Levy on other income

[Jesse]

A contractor received a levy on income paid to a subcontractor. The sub is a painter and is paid on a per job basis, so payments are sporadic. Would the monthly exemption apply, therefore, any amount above the monthly exemption amount would be sent to the IRS?

For some reason I have 28% paid to subs stuck in my head, not sure if I read this or thought I heard it at a seminar?

Edit: After further research I think an error made by IRS in that a Form 668-A should have been issued and not Form 668-W(c). This is something I have not dealt with before and it is indeed confusing at first. Any thoughts from those of you that are familiar with this process?

[Gretel]

If memory serves right (I just read this myself and was very surprised, don't remember though where I read this), a levy on a subcontractor is for the present only, meaning on the day the levy is served and no funds are owed, no levy obligation. You want to do some more research on this, unless someone "with authority" can confirm.

This is contrary to levies on wages.

I believe 28% is for backup withholding but this is a different story.

[Davc]

Agree with Gretel.

[ChEAr$]

in FACT.... if you don't have the W9 or your own acceptable substitute signed by the contractor, you MUST withhold the 28%.

[kpangelinan]

If memory serves right (I just read this myself and was very surprised, don't remember though where I read this), a levy on a subcontractor is for the present only, meaning on the day the levy is served and no funds are owed, no levy obligation. You want to do some more research on this, unless someone "with authority" can confirm.

This is contrary to levies on wages.

I believe 28% is for backup withholding but this is a different story.

This is how I understood it as well, however, I just had a client who's contractor (realtor to agent) received the levy notice. I explained how it worked as described above and they, the contractor, call collections (# on the levy notice) and they told her it was what was owed now and anything in the future. I didn't think this was the case.

in FACT.... if you don't have the W9 or your own acceptable substitute signed by the contractor, you MUST withhold the 28%.

Agreed.

[New York Enrolled Agent]

From the IRM:

5.11.5.3 (09-14-2010)
Continuous Effect of Levy on Salary and Wages
Unlike other levies, a levy on a taxpayer's wages and salary has a continuous effect. It attaches to future payments, until the levy is released. Wages and salary include fees, bonuses, commissions, and similar items. All other levies only attach to property and rights to property that exist when the levy is served.

Example:
If a bank account is levied, it only reaches money in the account when the levy is served. It does not reach money deposited later.


When other income is levied, the levy reaches payment the taxpayer has a fixed and determinable right to. If the taxpayer's right to that payment is not dependent upon the performance of future services, then the levy will reach the future payments as well. Also see IRM 5.11.6.1, Retirement Income.

Example:
A Form 668-A is issued to levy an author's royalties. The author has a fixed and determinable right to royalties for books that have already been published. The levy reaches royalties for sales of those books in the future. The levy does not reach royalties for books that are written and published later. A new levy must be served to take those royalties.

Example:
A Form 668-W is issued to levy a taxpayer's retirement income. The taxpayer has a fixed right to the future payments; therefore, the levy remains in effect until it is released.

Do the painter's payments constitute "similar items"? FWIW, I believe in 1995 the 4th circuit agreed with the IRS in the case of an insurance salesman. That might be different as most insurance people have a continuous stream of commission income.

[Jesse]

in FACT.... if you don't have the W9 or your own acceptable substitute signed by the contractor, you MUST withhold the 28%.

This is what I thought, and this is what I stress to all my clients. In gathering information for this levy I read the instructions for the W-9 and was surprised (or am I misinterpreting) the W-9 doesn't necessarily have to be signed. Also I thought the W-9 instructions was were I might have read the 28% rule, possibly an older version?

http://www.irs.gov/pub/irs-pdf/fw9.pdf?portlet=103

Part II. Certification
To establish to the withholding agent that you are a U.S. person, or
resident alien, sign Form W-9. You may be requested to sign by the
withholding agent even if item 1, below, and items 4 and 5 on page 4
indicate otherwise..............


4. Other payments. You must give your correct TIN, but you do not
have to sign the certification unless you have been notified that you
have previously given an incorrect TIN. “Other payments” include
payments made in the course of the requester’s trade or business for
rents, royalties, goods (other than bills for merchandise), medical and
health care services (including payments to corporations), payments to
a nonemployee for services, payments to certain fishing boat crew
members and fishermen, and gross proceeds paid to attorneys
(including payments to corporations).

From the IRM:

5.11.5.3 (09-14-2010)
Continuous Effect of Levy on Salary and Wages
Unlike other levies, a levy on a taxpayer's wages and salary has a continuous effect. It attaches to future payments, until the levy is released. Wages and salary include fees, bonuses, commissions, and similar items. All other levies only attach to property and rights to property that exist when the levy is served.

Example:
If a bank account is levied, it only reaches money in the account when the levy is served. It does not reach money deposited later.


When other income is levied, the levy reaches payment the taxpayer has a fixed and determinable right to. If the taxpayer's right to that payment is not dependent upon the performance of future services, then the levy will reach the future payments as well. Also see IRM 5.11.6.1, Retirement Income.

Example:
A Form 668-A is issued to levy an author's royalties. The author has a fixed and determinable right to royalties for books that have already been published. The levy reaches royalties for sales of those books in the future. The levy does not reach royalties for books that are written and published later. A new levy must be served to take those royalties.

Example:
A Form 668-W is issued to levy a taxpayer's retirement income. The taxpayer has a fixed right to the future payments; therefore, the levy remains in effect until it is released.

Do the painter's payments constitute "similar items"? FWIW, I believe in 1995 the 4th circuit agreed with the IRS in the case of an insurance salesman. That might be different as most insurance people have a continuous stream of income.

My initial thought was the payments were "similar items", but it would be sporadic and not even always monthly payments. If "similar items" you would have to consider an exemption amount, if future payments not considered you would need to send in 100% of what is owed as of the date the levy received. On occasion this could be substantial.

[ChEAr$]

To the OP:

Best to make a distinction between a levy and 28% withholding.

They are not the same.

A levy from IRS means send us money because he already owes us money.

the 28% withholding stems from not have sufficient information as to whether or not backup withholding maintains.

[kpangelinan]

From the IRM:

5.11.5.3 (09-14-2010)
Continuous Effect of Levy on Salary and Wages
Unlike other levies, a levy on a taxpayer's wages and salary has a continuous effect. It attaches to future payments, until the levy is released. Wages and salary include fees, bonuses, commissions, and similar items. All other levies only attach to property and rights to property that exist when the levy is served.

Example:
If a bank account is levied, it only reaches money in the account when the levy is served. It does not reach money deposited later.


When other income is levied, the levy reaches payment the taxpayer has a fixed and determinable right to. If the taxpayer's right to that payment is not dependent upon the performance of future services, then the levy will reach the future payments as well. Also see IRM 5.11.6.1, Retirement Income.

Example:
A Form 668-A is issued to levy an author's royalties. The author has a fixed and determinable right to royalties for books that have already been published. The levy reaches royalties for sales of those books in the future. The levy does not reach royalties for books that are written and published later. A new levy must be served to take those royalties.

Example:
A Form 668-W is issued to levy a taxpayer's retirement income. The taxpayer has a fixed right to the future payments; therefore, the levy remains in effect until it is released.

Do the painter's payments constitute "similar items"? FWIW, I believe in 1995 the 4th circuit agreed with the IRS in the case of an insurance salesman. That might be different as most insurance people have a continuous stream of commission income.

Thanks for taking the time to post......this is very helpful information.