Assessment; Chp 63 Assessment: (ic: there are 3 forms of assessment: deficiency; SFR, trust fund recovery penalty) Summary assessment: Subchp A §6201 Reg §301.6201-1 (aka as shown on your 1040) Assessment is a bill for deficiency its not a lien. (ic) For an assessment to be valid the assessment officer must sign a summary record of assessment §301.6203-1. Summary record must ID tp, character of tax liability; tax period, amt of assessment. Assessment date is date it’s signed by officer. Two options: (ic) Challenge w/o pmt in TC Challenge aftr pmt of liab to district ct (district will award a rt to claim a refund) (1040X or form 843 Trust Fund Refund-for w/holding taxes)
Must be given a break down of interest and penalties §7522 ASED: assessment statutory expatriation date (ic) CoSED: collection statutory expatriation date (ic)
Deficiency (START): Notice of deficiency: Chp 63 Subchp B §6212. (For amts in addition to amount shown on 1040) Deficiency procedures: 1st send notice of deficiency then wait 30 days admin & 90 days statutory. 2nd Tp may then file a petition with TC 3rd Assessment can’t be made until the 90-day period expires following issuance of the notice of deficiency. §6211(b)(2) defines a deficiency.
Notice of Deficiency: §6212 Send Notice: Secretary must send notice to tp by certifies mail or registered mail. §6212(a). Last known address: Notice to the last known address is sufficient notice even if the tp is deceased or is under a legal disability or in the case of a corp, the corp has ceased its existence. §6212(b) Notice: is deemed valid if mailed by certified or registered mail to a tp’s last known address. §6212(b)(1). Proposed Reg §301.6212-2(a) states that tp’s last known address is the address that appears on the tp’s most recently filed and properly processed tax return unless the IRS is given clear and concise notification of a different address. Does miss-spelling a name give constructive notice? Depends on whether a lien search would cause it to surface. Verbal notification is insufficient when providing notice to the IRS; Mollet v. Comr, 82 TC 618 (1984). Should list new address and check box that address is changed. Delivery to IRS personnel is not presumptive of delivery Walton case §7502 Joint income tax returns: Only one notice needs to be made to married persons filing jointly. §6212(b)(2).
TC has discretion to enjoin assessment and collection of any tax by the IRS if the tax is the subject of a timely filed petition pending before the TC.
Exceptions to notice:§6213 Employment taxes (FICA, futa) are not subject to deficiency procedures. §6213(a) this section applies only to chp 41 thru 44. Employment taxes are chp 21 thru 25. Jeopardy and termination assessment Assessments of certain claims for income, estate and gift taxes in receivership, and certain bankruptcy cases
Right to Petition TC: §6213(a). 1st get a 30-day letter (administrative appeal rts). Then get a statutory 90-day letter (150 days if the tp is o/s the US when the notice is mailed) before collection can be made. This 90 day letter gives you a rt to file a petition with the TC for a re-determination of the deficiency. No assessment of a deficiency in respect of any tax and no levy or proceeding in ct for collection shall be made or prosecuted until such notice has been mailed to tp or until expiration of the 90 day or 150 day period. TC has jurisdiction to re-determine assessment to a larger amt. §6214. Exceptions to Right to Petition TC: Assessment arising out of a mathematical error. If the assessment is based on mathematical error then it’s technically not a deficiency assessment but a clerical error and tp has not rt to go to TC. §6213(b): Failure to file petition w/ TC w/in time prescribed. §6213© A decision of the Tax Court becomes final 90 days after the decision is entered unless a timely notice of appeal is filed §7481, §7483.
Jeopardy/termination.
Petitions for review of a Tax Court decision when a bond has not been filed.
Waiver: §6213(d) Tp can waive by a signed notice in writing filed with the Secretary the restrictions in subsection(a). Can waive out of 90 day period. Determination by TC: §6214 TC has jurisdiction to increase/re-determine the deficiency §6214(a) TC can also look at other tax yrs and qtrs. §6214(b) TC will issue a decision and the secretary will issue a notice and demand for the amt re-determined by TC. §6125(a)
Withdrawal of notice (ic) §6323(j) Secretary can withdrawal notice of a lien if: The filing was premature The taxpayer has entered into an agreement under §6159 to satisfy the liability. The withdrawal of notice will help facilitate collection of the tax liability.
