Congress should add a subsection to IRC 6334, Property Exempt from Levy, as follows:

    Any amounts received by an individual otherwise qualifying for
    exemption under subsection (a)(9) of this Section, deposited in
    a financial institution, shall be subject to the same exemptions
    as specified in subsection (d) of this section. Any levy upon
    the deposit(s) of wages, salary, or other income shall not be
    continuous.

Reasons for Change:

The Tax Reform Act of 1976 amended IRC 6334(a) by providing a minimum exemption from levy for wages, salary, and other income "payable to or received by an individual."

The regulations pursuant to IRC Section 6334(a)(9) clearly ignore the meaning of the words "received by" and, in fact, clearly restrict the minimum exemptions to "only wages, salary, or other income payable to the taxpayer after the levy is made on the payer. No amount of wages, salary, or other income which is paid to the taxpayer before levy is made on the payor will be exempt from levy."

The regulations even provide an example establishing the fact that wages, salary, or other income already received by an individual and deposited into an account at a financial institution do not qualify for the minimum exemptions. The following example appears under subparagraph (b) of the IRC section 6334:

    Example: Delinquent taxpayer A, an individual is employed by the
    M Corporation and is paid wages on the first and fifteenth day
    of each month. Accordingly, A is paid wages on Monday, August
    15, 1977. On Wednesday, August 17, A deposits these wages in his
    personal checking account at Bank X. On Friday, August 19, levy
    is made on the M Corporation and also on Bank X. Amounts payable
    to A as wages on September 1, 1977, and any payday thereafter may
    be exempt from levy under section 6334(a)(9). No amount of the
    wages A deposited in his account at Bank X on August 17, 1977,
    are exempt from levy under section 6334(a)(9).

The IRS's position is that wages, salaries and other income are changed in character once they've already been paid to, or, in essence, already received by the taxpayer. Otherwise, why would they deliberately not apply IRC 6334(a)(9) to deposits in a financial institution that originated from wages, salary, or other income? The unanswered question, then, is what is the meaning of the words "received by" in IRC 6334(a)(9)?

This proposal would clarify that unanswered question by applying the minimum exemptions to the same wages, salary, or other income already received by the taxpayer as are applied to those wages, salary, or other income payable to the taxpayer.