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#1648523 - 01/10/12 04:28 PM IRS Levy on Auth. Signer
mdog76 Offline
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Joined: Jan 2007
Posts: 645
Is there any new guidance on this subject? I have a levy on a customer who is auth. signer on an account only, but is using the account for depositing their funds.

Thanks for any help.

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#1648890 - 01/10/12 08:27 PM Re: IRS Levy on Auth. Signer mdog76
rlcarey Offline
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rlcarey
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Posts: 80,325
Galveston, TX
1. Make them stop or close the account.
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#1648914 - 01/10/12 08:50 PM Re: IRS Levy on Auth. Signer mdog76
BrendaC Offline
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Sweet Home AL
I would also consider filing a SAR.
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#1649139 - 01/11/12 01:01 PM Re: IRS Levy on Auth. Signer mdog76
RayLynch Offline
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Joined: Oct 2003
Posts: 544
You should discuss this with your bank counsel as your institution can possibly face an IRS penalty if you don't respond to the levy in a satisfactory manner to the IRS.

It would not surprise me that the IRS will take the position that its levy reaches any and all property the taxpayer has on deposit with your institution, regardless of the fact the funds are in an account that the taxpayer doesn't own. If the taxpayer has access to and transactional authority over the account into which the taxpayer's money is deposited, I can see the IRS saying its levy reaches the taxpayer's funds in that account. The fact that you know the taxpayer is depositing personal funds in the account will reinforce the IRS' position.

If, under federal law, the IRS levy does reach the taxpayer's funds in the account, then how do you determine what portion of the funds on deposit belong to the customer and to the taxpayer? You may very well have an accounting nightmare on your hand.

If the IRS doesn't believe your institution has remitted the proper amount in response to its levy, it can assess a penalty equal to the amount it believes it should have received from your institution.

While Randy's suggestion to make the person stop or close the account is appropriate, you still have to decide how to respond to the levy. If you elect to remit funds to the IRS, your customer may dispute your calculations and raise a wrongful dishonor claim if you return any items after sending (what it thinks is too much) money to the IRS.

Clearly, your institution is caught in the middle and obtaining legal advice on how to respond would be advisable.
Last edited by RayLynch; 01/11/12 06:50 PM.
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#1650600 - 01/13/12 12:47 PM Re: IRS Levy on Auth. Signer mdog76
John Burnett Offline
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I have no idea how realistic the risk that Ray describes is, but I can envision a fight over the question with the IRS, and it would not be pretty and it would be costly. The IRS's case would be strengthened if it can demonstrate that the bank knows that its taxpayer is depositing personal funds in the account on which he has only signature authority but not ownership.

In the final analysis, the bank is stuck in the middle on this question, and Ray's suggestion that you get legal counsel involved before action on the levy is a good one. Pick up the phone, and do it quickly.
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#1650615 - 01/13/12 01:12 PM Re: IRS Levy on Auth. Signer John Burnett
RayLynch Offline
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RayLynch
Joined: Oct 2003
Posts: 544
I have dealt with the IRS of levy issue against taxpayer deposits with a Bank (whether they are in account owned by the taxpayer or not) on a number of occasions - including going to court to dispute an asserted penalty against a bank for failure to turn over taxpayer funds. From personal experience, the IRS can easily be ruthless as it seeks to collect money.

The IRS essentially takes the position that its levy, reduced to simple English, stands for the proposition that if the taxpayer has any funds on deposit with the Bank and the Bank knows about those deposits, then the Bank needs to turn over the funds and if it won't, the IRS will comes after the Bank for that money by assessing a penalty for failure to turn over the funds (in the same amount it believes should have been turned over in response to the levy).

It is hard for someone to post all the key facts in a post that can influence the outcome of the matter - hence the necessity to speak to counsel. My fear for the bank involved in this situation is that its knowledge that the tax debtor is depositing personal funds in an account on which the the tax debtor has signing authority will be a killer for the bank.

The fact that the IRS served a levy on the bank means the IRS must have some idea that the tax debtor is running money through a bank account at the bank. Sending a response to the IRS that the tax debtor doesn't have any bank accounts at the bank will probably bring a quick response from the IRS (either a phone call from the agent who issued the levy or a subpoena for records on the account to see if the tax debtor has deposited funds into the account). It is important for the bank to be pro-active is dealing with this situation.

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#1650790 - 01/13/12 04:10 PM Re: IRS Levy on Auth. Signer mdog76
Andy_Z Offline
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I see the IRS reaching for funds the taxpayer doesn't own. Does the IRS have a right to them, not IMHO. But if they maintain that the bank knew the taxpayer was using that account, I can see them penalizing the bank. It is not too far a stretch from the bank paying some items in the OD for a business and not others, and then being deemed in control of the business and responsible for tax payments. (Been there.)

What I see as the bottom line is that the bank may spend thousands to defend itself. So ask, how valuable is this account and how long will it take to make that up. And that is just for the fight, if you lose it is a greater expense.

The bank should not help someone conceal assets and defraud the government or taxing authority.

I would review the bank's practices as what may knowingly be deposited into someone else's account.
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#1651118 - 01/13/12 08:10 PM Re: IRS Levy on Auth. Signer Andy_Z
RayLynch Offline
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RayLynch
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Posts: 544
I agree with your comments and to be clear, my comments about the IRS seeking funds from the account on which the tax debtor is an authorized signer goes to those personal funds that the tax debtor deposited into the account. The IRS should have no claim against the funds which belong to the account owner.

The problem is if the tax debtor has been commingling personal funds with the employer's funds in the employer's account. How does the bank now determine what portion of the funds now on deposit belong to the tax debtor and the employer?

The IRS might not agree with the accounting the bank or the employer uses to determine the amount of personal funds in the account which should be sent to the IRS. If that is the case, then the possibility of a penalty situation arises (if the IRS thinks more money should have been sent to them than what the bank sent). My experience is that IRS will forcefully pursue a penalty against a bank because it is easier to collect that money than continuing to chase after the tax debtor.

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#1654074 - 01/21/12 01:19 PM Re: IRS Levy on Auth. Signer mdog76
Elwood P. Dowd Offline
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You're in the briar patch on this one; any choice you make can be second guessed by someone with a financial incentive to do so. So, either process the levy against the account or don't, but prepare to live with the result.

Work toward eliminating the problem prospectively. If I am an authorized signer on my employer's account that does not empower me to deposit checks payable to me into that account without my employer's signature on the back of the item after mine. Find every teller who thinks otherwise and explain it to them.

Don't be too stern in talking to the customer whose account the checks were deposited in...your bank should never have allowed it to happen.
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