Non-deficiency cases; (A-8) In certain situations (payroll tax), the IRS can assess a deficiency without issuing a notice of deficiency. Tp has a pre-administrative rt of appeal. Tp’s only remedy is to ask for a refund. Penalty assessment: §6694(a) negligent or intentional disregard of rules and regulations by a tax return preparer causing an understatement of tax §6695 failure to sign a return §6694(b) willful understatement of liability by tax preparer §6701 aiding and abetting understatement of tax liability
Jeopardy and Termination Assessment; §6851 Income, estate and gift and certain other taxes are subject to pre-assessment deficiency procedures. Employment taxes are subject to these deficiency rules. In certain situations the collection is at risk. Jeopardy and termination of assessment allow for immediate assessment and collection of taxes. §6851-6867. Jeopardy assessment applies where the tax year has passed. Termination assessments are applicable for the current year or the immediate preceding taxable yr where the filing date has not yet passed. There is an expedited assessment and collection procedure. GM leasing v US; 429 US 338 (1977); alter ego case-he disguised personal assets as separate business assets; Ct said warrant-less search was constitutional b/c tp was a fugitive from justice and therefore made a jeopardy assessment pursuant to §6861(a). Ct said warrant less search was in violation of tp’s 4th A rt. Elements of jeopardy: (A-9) Departure of country: Tp appears to be designing to depart quickly from US (indicate intent to never return). Non-resident aliens are required to obtain a “certificate of compliance” with the IRS before leaving the country. §1.6851-2. Concealing or dissipating property; using an alias; engaging in illegal activity; Possessing large amounts of cash (over $10k §6867) Engaged in illegal activity Failing to fail returns or underreporting income Liquidating assets/flight Using an alias
The tp’s solvency appears to be imperiled. §1.6851-1(a)(1)(i).
Judicial review of assessment or levy: Congress enacted expedited judicial review of jeopardy and termination assessment under §7429 to protect against arbitrary IRS jeopardy determinations. Admin Review: (A-13) Tp must bring an action for judicial review of a jeopardy or termination proceeding within 90 days after the earlier of: (1) the day the IRS Appeals officer notifies the tp of the results of the administrative review or (2) the 16th day after the tp files the request for the administrative review. §7429(b)(1). Discovery: There is no express provision in §7429 for discovery. The extent of discovery allowed is uncertain. Burden of Proof: IRS has Burden of proof that it acted reasonably (not correctly) in determining that jeopardy to collection existed. §7429(g)(1). Second, once the IRS establishes jeopardy to collection, the tp then has the burden of establishing that the amount of the computation is reasonable. Appeal: §7429(f) states there is NO appeal from a district ct determination of the reasonableness of a jeopardy or termination assessment. Jeopardy levies; (A-15) The IRS must wait 30 days (admin appeal period) after issuing notice of intention to levy b4 enforcing collection. This 30 day waiting period is not applicable when the IRS determines that jeopardy to collection exists.(checked) §6331(d)(3). There are procedural rules for jeopardy levies served within the 30-day period. The rt to a written stmt of basis of IRS’s position Administrative and judicial reviews of the reasonableness of the levy. §7429.
Jeopardy bonds; Seizure can be stayed if tp posts bond in an amt equal to the amt assessed.
Stay of sale; §6863(b)(3) prohibits the IRS from selling property seized pursuant to jeopardy or termination assessment until after the notice of deficiency has been issued and the period for filing a TC petition has expired. When the petition is filed, no sale can take place until the TC decision becomes final.
SFR §6020 Substitute for return. When your return is prepared for you. They don’t have to let you know. §6020(b)(2) the prepared return is prima facia good.
TFRP Trust Fund Recovery Penalty; §6672 Really a collection device to get around corp (LLC, LLP) form ER is the agent for US §6672 says that those individual that are responsible to collect, pay the trust fund liabilities and who willfully fail to do so are personally liable for those liabilities. Requirements; Responsible person; Willful failure to pay.
Collections: Collections Chp 64 §6301 Collection Authority – secretary has collection authority §6301 Use of gov depositories: Secretary may authorize Fed Reserve, incorporated banks, trust companies, credit unions or federal agents to rec’ tax imposed by IRS. §6202©
Mode of time of collection §6302 Notice and demand for tax §6303 Within 60 days after making the assessment the secretary must give notice to each person liable for the unpaid tax.
