Continuing levy notice held applicable to commissions due independent contractor.

• Author: Friedman, Steven M.
• Position: Jefferson-Pilot Life Insurance Co.

The Fourth Circuit recently affirmed a district court's holding that commissions paid to an independent contractor may be subjected to a continuing levy under Sec. 6331(e) (Jefferson-pilot Life Insurance Co., 1995). In light of this decision, a taxpayer that fails to comply with a continuing levy notice from the Service, which would require monitoring future payments due an independent contractor, could face severe consequences. The taxpayer could be held personally liable for such failure for an amount equal to the value of property or rights not turned over to the government. In addition, under See. 6332(d), a 50% penalty could be assessed if the failure to honor the levy was without reasonable cause.

The IRS served Jefferson-Pilot with a notice of levy for an independent insurance salesman's wages, salary or other income. The terms of the levy notice stated that it applied to "(1) all wages and salary for personal services of this taxpayer that you now possess or for which you are obligated, from the date you receive this notice of levy until a release of levy is issued, and (2) other income belonging to this taxpayer that you now possess or for which you are obligated."

Jefferson-Pilot returned the notice of levy to the Service without making a payment, stating that the notice constituted a one-time levy, and that no amounts were due and owing to the independent contractor as of the date of the notice. Subsequent payments were made to the salesman and the IRS commenced an action to enforce the levy.

Pursuant to Sec. 6331(e), the effect of a levy on salary or wages payable to a taxpayer is continuous from the date the levy is first made until the levy is released by the Service. This is in contrast to other levies under Sec. 6331(b), which reach only property or property rights in existence at the time the notice of levy is served.

The statutory provision does not contain a definition for either the term "salary" or "wages." Regs. Sec. 301.6331-2(c) defines the terms to...