Jul 14, 2008

Levy on Independent Contracts

I recently received this question from a potential client ...

"I've received an IRS levy for one of my 1099 Independent Contractors. There is no money due the contractor today, but there will most likely be a commission due in 30 days. How do I treat future commissions?"

This is a great question and the IRS's Internal Revenue Manual is
a bit vague on this topic, however what the IRM does state is this...

Accounts receivable, notes receivable, and other debts owed to a taxpayer may be levied upon. Accounts receivable are assets representing money due to a taxpayer for products and services provided on credit.

Example: monies owed to the taxpayer by clients, customers,
patients, insurance companies, rental income, funds processed by credit card companies

Consider issuing a summons to the taxpayer's bank for deposited items to obtain information on possible accounts receivable on which to levy.
A note receivable is a certain amount loaned to another that is owed and payable at a certain time to the holder of the promissory note.

Example:money loaned to a customer, employee, or officer of the
company. A notice of levy reaches future payments, only if the taxpayer
already has a right to them.

If receivables can be sold, consider seizing and selling them.

This doesn't give a very good answer to the question, however what is typically assumed is that the levy only affects funds that are due to the taxpayer at the time the levy is received. If the taxpayer is not currently due any funds then the levy does not attach to anything and can be returned to the service with an acknowledgment that the taxpayer is not currently due any funds.

This however is not always the case as the levy could be a continuous levy. If the levy is continuous then it attaches to any current and future funds due to the tax payer. The only way to tell is to review the form 668 (Notice of Levy) and if in the top left corner of the form has a (c) next to the 668, then the levy is continuous and the taxpayer needs to seek immediate representation.


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