Fair tax collection practices §6304 (ic) Cant communicate with tp: At an unusual time or place which is inconvenient to tp. §6304(a)(1) If the secretary knows the tp is represented, then must talk to the tp’s counsel. §6304(a)(2).
Can’t communicate w/ tp at tp’s place of employment. §6304(a)(3).
Prohibition of harassment and abuse. §6304(b) Can’t threat violence or other criminal means to physically harm the tp’s person, reputation, or property. Cant use obscene or profane language Cant cause the telephone to ring repeatedly or continuously
Collection of certain liability §6305
Receipt of payment Sub chp B §6311 Payment by commercially acceptable means §6311 Payment by foreign currency §6316
Penalties; §6665 Assessable related and fraud penalties Part II §6662-6664 Accuracy related fraud penalties §6662 20% of the portion of the underpayment If the underpayment is attributable to any one of the items below then there is a penalty: Negligent or disregard for rules or regulations §6662(c) Negligence means failure to make a reasonable attempt to comply with rules of this title and disregard includes any careless, reckless or intentional disregard.
A substantial understatement of income tax §6662(d) Greater of 10% of tax required or 5k. If corp then substitute 10k for 5k.
Any substantial valuation misstatement Substantial overstatement of pension liabilities Substantial estate or gift tax valuation understatement.
Fraud penalty §6663 Add a tax equal to 75% of the portion attributable to fraud. If a joint return then the fraud penalty doesn’t apply to spouse unless that spouse is guilty of fraud.
Reasonable cause exception; §6664© No penalty shall be imposed if it is shown that there was a reasonable cause for underpayment and that the tp acted in good faith with respect to that portion.
Assessable penalties §6671-6716 Trust fund recovery penalty §6672 Sanctions and costs awarded by cts §6673 If it appears that proceedings have been instituted by tp primarily for delay or the tp’s position is frivolous or groundless or the tp unreasonably failed to pursue available administrative remedies Then the TC may impose a penalty not in excess of 25k.
Understatement of tp’s liability by income tax preparer §6694 Understatement due to unrealistic position; $250 fine unless it can be shown that there is reasonable cause for the understatement and you acted in good faith. If reckless or intentional disregard of rules or regulations then the penalty is 1k. §6694(b)(2).
Failure to furnish a copy of 1040 to tp §6695 $50 penalty. The maximum penalty is 25K
Failure to sign a return §6695(b) $50 and not excess $25k.
Failure to furnish ID number; §6695 $50; max 25k.
Failure to correct info; §6695(e) $50; max 25k.
Aiding and abetting understatement of liability §6701 1k & if a corp then 10k
Frivolous income tax return §6702 $500
Burden of proof: §6703 BOP is on Secretary
Failure to keep records for reporting requirements §6704 $50 not to exceed 50k
Informational reporting §6721
Lien; §6320 Chp 64 Subchp C Procedure: Assessment: 1st tp rec’s a notice of proposed deficiency by IRS determination that additional tax is owed. If tp fails to respond to the 30-day letter (administrative period), the appeal is denied and a statutory notice of deficiency (aka 90-day letter) is issued to tp. The 90-day letter informs the tp the he has rt to file a petition with the TC to contest the deficiency. This notice must be sent registered or certified mail. §301.6212-2. No assessment or levy can be made w/in the 90 day period. TC’s has jurisdiction to re-determine deficiency in as a greater amt. §6214(a). Waiver: Form 870-AD Request for mediation §7123.
Collection: Then make a demand of pmt w/in 60 days. After an assessment has been made then §6303 directs the IRS to give the tp notice of the assessment amount and demand payment within 60 days. Failure to give notice doesn’t invalidate the notice. §301.6303-1(a). Notice of Lien: If no payment, then file a lien. Pmt: Tp has 10 days to make pmt after rec’ notice and demand of pmt§6331(a) Rt to request a hearing after the 30 day period beginning on the day after the 5 day period: Then mail within 5 days after the filing of the lien notice of lien. If tp fails to pay the assessed amt after notice and demand for payment, then a §6321 federal tax lien arises (sometimes called a SILENT lien-b/c the lien is not yet part of public record). This tax lien attaches to all of tp’s property or rts to property either own or acquired after the date of assessment. §6321. The lien is said to attach b/c the lien acts as an encumbrance on the tp’s property. Notice of federal tax lien (NFTL) once filed gives federal tax lien priority over all but a few subsequently arising interests in the taxpayer’s assets.
