Question # 1 (Multiple Choice) On Monday, your bank received an IRS notice of levy in the amount of $1,000 regarding any property of John Smith in the possession of the bank. A review of the bank's records indicates John Smith has a deposit account with a balance of $800.00. On Wednesday, John Smith makes a cash deposit of $300.00 to the account.
Answer: (C) Only the $800 in the account at the time the levy was received will be subject to the levy, so the bank, upon the expiration of the holding period, should send in $800.
A levy only applies to the funds in the account at the time the levy is
received. The levy has no effect upon any subsequent deposit made by the taxpayer. The bank should have placed a hold on $800.00, the amount in the account at the time
the levy was received.
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Question # 2 (True/False) The IRS has sent its notice of levy to one of your branches, instead of the main office. Because the staff at the branches are not trained to deal with levies, they have made a mistake in responding. You can rectify this problem for the future by submitting a written request to the of the district director of the IRS requesting that notices off levy directed at you bank be sent to one designated office rather than be send to individual branch offices.
Answer: True
A bank may, upon written notice to the district director of the IRS office,
have all notices of levy by mail served to one designated office. After such notice is
received by the IRS, the notices of levy will be sent to the designated office until a
written notice withdrawing the request, or a written notice designating a different
office is received by the district director.
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Question # 4 (True/False) You receive a notice of levy on Elmer. The only funds you're holding of Elmer's are in a certificate of deposit that isn't scheduled to mature for another 3 months. You can cash in the CD to satisfy the levy and you can deduct the early withdrawal penalty from the amount you send to the IRS, if the amount of the levy is equal to or greater than the amount of the CD.
Answer: True
The IRS is only entitled to what a taxpayer is entitled to. If the taxpayer
would have had a fee (such as an early withdrawal penalty) deducted for a withdrawal on
the date the funds are surrendered to the IRS, the amount of the penalty can be
deducted from the amount sent to the IRS. If the amount of the levy was less than the amount of the CD, send the full amount of the levy to the IRS and deduct the early withdrawal penalty from the customer's remaining balance.
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Question # 5 (Multiple Choice) The IRS notice of levy on Janice arrives on the 2nd, which happens to be a Monday. You freeze the funds in Janice's account and:
Answer: (A) remit them on the 24th (assuming the 24th is not a holiday; if it it, remit on the 25th during the waiting period.)
If a bank receives a levy and determines it has in its possession property of the
customer that is subject to the levy, the bank should freeze the account and wait
twenty-one calendar days before sending the funds to the
IRS. To calculate the period, exclude the day of receipt. Start counting the next calendar day. Remit the funds on the first business day following the 21st calendar day after receipt.
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Question # 6 (True/False) A levy is only applicable against the funds in the customer's account at the time the bank received the levy. In a situation where the amount in the account is less than the amount of the levy, if any interest has accrued during the twenty-one day holding period, the interest belongs to the customer and should not be sent to the IRS.
Answer: False
The bank must remit to the IRS the funds on deposit at the time the notice of
levy is received, plus any interest accrued on those funds during the twenty-one day
holding period, up to the full amount of the levy.
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Question # 8 (True/False) Part of a taxpayer's wages are exempt from an IRS levy, but if the funds are deposited into a bank account the exemption does not apply.
Answer: True
The exemption applies only to the funds resenting wages that are still in
the possession of the employer. If the wages are deposited in to a bank account, the
exemption does not apply. However, the taxpayer may submit a hardship request for the
IRS to release some of the funds.
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Question # 9 (True/False) If the IRS issued a tax levy in error, a taxpayer may be reimbursed by the IRS for any bank fees which were charged to process the levy and any return check charges directly caused by the levy, but only if a claim is submitted to the IRS within six months of the date the levy was issued.
Answer: False
If the IRS issued an erroneous levy and it is paid by the bank, the taxpayer
will be reimbursed for bank charges caused by the levy if the taxpayer submits a claim
to the IRS within ONE YEAR after the fees are charged by the bank.
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