Any third party that holds property on behalf of, or owes to, the taxpayer at the time of the service of the levy can be required to give that property to the IRS.
The authority for the levy on third parties comes generally from IRC §6331, the same as the authority for seizure. The Code does not distinguish clearly between a seizure of assets from the taxpayer and the levy of his assets on third parties. Both of them are referred to as "levy". Therefore the 10/30 day notice requirements of IRC §6331(d) also apply to levies on third parties. With regard to the property that is subject to the notice of levy, form 668-A, IRC §6331(b) states, in relevant part, that "a levy shall extend only to property possessed and obligations existing at the time thereof."
That means that the third party is obligated to send to the IRS only the property (funds) it holds on behalf of or owes to the taxpayer at the time of the service of form 668-A. However, if the IRS does not collect all the money it is owed with the first levy, it can continue to levy repeatedly until it does.
Whether it is a financial institution, the shareholder that has a loan from the taxpayer or a customer that owes the taxpayer the authority to levy does exist under the same statute for levy on any asset of the taxpayer regardless of the holder of the asset.
Hope this fully answers the question.
Enrolled Agent
I have prepared individual, trust, partnership, and corporate taxes since 1987.
Yes - if Company B holds property on behalf of or owes to Company A at the time of the service of the levy Company B can be required to give that property to the IRS.
Hope that clarifies the answer.
I did understand that Company A has the levy on their property - what was not clear earlier was what if anything Company B had that was owed to or owned by Company A which would allow the IRS to levy assets of Company B (including receivables due from customers). If there were intercompany loans or an amount due from Company B to Company A that would allow for levy on the assets of Company B for the obligation of Company A, as stated earlier.
The root of the issue is probably that Company A and Company B have the same owners. I have seen situations where the IRS asserts either:
1) that Company A transferred assets to Company B (for less than full consideration) so those assets are property of Company A and subject to levy or
2) that Company B is not in fact a separate entity from Company A and so the assets of Company B belong to Company A - this is most common when the offices, employees and other assets are shared by the two companies.
These two examples are not the only arguments that could allow the IRS to levy on the assets of the third party.
Did the customer of company B that got the notice have any relationship to Company A ; if so the assertion is probably that they are still a customer of Company A (but I can only guess based on the limited information in our discussion)
Have you (or your representative) posed the question to the Revenue Officer why Company B's customer has received a Notice of Levy for the liability of Company A ?
Hope this helps.
From the information presented it would appear that the customer of Company B can legitimately say that he is not obligated to send to the IRS anything; as there is no property (funds) it holds on behalf of or owes to Company A at the time of the service of the form 668-A.