Seizure via sale: Then IRS may seize property.
Creation of federal tax lien: FTL can be created without a judgment. All that is required to create a FTL is: (1)Assessment;(2) notice and demand, (3) and non-payment Notice of Lien: Due Process Notice requirement: §6320 (a) The secretary shall notify in writing the tp of the filing of the notice of lien. Time and method: notice shall be given in person, at the dwelling of the tp, sent by certified mail or registered mail to the last known address (Last known address §6303) not more than 5 days after the day of the filing of the lien. §6320(a). Information included with lien: the amount of unpaid tax, rt of the person to request a hearing during the 30-day period beginning on the 5 day period, the administrative appeal available. Notice and demand; §6303 within 60 days after assessment must give notice to each person liable for the unpaid tax by stating the amount and demanding payment. General notice is sufficient to husband and wife that have joint ownership. Must give notice to the last known address. Oral notice is not sufficient.
Each person is liable for the entire amt is joint return. (Bauer v Foley 404 f2d 1215; (1968)) Effect of no notice and demand; Rt to cure? Reg §301.6303-1(a) contracts §6303 and says that IRS can cure. This reg has never been held invalid. If no 60 day notice was given. Failure to issue a notice and demand precludes use of the admin collection devices (lien and levy). But judicial collection proceeding based on the general liability for the tax can be brought w/in 3 yrs from the date of the relevant return deemed to have been filed whether or not the IRS has issued notice and demand.
Right to a fair hearing: §6320(b) If the person request a hearing under §6320 (a) then such a hearing shall be held by the IRS office of Appeals. One hearing per period: a person shall be entitled to only one hearing per period. An impartial officer shall conduct the hearing. Or employee who has no prior involvement with respect to the unpaid tax specified. Special lien for estate tax deferred under §6166. If an election has been made under §6166 (to pay estate tax in installments) then a lien shall be granted in favor of US. §6324A
Non-payment: §6321 FTL arises if nonpayment
Attachment (A-23) General rule: Is tp’s property subject to the tax lien? “The unpaid amount of tax including penalties and interest “shall be a lien in favor of the US upon all property and rts to property, whether real or personal belonging to the tp” §6321. After acquired property: any property acquired after the lien arises is immediately attached by the lien. Property transferred b4 assessment of tax: ex. Pursuant to divorce decree is not subject to lien (A-24) Jointly owned property: FTL only attaches to tp’s joint interest and ceases to attach (compare with T in Cmn) if state law provides that a JT interest terminates at death and the surviving JT are deemed to have acquired their interest from the original grantor. Parsons v Anglim; 143f2d 534 (1944) US v National Bank of Commerce; 472 US 713 (1985) The IRS had a rt to levy on joint bank accts. §6331&6332(a) give IRS rt to levy on tp’s bundle of rts. IRS can’t make a liability for you so that you now have an asset. Divorce/separation can destroy JT Sale of JT’s ½ interest. Sale of JT’s undivided ½ interests do not attract the highest price. IRS must institute a suit to sell the property pursuant to §7403. Ct considers: Prejudice to IRS from selling only the taxpayers interest. Non-tp’s joint owner’s legally recognized expectation of being exempt from a joint sale The costs of dislocation to the non-tp joint owner The character and value of the non-viable interest.
T by E; (A-25) US v Craft II (ic) 535 US 274 (2002)(6/3 decision); Ct said that each tenant possesses individual rts in the estate sufficient to constitute “property” or rts to property for purposes of a lien. ct said that lien attached to tp’s bundle of rights in T by E property. Ct doesn’t address whether the IRS could sell tp’s interest. The Circuit decided the discounted value of tp’s ½ interest in the T by E case. §6321. Husband and wife sold the land by executing a qcd. Retroactive application if: (1) new rule of law, and (2) it and other cts must treat that same new legal rule the same. Secretary may seize the tp’s property rts and sell the property rt if the rt is not divisible §6335©. Statute is clear that the power to levy includes the pwr to sell properties §6335. Dissent (Thomas v Stevens, Scalia): Ignores the primacy of state law in defining property rts. Erases a careful line btwn state laws and federal law. Prior ct cases give authority to the states. Eviscerates the statutory distinction btwn property and rts to property drawn by §6321 Conflicts with unbroken line of authority from this CT, lower cts and the IRS. T by E is not a property rt in which tax lien could attach Lien extends beyond tp’s property rts and expands tp’s property rt Neither spouse has any separate interest in the property. T by E is “sole property” and belongs to neither the husband nor wife individually. Dissent doesn’t believe that T by E creates an abuse of the tax system.
