[Code of Federal Regulations]
[Title 26, Volume 18]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR301.6332-2]

[Page 288-290]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 301_PROCEDURE AND ADMINISTRATION--Table of Contents
 
               Seizure of Property for Collection of Taxes
 
Sec. 301.6332-2  Surrender of property subject to levy in the case of 
life insurance and endowment contracts.

    (a) In general. This section provides special rules relating to the 
surrender of property subject to levy in the case of life insurance and 
endowment contracts. The provisions of Sec. 301.6332-1 which relate 
generally to the surrender of property subject to levy apply, to the 
extent not inconsistent with the special rules set forth in this 
section, to a levy in the case of life insurance and endowment 
contracts.
    (b) Effect of service of notice of levy--(1) In general.--(i) A 
notice of levy served by a district director on an insuring organization 
with respect to a life insurance or endowment contract issued by the 
organization shall constitute--
    (A) A demand by the district director for the payment of the cash 
loan value of the contract adjusted in accordance with paragraph (c) of 
this section, and
    (B) The exercise of the right of the person against whom the tax is 
assessed to the advance of such cash loan value.
    (ii) It is unnecessary for the district director to surrender the 
contract document to the insuring organization upon which the levy is 
made. However, the notice of levy will include a certification by the 
district director that a copy of the notice of levy has been mailed to 
the person against whom the tax is assessed at his last known address. 
For further guidance regarding the definition of last known address, see 
Sec. 301.6212-2. At the time of service of the notice of levy, the levy 
is effective with respect to the cash loan value of the insurance 
contract, subject to the condition that if the levy is not satisfied or 
released before the 90th day after the date of service, the levy can be 
satisfied only by payment of the amount described in paragraph (c) of 
this section. Other than satisfaction or release of the levy, no event 
during the 90-day period subsequent to the date of service of the notice 
of levy shall release the cash loan value from the effect of the levy. 
For example, the termination of the policy by the taxpayer or by the 
death of the insured during such 90-day period shall not release the 
levy. For the rules relating to the time when the insuring organization 
is to pay over the required amount, see paragraph (c) of this section.
    (2) Notification of amount subject to levy--(i) Full payment before 
the 90th day. In the event that the unpaid liability to which the levy 
relates is satisfied at any time during the 90-day period subsequent to 
the date of service of the notice of levy, the district director will 
promptly give the insuring organization written notification that the 
levy is released.
    (ii) Notification after the 90th day. In the event that notification 
is not given under subdivision (i) of this subparagraph, the district 
director will, promptly following the 90th day after service of the 
notice of levy, give the insuring organization written notification of 
the current status of all accounts listed on the notice of levy, and of 
the total payments received since service of the notice of levy. This 
notification will be given to the insuring organization whether or not 
there has been any change in the status of the accounts.
    (c) Satisfaction of levy--(1) In general. The levy described in 
paragraph (b) of this section with respect to a life insurance or 
endowment contract shall be deemed to be satisfied if the insuring 
organization pays over to the district director the amount which the 
person against whom the tax is assessed could have had advanced to him 
by the organization on the 90th day after service of the notice of levy 
on the organization. However, this amount is increased by the amount of 
any advance (including contractual interest thereon), generally called a 
policy loan, made to the person on or after the date the organization 
has actual notice or knowledge, within the meaning of section 
6323(i)(1), of the existence of the tax lien with respect to which the 
levy is made. The insuring organization may, nevertheless, make an 
advance (including contractual interest thereon), generally called an 
automatic premium loan, made automatically to maintain the contract in 
force under an agreement entered into before the organization has such 
actual notice or knowledge. In any event, the amount paid to the 
district director by the insuring organization is not to exceed

[[Page 289]]

the amount of the unpaid liability shown on the notification described 
in paragraph (b)(2) of this section. The amount, determined in 
accordance with the provisions of this section, subject to the levy 
shall be paid to the district director by the insuring organization 
promptly after receipt of the notification described in paragraph (b)(2) 
of this section. The satisfaction of a levy with respect to a life 
insurance or endowment contract will not discharge the contract from the 
tax lien. However, see section 6323(b)(9)(C) and the regulations 
thereunder concerning the liability of an insurance company after 
satisfaction of a levy with respect to a life insurance or endowment 
contract. If the person against whom the tax is assessed so directs, the 
insuring organization, on a date before the 90th day after service of 
the notice of levy, may satisfy the levy by paying over an amount 
computed in accordance with the provisions of this subparagraph 
substituting such date for the 90th day. In the event of termination of 
the policy by the taxpayer or by the death of the insured on a date 
before the 90th day after service of the notice of levy, the amount to 
be paid over to the district director by the insuring organization in 
satisfaction of the levy shall be an amount computed in accordance with 
the provisions of this subparagraph substituting the date of termination 
of the policy or the date of death for the 90th day.
    (2) Examples. The provisions of this section may be illustrated by 
the following examples:

