Last month a court dismissed an employee's lawsuit against his employer when the employer complied with an IRS levy and garnished the employee’s wages. The employee in his lawsuit alleged that the employer acted negligently in failing to determine the validity of the IRS levy. The court found that an employer has no standing to challenge the validity of an IRS levy issued against one of its employees and further the employer is protected under Internal Revenue Code Section 6332(e) (“Code Sec.”) when it does honor an IRS levy.

In the case the plaintiff, employee, brought an action in state court against his employer claiming that the employer unlawfully complied with an IRS levy and garnished his wages. The employee claimed that his employer should have known that his wages were exempt from garnishment and that the IRS Notice of Levy was invalid. The employer motioned that the case be transferred to a federal district court where a Magistrate Judge recommended granting the employer’s motion to dismiss the employee’s lawsuit.

The federal district court in finding for the employer and against the employee noted that the employer had no duty to ensure that the employee had received process or even that the levy was valid. The court held that once the IRS served a Notice of Levy on the employer, it had a legal obligation under Code Sec. 6332(a) to turn over the wages to IRS. The Employer could not challenge the validity of the levy. The fact that the employee could challenge the validity of the levy in no manner altered the employer’s duty to comply with the levy. The employer had no standing to legally challenge the levy's validity and therefore could not be held liable for having failed to do what it could not legally do.

The court noted that Code Sec. 6332(e) has been consistently interpreted to be valid and unambiguously protects parties who comply with an IRS notice of levy from facing liability. The court also rejected the employee’s claim that the employer failed to honor his wages as exempt per the employee’s W-4. The court noted significant case precedent that an employer cannot be made liable for failing to honor an employee's W-4 form when it has been directed to do so by IRS.