Hatchett v US; US App Lexis 11094 (2003) used US v Craft to base its decision. Ct said that despite the state law, the entirety had no separate interest in the entireties property.
The rt to use, exclude, share income produced from it, rt of survivorship, rt to become a T in Cmn, rt to sell, encumber. Ct said if neither H nor W had a property interest in entireties property then who did. Craft had retroactive application; New federal law. Property that cant be divided must be sold Each tenant possesses individual rts in the estate sufficient to constitute property or rts to property for the purpose of a lien. Ct applied Craft in retroactive application. §6335© states that if property levied is not divisible then, the whole property may be sold. Prof said it was a bad case.
Curtesy and Dower: (A-26) These are marital rts. IRS must pursue judicial recourse to sell the entire property free of dower and curtesy. Community property A-27) Partnerships: two basic collection issues relating to partnerships: Collecting ptnrshp liabilities from partners Collecting partner liabilities from partnerships; No partnership tax so no tax is collected from partnership unless it checks the box or is a “large” partnership. Can collect general partner’s liabilities from partnership. Notice and demand on one general partner is considered issued to all general partners. (Adams v US 328 fsupp 228). Liabilities of an individual partner may be satisfied only out of that partner’s surplus.
Corporations: IRS can’t collect corp tax liabilities from shs’r or collect shs’r tax liab form corp’s unless there are grounds from disregarding the corp entity. IRS has the burden of proof.
Trusts: (A-28) Terminable interests: (conceptual opposites of future or contingent interests) A terminable interest is a present possessory interest, which lapses with the occurrence of a future contingency. As long as the terminating event has not occurred, the terminable interest is subject to the FTL.
Embezzlement proceeds: is income to the embezzler. If it can be traced to original owner then constructive trust & IRS can’t attach. If cant trace the IRS can attach. Licenses and franchises; other intangibles: FTL clearly attaches to accounts/trademarks, and franchises UCC §9-106
Life insurance proceeds: they are not an asset of the recipient until the owner of the policy dies. Bank accounts: 21 day waiting period to garnish bank acct (ic) FTL attaches to all bank accts/credit union accts. FTL also attaches to funds deposited after assessment. Joint bank accts: General rule: only the tp’s interest in the property is attached to the federal tax lien and is subject to levy.
Certificate of deposit: (ic) Rev Rul 75-355 is subject to levy.
IRA/pension; FTL attaches. IRS’s policy is not to levy these unless tp flagrantly disregards the IRS’s request for pmt. IRM 5.11 (3-13-00). Retirement accts (ic) Requires more authority to levy; IRS can only get tp’s rts. So if tp’s rts are restricted then IRS’s int is restricted.
Negotiable instruments; (ic) Rev Ruling 75-355 says NI is tangible property.
Social security benefits exempt §6334(a)(6), (10), (11) Alimony & child support: (A- 33) alimony is subject and child support is not subject. Nominee status: US v Reed; 168 f.supp 2d 1266 (2001); D transferred property to parents after IRS mailed a delinquency inquiry to him. Ct said that D’s parents were nominee of D. Factors that the court considered. TP exercises dominion and control, over property while the property is in the nominee’s name The nominee paid little or no consideration for the property. The tp placed property in nominee’s name in anticipation of a liability or lawsuit A close relationship exists between the tp and the nominee The tp continue to enjoy the benefit of the property is in the nominee’s name.
Fraud: Alter ego: no difference btwn you and the corp: failure to adhere to corp formalities. (same entity) (ic) Nominee: wife owns assets (separate entity) (ic) Transferee theory: Reeves case.
