A levy on securities is a legal action used to take non-exempt publicly traded securities owned by the debtor.

The Minnesota Department of Revenue uses the Third Party Levy on Securities letter to notify an investment company and the debtor. The letter also instructs the investment company and the debtor how to proceed once the levy is in place. The letter also lists the statute that applies, what action is being taken and the expectations of both the investment company and the debtor.

Instructions to the Investment Company

The investment company is required to freeze the accounts of the debtor on the day the levy notice is received. If the value of the securities is less than or equal to the amount owed by the debtor, the company must, after 10 days, liquidate them and transfer the proceeds to the Minnesota Department of Revenue less any applicable commissions, fees or both that are charged in the normal course of business.

If the value of the securities exceeds the amount owed, the company is informed the debtor may, within seven days, instruct the investment company which funds are to be sold to satisfy the debt. If the owner does not exercise this right, the investment company must liquidate the securities up to the amount owed to pay the debt beginning with the nonexempt securities purchased most recently. Applicable commissions or fees or both, charged in the normal course of business, are added. Once liquidated, the company sends the amount to the Department of Revenue. There is no disclosure form sent to the investment company with the levy.

The provisions of Minn. Stat. §550.37 provide for certain exemptions from third party levies. The rules for exemptions are the same as for bank levies, except that no exemption claim form is sent to the debtor. The investment company is informed that securities may be exempt from levy on retirement accounts. The company should not liquidate exempt securities unless the debt is for child support which is excluded from this exemption. (Note: If retirement account funds are submitted to the Minnesota Department of Revenue in error, the Minnesota Department of Revenue will refund the securities directly to the investment company, not to the debtor.)

If the investment company does not respond or cooperate with a levy, the investment company will be held liable for the levied amount plus a 25 percent penalty for failure to honor a levy.

Instructions to the Debtor

The Notice of Levy letter also informs the debtor that the Minnesota Department of Revenue has sent a levy to an investment company. When the value of the securities exceeds the amount owed on the levy, it tells debtors they have seven days from receipt of the letter to tell the investment company which securities are to be sold to satisfy the levy. If the debtor does not instruct the investment company of their preference, the company will liquidate the securities in a commercially reasonable manner and send the funds to the Department of Revenue.

The Minnesota Department of Revenue also notifies the debtor that some or all of the securities may be exempt, and they are instructed to contact the investment company and the Department of Revenue if an exemption applies. There is no formal exemption claim process. The investment company will verify for the Minnesota Department of Revenue what accounts are exempt because they are retirement accounts.

Levy Reduction

A Reduction of Levy Notice is used to notify the investment company if the Minnesota Department of Revenue reduces the amount of a levy. It is used primarily for two reasons:

  • A payment is received from another investment levy, bank levy or revenue recapture that reduces the amount due.
  • An adjustment is done to reduce the debt amount. (For example, a debtor files an original tax return to replace a CFR and shows a reduced tax amount owing.)

If levy notices were issued to more than one investment company and we learn that one is holding funds, we may need to release or reduce the levies (by fax) at the other institutions in order to avoid an overpayment. Normally, we do not immediately reduce a levy when a non-secure payment is applied to the debt.

Dispute of Authority to Honor a Levy

Disputes of authority for the Minnesota Department of Revenue to issue a levy on securities should be referred to a leadworker or supervisor for appropriate direction on how to handle it.

Levy Release

A levy on securities will be released if the debtor proves the funds are exempt or if bankruptcy is filed.


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