California Federal Court Holds Bank Responsible For Funds Subject To IRS Levy On Customer’s Account

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On August 15, the U.S. District Court for the Central District of California held that a bank responded too slowly to a government levy on a customer’s account and was therefore responsible for funds subsequently removed by the customer. The IRS notified the bank of a jeopardy levy on the account of a customer who received an improper tax refund and refused to return those funds to the government. Before the bank acted on the notice, the customer removed the funds from his account and the IRS was unable to recover them. The government then turned to the bank for relief, asserting that under the Internal Revenue Code, any person who fails or refuses to surrender any property subject to a levy is liable to the government. The court held that although the statute does not require the bank to immediately surrender the property, the bank was required, upon receiving notice, “to preserve that property or run the risk of paying the depositor’s tax bill.” The court explained that once the levy was served on the bank, the bank was in the best position to protect the property, and that even if the bank acted reasonably—i.e., without any undue delay—it could still be liable for the levied property.

Topics:  Bank Accounts, Banks, IRS, Levy, Tax Refunds

Published In: Civil Procedure Updates, Civil Remedies Updates, Finance & Banking Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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