know that over 2 hours was unreasonable. Also unanswered is how long is reasonable for non bank levies. Remember, the IRS can issue a levy notice to anyone that holds or owes money to a taxpayer.
For those interested, the case is United States v. JPMorgan Chase and is in US District Court for the Central District of California.
If you are a bank, mutual fund or other financial services firm and have questions about IRS levy procedures, give us a call. Ditto for taxpayers who find themselves on the receiving end of an IRS audit or collection action. Our IRS tax lawyers help both businesses and taxpayers. For more information, contact attorney Bethany Canfield at or by telephone at (414) 223-0464. All inquiries kept in strict confidence.