Treasury Issuance Guidance to IRS Collections to Avoid Levy of EIP 2 Funds

On Wednesday January 20, 2021, the Department of Treasury issued a memorandum[1] (the “Memo”) implementing temporary measures with respect to levy procedures to avoid levying bank accounts with funds from the second round of Economic Impact Payments.[2]

The second round of economic impact payments (“EIP 2”) is generally $600 for individuals and $1,200 for married couples filing joint returns. An additional $600 is included for each qualifying child. These payments are being deposited in December 2020 and continuing into early 2021.

Under the guidelines in the Memo, IRS collections field employees are to utilize Soft Contact Procedures prior to initiating enforcement actions (e.g., bank account levy). In the course of these procedures, the field employees are to determine if a taxpayer received EIP 2 payments, in what amount, where the funds were deposited, and when.

“When known, employees should not levy on a bank account that contains EIP 2 funds received within the prior 8 weeks.” [Emphasis added]

If the IRS does inadvertently levy an account containing EIP 2 funds, “employees must release the levy on the EIP 2 funds.”

Under the temporary guidance, the IRS may levy accounts containing EIP 2 funds only if there are “exigent circumstances.”

“An exigent circumstance involves the final loss of opportunity for the government to collect taxes due, such as the expiration of the statute of limitations, assets that taxpayers place beyond the reach of the government, etc. Generally, the taxpayer’s indication that he/she may file for bankruptcy is not an exigent circumstance.”

However, this determination must be raised up the chain of command to the IRS Area Director or Campus Director before communicating the decision with the taxpayer.

Therefore, taxpayers that have EIP 2 funds and are in IRS collections should be aware of this policy to prevent a levy of their EIP 2 funds. And, if the IRS does levy the funds without a showing of exigent circumstances, taxpayers should demonstrate that the EIP 2 funds were taken and demand return of their funds per the Memo.

Notes

[1] See Department of Treasury Memo Pre and Post Levy Actions Involving Economic Impact Payments (Deviation)  Control Number: SBSE-05-0121-0009 dated January 20, 2021. Memo available at IRS website here: link.

[2] For more on Economic Impact Payments see IRS Website re “Economic Impact Payments” here: link.