Financial Resource

Article by Roni Deutch

The Internal Revenue Service (IRS) has implemented procedures for taxpayers to request a reimbursement of the fees charged by a bank against a taxpayer for processing a bank levy when the bank levy was issued erroneously by the IRS. Reimbursements are limited to $ 1,000.00 and must be claimed within one year of being incurred.

As you may know, the IRS has the right to issue a bank levy on an account that bears the name of a taxpayer who owes IRS back taxes. A Notice of Levy is sent to the taxpayer’s bank and it attaches to all accounts in the name of the taxpayer whether a sole or joint account. The bank is then legally obligated to honor the IRS levy that freezes the funds on deposit in the account. The bank cannot allow anyone access to the frozen funds for 21 days from the date of receipt of the levy. This holding period allows time to resolve any issues about account ownership and collectability. After the 21 days have elapsed, the bank must send the money plus interest, if it applies, to the IRS if the levy has not been successfully released.

An “erroneous” levy is one that properly seeks to capture a taxpayer’s property (rather than a third party’s property), but nevertheless is served prematurely or otherwise in violation of an administrative procedure or law. A claim that a taxpayer has been erroneously levied requires a factual analysis and timeline to demonstrate that the IRS’ issuance of the levy was a mistake. The IRS must also make a determination that the taxpayer did not contribute to the continuation or compounding of the IRS’ error. Additionally, prior to the levy being issued, the taxpayer did not refuse to timely respond to service inquires or provide information relevant to the liability for which the levy was made.

The banking fees recoverable are the fees customarily charged by the financial institution for the financial institution’s compliance with the levy’s instructions. Fees may also include the bad check fees or overdraft fees incurred because of the freeze on the account incurred due to the levy, and are also subject to a successful reimbursement request.

Successful reimbursement requests may be paid to taxpayers via an electronic funds transfer. Such payments would require disclosure of the taxpayer’s banking information needed to complete the transfer. Therefore, the IRS can also send successful claimants their reimbursement payment via check to avoid disclosure of the taxpayer’s bank information.

To request reimbursement for erroneously charged bank fees, the taxpayer must complete IRS Form 8546, Claim for Reimbursement of Bank Charges Incurred Due to Erroneous Service Levy or Misplaced Payment Check.

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