Perfection/priority; Purpose: Priority §6323 (A-42) FTL is automatically perfected following assessment, notice and demand, and nonpayment. Nothing further must be done to make the lien valid against the tp. A choate and “silent” §6321 lien, however, is not perfected against purchasers, holders of security interest, mechanic’s lien or judgment lien creditors until notice of a FTL is filed. §6323(a). This is done to gain priority Super-priorities §6323(b). (A-51) Interest and expenses share the same priority as those listed below §6323(e) lists 10 interests which qualify for super-priority: Purchaser of securities or secured interest in securities §6323(b)(1) Purchaser of motor vehicles unless had notice §6323(b)(2) (Retail) Purchaser of personal property unless had notice §6323(b)(3) Casual sale of personal property §6323(b)(4) Possessory lien on personal property §6323(b)(5) Residential property subject to a mechanics lien. §6323(b)(6) Mechanics liens; §6323(b)(7) Attorney fees §6323(b)(8) Insurance contracts §6323(b)(9) Deposit-secured loans §6323(b)(10) PMSI Rev Rul 68-57 (ic)
Semi-super priorities; (A-46) §6323© even though notice of a lien imposed by §6321 has been filed, such a lien shall not be valid with respect to a security interest which came into existence after the tax lien filed but which: Real property construction or improvement agreements §6323©(3)(A) Obligatory disbursement agreements §6323©(4)(A) Ex. Surety agreements. Commercial transactions financing agreements (A-48) §6323©(2)(A) Security interests created by disbursements made within 45 days after filing the NFTL in property existing at the time of the NFTL filing.
Relief of federal tax lien: (ic) (A-56) steps to obtain relief from a lien: Post filing administrative hearing: hearing after notice & opportunity for hearing under §6320. Certificate of release of erroneously filed lien; §6326 Examples: The liability was satisfied b4 the lien was filed Liability was assessed in violation of the deficiency procedures under §6213 S of L expired b4 the lien was filed. Liability was assessed in violation of the bankruptcy code.
A certificate of nonattachment; When the wrong person appears on the NTFL.
A certificate of discharge; Removes liens from property. (A-62) This is conclusive evidence that the FTL has been discharged. §§6325(f)(1)(B)
A certificate of subordination; A certificate of release. §6325(a) Liability is satisfied or has become legally unenforceable.
Release of lien §6325 (ic) Release of lien: §6325(a) Secretary shall issue a certificate of release of lien not later than 30 days after: The liability is fully satisfied or rendered legally unenforceable. §6325(a)(1). Bond has been accepted. §6325(a)(2)
Discharge of property;§6325(b) Property Double the amount of the liability: Discharge the part of the lien if the secretary finds at least double the amount of the satisfied liability secured by such lien and the amount of all other liens upon such property which have priority over such lien. Some property is sold and the remaining property is at least double the amount of the liability. Substitution of proceeds of sale: tp sells hm and buys another home, which is promised to have the same tax lien.
Subordination of lien;§6325(d) (ic) tp refinances mortgage. Compare discharge vs subordinate; former is extinguished and the latter has priority.
Effect of Certificate of release: §6325(f) (ic) A certificate of release is conclusive that the lien is extinguished. §6325(f). Can rely on certificate of discharge.
Administrative appeal on liens §6326 (ic) Extensions of liens duration: (A-67) The duration of a written waiver from tp or an extension by waiver in connection with an OIC. §6502. The period (plus 6 months) during which the tp’s assets are in custody of a ct. The period in which the tp is o/s the US §6503©. The period (plus six months) during which the automatic stay in a bankruptcy case is in effect. The period (plus 30 days) beginning on the date when the IRS wrongfully seized the property of a 3rd party in attempted satisfaction of the tp’s liability
Levy/Seizure of property for collection of taxes; §6330 Subchp D Notice and opportunity for a hearing b4 levy. §6330 In general: A levy is any forced taking of property. A levy can be made on any property or property rt unless the secretary has notified such person in writing of their rt to a hearing. §6330(a). The IRS will wait 30-days after providing the tp with a notice of intention to levy b4 a levy can be made. (A-23). No 30 day period if jeopardy termination proceeding. Time and method of notice §6330(a)(2) Information included in the notice: §6330(a)(3)
Levy and distraint §6331 Liens (encumbers property) and levies (command 3rd parties to pay-aka collection devices) are administrative rather than judicial devices. Authority of Secretary: If any person is liable to pay any tax and neglects or refuses to pay such tax within 10 days after notice and demand (the secretary has the authority to levy upon all property and property rts. §6331(a). Successive seizures: if property seized is insufficient to satisfy claim by US then the secretary may seize levy in like manner and as often as necessary, any other property of tp until the amt due from tp is satisfied. §6331© Procedural Requirement of notice before levy: Levy can be made upon a salary or property with respect to any unpaid tax only after the secretary has notified such person in writing of his intention to make such levy. §6331(d)(1). Three notices required: Notice and demand: §6331(a) provides that the IRS can’t proceed to collect a tax liability until 10 days after the IRS serves notice and demand on the tp. This is commonly referred to as the first notice. Any levy b4 the 10-day notice is invalid. Jeopardy: no notice is required if secretary has made a finding that the collection of tax is in jeopardy. §6331(d)(3). What is included in a notice is on (A-70).
