Can IRS Levy 100% of a Taxpayer’s Social Security?

by Paul R. Tom Taxes and the IRS, Zeiders Law Firm Blog

I’m sure some of you have experienced this:

  • You or a friend or loved one receives a notice from the IRS that IRS has issued a levy to the Social Security Administration;
  • The notice (either a CP91 or a CP298) states that IRS is authorized under Internal Revenue Code (“IRC”) §6331(h) to levy up to 15% of a taxpayer’s Social Security benefit payments;
  • The notice further states that the taxpayer can avoid the Social Security levy by (1) full paying the liability within 30 days after the notice, or by (2) contacting IRS and presenting income and expense information showing that the Social Security levy creates an undue financial hardship and should be released.

At a recent taxpayer defense conference I attended, a few of the tax professionals in attendance reported that they have represented clients who have had far more than 15% of their Social Security benefit payments levied.  A couple of professionals even reported that IRS had levied 100% of the client’s Social Security benefit payments.  OUCH!

Everyone in attendance at the Conference agreed that a 100% Social Security levy is unfair, but we disagreed about whether it’s legal.  After all, IRC §6331(h) states:

If the Secretary approves a levy under [IRC §6331(h)], the effect of such levy on specified payments to or received by a taxpayer shall be continuous from the date such levy is first made until such levy is released. Notwithstanding section 6334, such continuous levy shall attach to up to 15 percent of any specified payment due to the taxpayer.

Social Security benefit payments qualify as “specified payments”, so if the IRS levy is approved under IRC §6331(h), isn’t IRS limited to taking no more than 15% of each Social Security payment?  Yes, there is no question that a §6331(h) Social Security levy is statutorily limited to 15% of the payment.  Well, if that’s true, how can IRS legally levy more than 15% of my client’s Social Security benefit payments?

Section 6331(a) of the Internal Revenue Code, the general levy section, authorizes IRS to issue levies as follows:

If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax (and such further sum as shall be sufficient to cover the expenses of the levy) by levy upon all property and rights to property (except such property as is exempt under section 6334) belonging to such person or on which there is a lien provided in this chapter for the payment of such tax. Levy may be made upon the accrued salary or wages of any officer, employee, or elected official, of the United States, the District of Columbia, or any agency or instrumentality of the United States or the District of Columbia, by serving a notice of levy on the employer (as defined in section 3401(d)) of such officer, employee, or elected official. If the Secretary makes a finding that the collection of such tax is in jeopardy, notice and demand for immediate payment of such tax may be made by the Secretary and, upon failure or refusal to pay such tax, collection thereof by levy shall be lawful without regard to the 10-day period provided in this section.

Many of you reading this have experienced or at least heard of a levy being served on the taxpayer’s bank.  A bank levy, which is issued under the authority of IRC §6331(a), is a “one-time-hitter”, meaning that on the date the levy is received by the bank, the bank will pay IRS the balance of the bank account or the entire tax balance due, whichever is less.  Deposits made into the bank account on the day after the levy is received by the bank are not affected.  A §6331(a) is also issued to collect money in a brokerage account or an IRA and also to collect payments due to an independent contractor for work performed.

When the taxpayer receives Social Security and owes federal taxes, IRS typically uses a §6331(h) levy to collect the tax, and limits its collection to no more than 15%.  But §6331(h) is not the only way IRS can collect against Social Security.  Occasionally, IRS will levy Social Security pursuant to §6331(a), and if they do that, they are legally authorized to collect up to 100% of each and every Social Security payment until the entire tax debt, including penalties and interest, is paid in full.  A 100% levy against Social Security is punitive, harsh, unfair, Draconian and . . . entirely legal!

Several federal court cases have held that IRS is not statutorily limited to collecting only 15% of a taxpayer’ Social Security payments.  If the IRS levy is issued pursuant to IRC §6331(a), it reaches 100% of each Social Security payment and continues until the entire assessed balance of tax penalty and interest is collected.

In Hines v. United States, 658 F. Supp. 2d 139 (DDC 2009), the plaintiff (“Hines”) owed taxes for 1996 through 2001 and also owed for 2003.  IRS was levying the Hines’ income, including 100% of each of Hines’ monthly Social Security benefit payments.  Hines sued IRS in the Washington D.C. federal court and alleged, among other things, that IRS was limited by IRC §6331(h) to collecting only 15% of Hines’ monthly Social Security payments.  IRS answered Hines’ allegations, counterclaimed to reduce the tax assessment to a judgment, and quickly filed a motion for summary judgment on all outstanding issues.

In his response to IRS’s Motion for Summary Judgment, Hines argued that IRS’s levy on his Social Security benefits violated the 15% cap on “continuous” levies against “specified payments” imposed by IRC §6331(h).  IRS countered Hines’ argument by stating that the levy it issued against Hines was not a “continuous levy”, and therefore it was not limited to 15% of each payment.

In its opinion, the Court discussed the history of the continuous wage levy, the 15% limitation on §6331(h) levies, and the fact that IRS has the discretion whether to levy Social Security under §6331(h) subject to the 15% cap or under §6331(a) which is not subject to any cap.  The Court also held that IRS has the authority under §6331(a) to levy 100% of both current and all future Social Security payments, because:

  • Social Security benefits are vested in the taxpayer and create a current obligation for the United States;
  • Social Security benefits are “fixed” because they are based on the beneficiary’s average lifetime employment earnings; and,
  • Social Security benefits are “determinable” and can be calculated using the statutory benefits formula set forth in Title 42 of the United States Code (“USC”) at §402 et seq.

Having found that Hines’ Social Security payments are fixed and determinable obligations, the Court held that:  “The Social Security Administration’s ongoing payment of a specific amount of retirement benefits to plaintiff every month therefore was an ‘obligation existing at the time’ the levies attached under 26 U.S.C. §6331(b).”

After concluding that IRS was entitled to 100% of Hines’ Social Security, the Court pounded the final nail in Hines’ coffin by granting IRS summary judgment on its counterclaim reducing Hines’ tax assessment to a judgment which extended the 10-year statute of limitations on collection for an additional 20 years.

IRS frequently levies on Social Security benefits, but Social Security levies are almost always sought pursuant to IRC §6331(h) and limited to 15%.  One hundred percent Social Security levies pursuant to IRC §6331(a) are rare.  In fact, many of the attendees at the taxpayer defense conference had represented taxpayers for many years and never seen one.  But the fact that they are rare doesn’t mean they are unlawful.  Just ask Mr. Hines.  Unfortunately, the answer to the title question of this article is “Yes!”