    Example 1. On March 5, 1968, a notice of levy for an unpaid income 
tax assessment due from A in the amount of $3,000 is served on the X 
Insurance Company with respect to A's life insurance policy. On March 5, 
1968, the cash loan value of the policy is $1,500. On April 9, 1968, A 
does not pay a premium due on the policy in the amount of $200. Under an 
automatic premium advance provision contained in the policy originally 
issued in 1960, X advances the premium out of the cash value of the 
policy. As of June 3, 1968 (the 90th day after service of the notice of 
levy), pursuant to the provisions of the policy, the amount of accrued 
charges upon the automatic premium advance in the amount of $200 for the 
period April 9, 1968, through June 3, 1968, is $2. On June 5, 1968, the 
district director gives written notification to X indicating that A's 
unpaid tax assessment is $2,500. Under this section, X is required to 
pay to the district director, promptly after receipt of the June 5, 
1968, notification, the sum of $1,298 ($1,500 less $200 less $2), which 
is the amount A could have had advanced to him by X on June 3, 1968.
    Example 2. Assume the same facts as in example 1 except that on May 
10, 1968, A requests and X grants an advance in the amount of $1,000. X 
has actual notice of the existence of the lien by reason of the service 
of the notice of levy on March 5, 1968. This advance is not required to 
be made automatically under the policy and reduces the amount of the 
cash value of the policy. For the use of the $1,000 advance during the 
period May 10, 1968, through June 3, 1968, X charges A the sum of $3. 
Under this section, X is required to pay to the district director, 
promptly after receipt of the June 5, 1968, notification, the sum of 
$1,298. This $1,298 amount is composed of the $295 amount ($1,500 less 
$200 less $2 less $1,000 less $3) A could have had advanced to him by X 
on June 3, 1968, plus the $1,000 advance plus the charges in the amount 
of $3 with respect thereto.
    Example 3. Assume the same facts as in example 1 except that the 
insurance contract does not contain an automatic premium advance 
provision. The contract does provide that, upon default in the payment 
of premiums, the policy shall automatically be converted to paid-up term 
insurance with no cash or loan value. A fails to make the premium 
payment of $200 due on April 9, 1968. After expiration of a grace period 
to make the premium payment, the X Insurance Company applies the cash 
loan value of $1,500 to effect the conversion. Since the service of the 
notice of levy constitutes the exercise of A's right to receive the cash 
loan value and the amount applied to effect the conversion is not an 
automatic advance to A to maintain the policy in force, the conversion 
of the policy is not an event which will release the cash loan value 
from the effect of the levy. Therefore, X Insurance Company is required 
to pay to the district director, promptly after receipt of the June 5, 
1968 notification, the sum of $1,500.

    (d) Other enforcement proceedings. The satisfaction of the levy 
described in paragraph (b) of this section by an insuring organization 
shall be without prejudice to any civil action for the enforcement of 
any Federal tax lien with respect to a life insurance or endowment 
contract. Thus, this levy procedure is not the exclusive means of 
subjecting the life insurance and endowment contracts of the person 
against whom a tax is assessed to the collection of his unpaid 
assessment. The

[[Page 290]]

United States may choose to foreclose the tax lien in any case where it 
is appropriate, as, for example, to reach the cash surrender value (as 
distinguished from cash loan value) of a life insurance or endowment 
contract.
    (e) Cross references. (1) For provisions relating to priority of 
certain advances with respect to a life insurance or endowment contract 
after satisfaction of a levy pursuant to section 6332(b), see section 
6323(b)(9) and the regulations thereunder.
    (2) For provisions relating to the issuance of a certificate of 
discharge of a life insurance or endowment contract subject to a tax 
lien, see section 6325(b) and the regulations thereunder.

[T.D. 7180, 37 FR 7317, Apr. 13, 1972, as amended by T.D. 8939, 66 FR 
2821, Jan. 12, 2001]