Notice of intent to levy: In addition to the 10-day waiting period §6331(d) requires that the IRS notify the tp in writing of the IRS’s intent to levy on the tp’s salary, or other property at least 30 days (for salaries and wages) before the date of the levy.
30-day requirement: Notice shall be given in person (a); left at the dwelling or usual place of business of such person (b), sent by certified or registered mail to such last known address (c). A fax is ok IRM 5.11.2.1.4 (5-5-98) (A-70) but must still mail.
Collection Due Process Notice (CDPN) B4 Levy: In addition to the notice requirements under §6331, the IRS may not levy unless it has provided notice and an opportunity for a hearing. §6330(f).
Continuous levy on salaries/wages until the levy is released b/c of economic hardship under §6343. Prohibited levies: No levy during pendency of proceedings for refund or divisible tax. §6331(i) (A-69) No levy before investigation of status of property. §6331(j). Verify the tp’s liability Determine the equity in such property – is sufficient to yield net proceeds to satisfy ta liability. Prohibition on levy: During certain refund proceedings; §6331(i) During Offer in Compromise; §6331(k)(1) During Installment agreement. §6331(k)(2) Uneconomical levies: if secretary determines that the expenses of the prop > the property value then no levy may be made. §6331(f)
Seizures: Surrender of property subject to levy §6332 General: Any person in possession of property subject to levy shall surrender such property rts to the secretary. §6332(a). §6332(d) (ic) IRS can seize property held by tp or 3rd party §6331(b) IRS typically files NFTL b4 seizure to preclude tp transferring encumbered property. Tp need not be present upon seizure. Revenue officer only needs to provide written notice of seizure Reg §301.6335-1)(a) or mail to last known address.
Life Insurance and endowment contracts: Residences/businesses: §6334(a)(13); (A-72) Writ of entry is required to gain access to areas where tp has a reasonable expectation of privacy. 4th amendment rt to privacy. IRS must obtain a writ of entry to enter private premises to seize property. Obtain it from a Federal ct or the tp’s consent. Need probable cause.
Tp will be criminally prosecuted if he trys to re-enter the premises after the property has been seized §7212(b). IRS must safe keep property and not allow waste to occur. Principle residence may be exempt from levy: If value of the residence is less than $5k then there is an absolute exemption on the property. §6334(a)(13)(A).
Property subject to levy; (A-73) §6331(a) In general; all property and rts to property belonging to the tp are subject to levy. After acquired property: federal tax liens attaches to all tp’s property; but a federal tax levy distains only property in possession and obligations in existence as of the date of levy. US v Phelps 421 US 330. Exceptions to levy on current property: Continuing levy on salaries/wages §6331(e) levy until liability is satisfied. The levy on fixed, determinable and periodic payments when the tp has an unqualified fixed rt to rec’ pmts under trust or K.
Specific types of property subject to levy; Property held by 3rd parties. Reg §301.6331-1(a) Wages: §6331(e) a levy on salaries or wages is continuous from the date that the notice is released pursuant to §6343. The portion representing payroll tax is exempt from levy. May levy severance payments.
Bank acct: banks must surrender tp funds w/in 21 days after being served with levy notice. (A-75) Joint bank accts: IRS can also levy against the tp’s interest in a joint bank acct. The tp’s rt to w/drawl the entire balance in the acct is a property rt subject to levy. §6331(a).
Retirement accounts; If the tp has a fixed determinable rt to the pension payments then the IRS may attach to that rt. Air-force pension payments can be levied upon. (A-77)
Production of books §6333 Property Exempt from levy: §6334(a) Wearing apparel and schoolbooks §6334(a)(1); excluding luxury apparel. Fuel, provisions, furniture and personal effects: Not to exceed $6,250 in value. §6334(a)(2) Books and tools of a trade or business; not to exceed $3,125 in value. §6334(a)(2) Unemployment benefits; §6334(a)(4) Federal payments are limited to 15% §6331(h)(1) Undelivered mail: §6334 (a)(5) Workmen’s compensation: §6334(a)(7) Federal payments are limited to 15% §6331(h)(1) Judgments for support of minor children. §6334(a)(8) Minimum exemption amount for wages §6334(a)(9). Disability payments: §6334(a)(10). Exempt amt of wages §6334(d)
Recovery of seized property (A-84) §7426(b) empowers Dist ct to Issue an injunction to prohibit a sale Order the return of specific property Grant a judgment equal to the money levied upon Grant a judgment equal to the greater of fmv on date of levy or amt realized from IRS sale of prop. Grant a judgment ordering a refund of the amt the owner deposited.
