A federal appeals court has ruled that an employee whose wages were subject to a federal tax levy can’t sue his employer for violations of his Fourth and Fifth Amendment rights or for theft of money under state law. (Bullock v. Bimbo Bakeries USA, Inc., et al., No. 10-3276, 3rd Cir., 2011)
Pay your taxes ... or else. An employee whose wages were subject to a federal tax levy requested that his employer cease withholding under the levy. After the company replied that withholding under the levy would cease only upon the IRS’ say-so, he sued, alleging violations of the Fourth and Fifth Amendments. He also asserted claims under state criminal-theft statutes.
A federal trial court dismissed his case, and an appeals court affirmed the trial court’s ruling. Appeals court: The tax code absolves employers from liability for honoring tax levies. In addition, the employee cannot maintain his Constitutional and state law claims against private entities.
PAYROLL PRACTICE TIP: The only way withholding under an ongoing tax levy can cease is if the employee, the company and the IRS enter into a voluntary withholding arrangement. The employee files Form 2159 with the IRS to initiate voluntary withholding. Similar to tax levies, withholding under a voluntary agreement continues until the IRS provides a release. If the amount owed, as shown on the form, is paid in full, and the IRS hasn’t notified you that the employee’s liability has been satisfied, call the IRS at the appropriate phone number listed on the form to request the final balance due.