CHAPTER 16. INTERNAL REVENUE SERVICE (IRS) LEVIES

16.01 GENERAL

Internal Revenue Service levies for delinquent Federal taxes will be honored when such monies are available or will become available from non-service-connected payments due or to become due for the month (including retroactive adjustments) in which the Notice of Levy is received; the net pay due employees for the current biweekly pay period as set forth in MP-4, Part II; or funds due vendors for any payments for supplies of services. IRS Notices of Levy are normally received by mail in triplicate (although in some instances only two copies are received). The Fiscal activity will sign and record the date and time on all copies above the addressee's name and address.

16.02 PAYMENTS OR DEDUCTIONS EXCLUDED FROM IRS LEVY

When payment or deduction is excluded from IRS levy, the Notice of Levy will be annotated "Not processed in accordance with Section 1565 of the Tax Reform Act of 1986" and returned to the IRS. The following payments or deductions are excluded from IRS levy:

(1) Federal income tax withholding (for statutory amount);

(2) Federal Insurance Contributions Act Tax (FICA);

(3) Repayment of erroneous payment made to the employee;

(4) Prior advances made in connection with change of station (advance payments);

(5) U.S. Soldiers' Home payments;

(6) Class Q allotments as provided under section 4 of Department's Assistance Act of 1950; and

(7) Pay forfeited under court martial proceedings.

16.03 TITLE 38 PAYMENTS EXCLUDED FROM IRS LEVY

When Title 38 payments are excluded from IRS levy, the Notice of Levy will be annotated "Not processed in accordance with Section 1565 of the Tax Reform Act of 1986" and returned to the IRS. The following benefit payments are excluded from IRS levy:

(1) Special monthly pension awarded to person whose name has been entered on the Army, Navy, Air Force, and Coast Guard Medal of Honor Roll;

(2) Travel expenses authorized under section 111 in connection with certain examinations, treatment and counseling;

(3) Disability compensation payable under chapter 11, including amounts released upon restoration of competency as provided in section 5503(b)(1)(B) of chapter 55;

(4) Payments for home improvement and structural alterations under section 1712a;

(5) Reimbursement of medical expenses under section 628 based upon eligibility as a service-disabled veteran;

(6) Total-disability-income payments under NSLI and USGLI insurance programs (sections 1915, 1948);

(7) Specially adapted housing grants under chapter 21;

(8) Payments under chapters 30, 32, 34, and 36 education programs where eligibility is based upon discharge for service-connected disability prior to serving the requisite tour of duty that is otherwise required;

(9) Payments under chapter 31 (vocational rehabilitation and training) for service-disabled veterans;

(10) Dependents' (but not survivors') education assistance under chapter 35;

(11) Direct home loans under chapter 37 where eligibility is based upon discharge for service-connected disability; and

(l2) Reimbursements for automotive adaptive equipment under chapter 39.

16.04 PAYMENTS APPLICABLE FOR LEVY

When benefit payments or other payments (not excluded above) are applicable for offset, appropriate offset will be made and Part 1 of the notice will be returned to the Internal Revenue Service, Part 2 will be retained by VA, and Part 3 (when received) will be forwarded to the debtor. If part 3 is not received by VA, it is assumed that it has been mailed to the debtor by the IRS.

16.05 PAYMENTS NOT APPLICABLE FOR LEVY

If payments are not due the taxpayer debtor, the Notice of Levy will be annotated as such and all copies will be returned to the IRS.