Tp defenses: Release from levy. §6343; aka liability is satisfied; S of L, IRS determines that release would facilitate collection. This is IRS’s discretion. Bankruptcy petition US v Whiting Pools 462 US 198 (1983) Bankruptcy ct may order IRS to turn over seized property if BC determines property is necessary for reorganization. Collection appeals program (CAP) Notice of levy can be appealed under the collection appeals program before or after the levy is issued. IRM (Internal Revenue Manual) [5.11]1.13. Taxpayer advocate services: (A-80) if the levy creates a significant hardship for the tp; file form 911, Application for Tp Assistance Order (ATAO) Tp says he has no rts to property Property is subject to a prior judicial attachment or execution. §6332(a) US v Nat’l Bank of Commerce 472 US 713 (1985). .
Redemption of property: §6337(a) Anytime prior to sale. Redemption after sale: (b) within 180 days after the sale. NO redemption exists for personal property Have rt to surplus of proceeds.
Certificate of sale; Deed to real property §6338 Certificate of sale: Secretary shall give the purchaser a certificate of sale upon the payment in full of the purchase price. §6338(a) Deed to real property: if real property is sold and not redeemed within the time provided in §6337, the secretary shall to the purchaser a deed of the real property upon his surrender of the certificate of sale reciting the facts set forth in the certificate.
Certificate of sale: Deed to personal property; §6339(a) Authority to transfer title to motor vehicles.
Records of sale §6340 Expense of levy and sale §6341
Interest Chp 67 §6601 Interest on underpayments §6601(a).
Sale of levied property; Procedure; Notice of sale. This must be given in addition to notice of seizure. Notice of sale must be published in a newspaper. Of general circulation within the county where the seizure is made. Notice of sale must be sent to tp’s last known address and must specify thw property to be sold and the time, place, manner, and condition of sale. Reg §301.6335-1(b)(1)(b). Sale procedure: Time and place: (A-87) The sale must be not less than 10 days or more than 40 days from the date of the public notice. Powelson v US 963 f2d 1156. IRS’s failure to give proper notice of sale invalidates the sale. Tp can request that IRS sell property w/in 60 days after the request. IRS can use its discretion.
Minimum is the lessor of : 80% or more of the property’s forced sale value less encumbrances that has priority over the federal tax lien OR The value of the line interest (IRS policy statement P-5-35 (4-7-78) printed IRM 1.2.1.5.8 Seized property is sold subject to any outstanding mortgages, encumbrances, or other liens in favor of 3rd parties that are invalid against the delinquent tp and senior to the federal tax lien. The property is sold “as is” and without recourse against the US. Reg §301.6335-1©(4)(iii). There is no warranty either express or implied.
Right of redemption: §6337(b) permits the owner, owner’s heirs or any person having an interest in or lien on the property to redeem real property sold under §6335. No right of redemption exists for personal property sold. The rt of redemption must be exercised within 180 days after the sale. The redeeming party must notify the IRS District Director for the district in which the property is located of Rt to surplus proceeds. §6342(b)
Buyers Concerns: (A-90) Certificate of sale and directors deed. When a buyer purchases property/stock/motor vehicle pursuant to §6335, the IRS gives the buyer a certificate of sale when the full purchase price is received. §6339 states that the certificate of sale is prima facie evidence of the sale proceeding. When property is sold under §6335 and is not redeemed under §6337, the IRS executes a deed to the real property. Property sold by the IRS is discharged from all liens, encumbrances and title over which the federal tax lien had priority.
Practical considerations; The buyer of property at an IRS sale buys only the rt, title, and interest, which the tp had in the property as of the sate of the federal tax lien attached. The buyer has no recourse against the IRS for undisclosed senior encumbrances even if the revenue officer conducted the sale orally assures the buyer of the absence of such encumbrances. The buyer must also be aware of the interests of junior encumbrance
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