The Internal Revenue Service (IRS) has temporarily modified its levy procedures, through September 15, 2021, for taxpayers that received Paycheck Protection Program (PPP) loans.  The SBA requires eligible small businesses to use their PPP loan proceeds to pay certain expenses, including payroll, health insurance, retirement benefits, and rent. PPP loans may be fully forgiven when the taxpayer meets the criteria for forgiveness.

The Consolidated Appropriations Act, 2021 (CCA, 2021; PL 116-260) that was signed into law on December 27, 2020 authorized another round of PPP loans for both first time recipients and those who received PPP funds previously.

However, the IRS may collect a past due tax from any person who neglects to pay the tax within 10 days after notice and demand, by levying upon the person’s property and rights to property (except exempt property).  

The IRS has temporarily modified its levy procedures to avoid, if possible, levies involving PPP loan proceeds. The IRS has instructed its employees to use soft contact procedures prior to initiating enforcement actions. A soft contact entails approaching the taxpayer with caution and extreme sensitivity to their personal circumstances. (IRM 5.1.12.2.7) 

If possible, IRS employees should determine (1) if the taxpayer secured a PPP loan and in what amount; and (2) where the funds were deposited and when. Also, they should not knowingly levy on a bank account that contains the proceeds of a PPP loan the taxpayer received within 24 weeks prior to the levy. 

When PPP funds are levied inadvertently, IRS employees must release the levy on the PPP funds. However, if the employee believes that, because of exigent circumstances, the levy should not be released, the matter must be brought to the attention of the Area Director or Campus Director and documented in the case history before communicating any decision to the taxpayer.

It isn’t clear whether an IRS employee, believing exigent circumstances exist, should release a levy on PPP funds and then escalate the matter to the Area Director or if the employee should escalate the issue before releasing the levy. 

An exigent circumstance involves the final loss of the government’s opportunity to collect the taxes due, such as the expiration of the statute of limitations, the taxpayer has placed assets beyond the reach of the government, etc. Generally, the taxpayer’s indication that they may file for bankruptcy is not an exigent circumstance.