To levy on Social Security benefits, the IRS generally issues Form 668-W to the Social Security Administration (“SSA”).[i] After receipt of the Form 668-W, Notice of Levy on Wages, Salary, and Other Income, SSA will withhold future amounts of payments due to the Social Security beneficiary and remit the same to the IRS for payment on outstanding tax liabilities. Often, the question I receive from clients subject to Social Security levies is how long will the levy continue? This Insight tackles that interesting question.
After a tax assessment has been made, the IRS generally waits for the taxpayer to make full payment of the assessment or offer payment arrangements (e.g., an installment agreement or an offer in compromise). But, if the taxpayer fails to do either, the IRS will begin issuing notices to the taxpayer to demand full payment. Taxpayers who ignore these notices generally do so at their own peril.
Indeed, if a taxpayer fails to make full payment of an assessed tax, the Internal Revenue Code (the “Code”) specifically authorizes the IRS to collect payment through other means, including administrative levies. Administrative levies are unique to the IRS. Generally, creditors other than the IRS must obtain a court order to make a levy against a third party. This is not so for the IRS, which simply has to serve an administrative levy notice. See Barnard v. Pavlish, 187 F.3d 625 (3d Cir. 1999).
Levies can come in different types. For example, some IRS levies are “one-and-done levies” in that the levy only attaches to the taxpayer’s property or property rights as of the time the levy is served on a third party. Bank levies fall under this category of levies. Put another way, the IRS is prohibited from levying additional deposits into the bank account after the levy notice is served unless the IRS serves another levy notice on that same bank. See I.R.C. § 6331(b); Treas. Reg. § 301.6331-1(a)(1).
The second type of levy is known as a “continuous levy.” As the name implies, this type of levy generally continues until the statute of limitations for collection expires or the tax assessment amount has been paid in full. There are several types of authorized continuous levies under the Code. First, the IRS may make a continuous levy on a taxpayer’s salary and wages. See I.R.C. § 6331(e). Second, the IRS may make a continuous levy of up to 15% amount of certain federal payments made to a taxpayer. See I.R.C. § 6331(h)(2). This second category of federal payments can include, among other things, Social Security benefits.
Significantly, the IRS’s ability to levy is not without limits. Under I.R.C. § 6502 of the Code, the IRS only has 10 years after the assessment to collect the tax unless the IRS takes steps to reduce the tax assessments to judgment. The IRS refers to this 10-year period internally as the collection statute expiration date or “CSED”.
On July 23, 2021, the IRS released CCA 202129006. In that IRS Chief Counsel memorandum, IRS Chief Counsel analyzed the effects of the CSED statute on certain continuous levies. As an initial matter, IRS Chief Counsel corrected an IRS Revenue Officer Technical Advisor who believed that a continuous wage levy remained in effect even if the CSED expired, provided that the IRS had served the levy notice prior to the end of the CSED. IRS Chief Counsel flatly disagreed, stating: “This is not accurate. If the IRS has issued a continuous wage levy, the levy is released at the end of the CSED. This holds true for FPLP[ii] levies under I.R.C. § 6331(h), with an exclusion due to imminently ending CSEDs.” However, IRS Chief Counsel posited, at least with respect to certain levies on Social Security income under Section 6331(a), that “the levy would continue after the CSED runs due to the fact that the taxpayer has a fixed and determinable right to future payments on Social Security income at the time the levy arose.”
IRS Chief Counsel’s apparent rationale for its conclusion is found in the Treasury Regulations. Under Treas. Reg. § 301.6331-1(a)(1), continuous levies apply to “[o]bligations that exist when the liability of the obligor is fixed and determinable although the right to payment thereof may be deferred until a later date.” Federal courts have agreed with the IRS that certain “fixed and determinable” income can be subject to continuous levies. See, e.g., U.S. v. Jefferson-Pilot Life Ins. Co., 49 F.3d 1020 (4th Cir. 1995) (independent contractor commissions subject to continuous levy).
And, under Treas. Reg. § 301.6343-1(b)(1)(ii), it states:
A continuing levy on salary or wages made under Section 6331(e) must be released at the end of the period of limitations in section 6502. However, a levy on a fixed and determinable right to payment which right includes payments to be made after the period of limitations expires does not become unenforceable upon the expiration of the period of limitations and will not be released under this condition unless the liability is satisfied.
In sum, the IRS’ position is that it can continue the levy indefinitely on Social Security benefits because the right or obligation to the Social Security benefits is a fixed and determinable obligation as of the time the levy is served on SSA.
There are ways to potentially stop an IRS levy on Social Security benefits if the taxpayer acts quickly. For example, if the taxpayer submits an offer in compromise to the IRS prior to the service of a levy, the IRS is statutorily prohibited from levying until the offer in compromise is accepted or, if rejected, the taxpayer has been provided with IRS Appeals rights. However, this same approach does not work if the IRS levies first on the Social Security benefits and then the taxpayer attempts to enter into an offer in compromise. This is because the IRS takes the position that the levy is continuous and therefore the statutory bar on stopping levies does not apply. Accordingly, taxpayers should always consult with tax professionals when they receive IRS payment request notices to ensure they have other options to resolve their tax debts without levies and seizures.
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[i] See CCA 199948004 (concluding that Form 668-W and not 668-A should be used for levies on Social Security benefits).
[ii] “FPLP” stands for the Federal Payment Levy Program. In July 2000, the IRS, in conjunction with the Department of the Treasury, Bureau of Fiscal Service, initiated the FPLP, as authorized under I.R.C. § 6331(h).