Congress should rewrite IRC 6331(d)(3)(A) Effect of Levy to read:

    The effect of a levy on salary or wages payable to or received by
    a taxpayer shall be continuous from the date such levy is first made
    until the liability out of which such levy arose is either satisfied
    or has become unenforceable by reason of lapse of time, or the tax-
    payer and the Secretary have entered into an installment agreement,
    or the Secretary has determined that the tax is not currently
    collectible due to the financial hardship of the taxpayer.

Reasons for Change:

The Tax Reform Act of 1976 made two major changes in the Notice of Levy procedure. The taxpayer was granted a minimum exemption from the levy, as specified by IRC 6334(a)(9), and the levy became continuous until paid or the statute of limitations ran out. Previously the levy on wages, salaries, and other income was a "one-shot" affair-it took the entire net paycheck due the taxpayer at time of service, but the levy was released by payment of that amount.

IRS regulation 301.6343-l.(a)(2)(V) provides for a release of levy when "the delinquent taxpayer makes satisfactory arrangements with the district director to pay the amount of the liability in installments." And as a practical matter, most Notices of Levy on wages, salary, and other income are released when the taxpayer comes into the office and an installment agreement is made. But the Internal Revenue Code makes no provision for the right of taxpayers to enter into an installment agreement, nor does it provide for the release of a levy for conditions other than full payment (IRC 6337), except when such release will "facilitate collection" of the tax (IRC 6343).

A collection manager might argue that a release of levy for an installment agreement would only "facilitate collection of the liability" when the amount to be paid under the installment agreement is greater than the amount to be received under the levy. From this kind of reasoning, the taxpayer has no protection.

A continuous levy could impose more of a hardship on taxpayers than the pre- 1976 law which allowed the IRS to take the whole paycheck. But it was the intent of Congress to respond to situations where taxpayers and their families were left without funds to buy groceries. By codifying the provision to allow a release for an installment agreement, Congress will be assisting those taxpayers who would attempt to work out a way to pay their taxes, even though they were late in doing so. (Taxpayers typically get four notices before a levy is made and levies are usually made in nonresponse situations.) While the collection manual does specify that certain taxpayers will be considered" for an installment agreement when they state an inability to pay the full amount for financial reasons (IRM 5231.1:(1)) and some taxpayers "will be granted an installment agreement for up to 12 months" automatically (those individual income taxpayers responding to notices; IRM 5231.3:(1)), there are large groups of taxpayers who do not fall under the automatic provisions, but who would enter into an installment agreement if the local IRS office would allow them to do so. Some collection managers do not like installment agreements and may refuse to release a levy when the taxpayer does not meet either the criteria for an automatic agreement or the manager's own peculiar policies.

A collection manager could decide that if a taxpayer does not qualify under IRS's criteria for an automatic installment agreement, and if the amount received from levy is greater than the amount the taxpayer is proposing to pay each month under an agreement, and there are no other major assets for seizure, that since the law does not require a release of levy, and the taxpayer is not entitled to a release of levy per the Internal Revenue Manual, the levy will not be released.

The law also needs to be changed to provide for a release of levy when the taxpayer can demonstrate a "hardship." The IRS frequently suspends all collection action on a case when the tax cannot be collected because "it is determined that collection of the tax would prevent the taxpayer from meeting necessary living expenses." If the taxpayer comes into the local IRS office in response to a balance-due notice, the collection employee will obtain a Collection Information Statement, and if an ability to pay exists, the account will be suspended. But if the taxpayer does not respond to the notices, and IRS subsequently levies his wages or salary, then when the taxpayer comes into the office and presents a case of inability to pay, there is no Manual provision or Code section requiring the IRS to release the levy. Even though most collection employees would release the levy in a hardship case, the regulations pursuant to IRC 6343 do not provide for such a release. The taxpayer who presents his hardship case after the levy is served has less protection than the taxpayer who responded before the levy was served. The same inability to pay that existed prior to levy exists subsequent to the levy. A taxpayer's protection should not depend upon that kind of timing.