Back Off, IRS!—Accounts Holding Advance Child Tax Credit Payments Immune from Levy? | Freeman Law

By now, many eligible taxpayers may have discovered that a deposit was received in their bank account in July. This was likely on top of one or more letters from the Internal Revenue Service and / or the White House (which may or may not have given some taxpayers a heart attack because they thought the IRS letter was a potential income tax audit). That initial deposit and related communications started the advance payments for the child tax credit. Eligible taxpayers will receive regular payments between July and December 2021 prior to the 2021 child tax credit claimed on their 2021 income tax return. Some taxpayers are not enthusiastic about prepayments (if received); However, according to a recent memorandum issued by the Internal Revenue Service, such funds may be subject to tax protection.

Prepayments for Child Tax Credit

Generally, if a taxpayer has an eligible child during a given tax year, the taxpayer can claim a tax credit of up to $ 1,000 for each eligible child. However, the credit is subject to certain restrictions, including a credit reduction, if the taxpayer’s modified adjusted gross income exceeds certain thresholds:

(a) Granting Credit

Taxes under this Chapter will be charged $ 1,000 for the tax year for each eligible child of the taxpayer for whom the taxpayer is eligible for a Section 151 Deduction.

(b) Limitations

(1) Limitation based on adjusted gross income

The amount of credit allowed under subsection (a) will be reduced (but not less than zero) by $ 50 for every $ 1,000 (or a fraction thereof) by which the taxpayer’s modified adjusted gross income exceeds the threshold. For the purposes of the preceding sentence, the term “modified adjusted gross income” means the adjusted gross income increased by any amount excluded from gross income pursuant to sections 911, 931 or 933.

(2) Threshold

For the purposes of paragraph (1), the term “threshold value” means:

(A) $ 110,000 in the case of joint return,

(B) US $ 75,000 in the case of a single person and

(C) $ 55,000 in the case of a married individual filing a separate declaration.

For the purposes of this paragraph, marital status is determined in accordance with Section 7703.[1]

Under the American Rescue Plan Act of 2021, the Internal Revenue Service began making monthly prepayments of the 2021 Child Tax Credit to eligible Americans in July. The American Rescue Plan requires the IRS to prepay half of the child tax credit – the remaining portion of the tax credit can be claimed on the taxpayer’s 2021 income tax return.[2]

To be eligible for upfront child tax credit, a taxpayer must also have:

• Filed a 2019 or 2020 tax return and requested the child tax credit on the tax return; or
• Given the IRS information in 2020 to get the Economic Impact Payment with the Non-Filers: Enter Payment Info Here Tool; and
• Filing a primary residence in the United States for more than half the year (the 50 states and the District of Columbia) or a joint return with a spouse who has had a primary residence in the United States for more than half a year; and
• An eligible child who will be under 18 at the end of 2021 and who has a valid social security number; and
• Made less than certain income limits.[3]

Selling restrictions

On July 13, 2021, the Small Business / Self-Employed Department of the Internal Revenue Service instructed its employees not to collect bank accounts containing prepayments for child tax credits. In addition, the memorandum also provided guidance on the release of duties previously levied on bank accounts with such prepayments. The memorandum provides, among other things:

Input tax assessments

• • If possible, determine whether the taxpayer is receiving regular payments for the CTC and how much, where and when the funds will be deposited.
  • Employees should not collect any fees from a bank account containing regular Advance CTC funds unless the account is known to contain more than the maximum Advance CTC allowed.
  • Check IDRS to see if regular CTC payments are made prior to collection. . . .

Provisions for the release of taxes

If the Child Advance Tax Credit Fund is inadvertently levied, Employees must release the Child Advance Tax Credit Funding. In the case of monthly payments, no additional charges should be levied on the account until the monthly payments are completed at the end of 2021, unless the account has more than the eligible maximum CTC advance payment. . . .

If an employee believes there is an urgent need not to release the collected CTC funds, the matter must be brought to the area director or campus director and recorded in the medical history prior to communicating a decision to the taxpayer.

• • An urgent circumstance involves the ultimate loss of the ability for the state to collect taxes due, such as filing for bankruptcy is not an imperative.[4]

graduation

According to the requirements of the Internal Revenue Service, the deviations from typical collection activities are only temporary. These instructions to IRS staff are only valid through January 1, 2022. In addition, IRS staff are instructed not to charge any accounts that contain prepayments for child tax credits unless the account is known to be ceased than the maximum permitted child tax credit. In general, the IRS does not know about a bank account balance until after the 21-day approval period for an operational submission. However, this “knowledge” question in addition to the language “necessary circumstances” shows that the temporary guidance from the IRS is not an impenetrable shield for taxpayers.

[1] IRC § 24 (a) – (b).

[2] See generally IRC § 7527A.

[3] See IRC § 6331 (e); Rev. Rule. 55-210.

[4] IRS SB / SE Memorandum, Deviation for Levy Actions Involving Advance Payment of Child Tax Credit (CTC), control number: SBSE-05-0721-0038 (July 13, 2021).