JPMorgan Chase Bank , N.A. received a notice of levy against the assets of one of its depositors. Two hours later, the taxpayer went to the bank and withdrew $40,000, before the bank froze the account (it actually took the bank 2 days to fully process the levy).
The IRS sought to hold the bank liable for the $40,000. The bank countered that it only had to act to freeze the account within a reasonable period of time – and two hours is not reasonable. The District Court found for the IRS.
The Court noted there are only two statutory defenses for the bank under Code Section 6332. The first is that the defendant “did not possess any property or rights to property of the taxpayer,” and second, that “the property was subject to a prior attachment or execution.” Neither applied here, so the bank had to raise equitable defenses such as reasonableness.
The Court could find no “reasonableness” exception under Code Section 6332. While there is one as to the imposition of an ADDITIONAL 50% penalty that the IRS could apply, the statute does not provide one for the base liability of the property holder.
There were other issues here, such as whether the IRS improperly tipped off the taxpayer of its intent to levy, to the prejudice of the bank, but they do not appear to have impacted the Court’s analysis of the bank’s statutory obligations.
So…failing to act within 2 hours was too long a wait for the bank. Under the reasoning of the opinion, a 1 minute delay in freezing the account may likewise have imposed liability on the bank, as ridiculous as that may be. This is very dangerous precedent for those that receive notices of levy – unless they act to protect the levied property instantaneously, they suffer risk of being guarantors of the tax liabilities of their customers.
U.S. v. JPMORGAN CHASE BANK, 114 AFTR 2d 2014-XXXX, (DC CA), 08/15/2014