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Proposed Regulation Implements Electronic Data Match and Levy Procedures for Financial Institutions

09.22.2008

The Kentucky Department of Revenue (“Department”) has proposed 103 KAR 1:150, a new Administrative Regulation providing detailed procedural steps for the implementation, pursuant to KRS 131.672, of the design and operation of data match and levy system to assist the Department in collecting delinquent taxes and debts owed to the Commonwealth.

The proposed Regulation indicates that the Department shall operate in conjunction with financial institutions to develop and operate a data match system for the specific purpose of identifying and seizing the financial assets of delinquent taxpayers and debtors as identified by the Department pursuant to KRS 131.670 through 131.676. The proposed Regulation also provides that the Department is required to reimburse financial institutions for the costs incurred for the implementation of the data match program, not to exceed the amount of $500, unless the amount is approved by the Department prior to the development and installation of the program.

The proposed Regulation provides detailed steps whereby all financial institutions are required to provide detailed information to the Department within 15 days after request by the Department. The proposed Regulation essentially sets up two methods by which financial institutions are required to provide information: (1) the “all accounts” method or (2) the “matched accounts” method.

If a financial institution agrees to provide information to the Department according to the “all accounts” method, the financial institution is required to submit the following information to the Department within 15 days of the Department’s request: (1) the date of files of open accounts for the data match; and (2) the name, record address, social security number, federal employer identification number, account status and other identifying information required by the Department.

If a financial institution agrees to provide the requested information according to the “matched accounts” method, the financial institution shall within 15 days after the Department’s request: (1) match the inquiry file of delinquent taxpayers and debtors identified and provided by the Department against open accounts maintained by the financial institution; and (2) submit a report of matched accounts to the Department containing the name, record address, social security number, federal employer identification number, account status and any other identifying information required by the Department.

The proposed Regulation also requires that the financial institutions must maintain a security process to assure that all information received from the Department concerning a delinquent taxpayer or debtor shall be maintained and safeguarded as confidential and shall not be copied or given to any other entity without the written permission of the Department or the delinquent taxpayer or debtor. The proposed Regulation also provides that financial institutions shall incur no liability for disclosing a financial record to the Department for the enforcement of a delinquent tax liability or debt of the account holder, encumbering or surrendering an asset held by a financial institution in response to a Department Notice of Levy or any other action taken by a financial institution in good faith.

The proposed Regulation also sets forth certain requirements concerning the levy of financial accounts. In particular, a financial institution is required to: (1) surrender an account to the Department upon receipt of a Notice of Levy; (2) address and send to the Department notices, paperwork or other electronic communication resulting from a financial institution data match program and (3) submit data files to the Department. The proposed Regulation also provides that the match of an account holder to a delinquent taxpayer or debtor record provided by the Department does not constitute a levy and no account shall be held or surrendered to the Department if a financial institution has not received a Notice of Levy from the Department.

A public hearing will be held on the proposed Administrative Regulation on September 23, 2008 at 11:00 a.m. in room 386 in the Capitol Annex, Frankfort, Kentucky 40601. Written comments concerning the proposed Regulation will be accepted through September 30, 2008. Written notification of intent to be heard at the public hearing or written comments on the proposed Regulation should be sent to LeeAnne Applegate, Attorney, Division of Collections, P.O. Box 5222, Frankfort, Kentucky 40602. Ms. Applegate’s telephone number is (502) 564-4921 extension 4445 and her fax number is (502) 564-7348.

Finally, it should be noted in the Regulatory Impact Analysis and Hearing Statement attached to the proposed Regulation, that it will affect approximately 268 banks, 106 credit unions and 306 security brokerage firms. The proposed Regulation will cost approximately $750,000 to implement, and will cost approximately $680,000 per year to administer on a continuing basis.

If you have questions about this topic or any other legal issue, please contact any member of the firm's State and Local Tax Team.

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