Answer:
Upon receipt of a Notice of Levy the bank must deny the customer access to the funds and surrender them to the IRS. However, the bank must wait 21 days after the service of the levy before surendering any deposits in order to give the customer time to respond to the IRS. The IRS is required to contact the customer,inform them of the levy and the customer's right to a hearing. The customer, not the bank, must raise any objections or any exemptions to the levy. If a bank fails or refuses to surrender the funds, it may be liable for the amount of the funds subject to the levy. The IRS is only entitled to what the taxpayer (your customer) is entitled to. If an early withdrawal penalty would normally be deducted for a withdrawal made by the customer on the date the funds are surrendered to the IRS, that amount can be deducted from the amount sent to the IRS. The bank must send to the IRS the funds on deposit at the time the Notice of Levy is received, plus any interest accrued on the funds, up to the end of the 21-day period, but not to exceed the stated amount of the levy. Your customer may waive the 21-day holding period by notifying the bank in writing. A copy of the written waiver must be included in the levy response made by the bank.
If the tax levy was issued by a State taxing authority, different procedures may apply. Contact your legal counsel to make sure you comply with applicable state law.
First published on BankersOnline.com 5/20/02
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