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Course: Federal Tax Procedure WSU 2003
School: Wayne State University
Year: 2003
Professor: Rose
Course Outline provided by Legalnut.com
  1. Assessment; Chp 63

    1. Assessment: (ic: there are 3 forms of assessment: deficiency; SFR, trust fund recovery penalty)

      1. Summary assessment: Subchp A §6201 Reg §301.6201-1 (aka as shown on your 1040)

        1. Assessment is a bill for deficiency its not a lien. (ic)

        2. For an assessment to be valid the assessment officer must sign a summary record of assessment §301.6203-1.

        3. Summary record must ID tp, character of tax liability; tax period, amt of assessment. Assessment date is date it’s signed by officer.

        4. Two options: (ic)

          1. Challenge w/o pmt in TC

          2. 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)

        5. Must be given a break down of interest and penalties §7522

        6. ASED: assessment statutory expatriation date (ic)

        7. CoSED: collection statutory expatriation date (ic)

      2. Deficiency (START): Notice of deficiency: Chp 63 Subchp B §6212. (For amts in addition to amount shown on 1040)

        1. Deficiency procedures:

          1. 1st send notice of deficiency then wait 30 days admin & 90 days statutory.

          2. 2nd Tp may then file a petition with TC

          3. 3rd Assessment can’t be made until the 90-day period expires following issuance of the notice of deficiency.

            1. §6211(b)(2) defines a deficiency.

          4. Notice of Deficiency: §6212

            1. Send Notice: Secretary must send notice to tp by certifies mail or registered mail. §6212(a).

            2. 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)

              1. 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.

              2. Does miss-spelling a name give constructive notice? Depends on whether a lien search would cause it to surface.

              3. 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.

              4. Delivery to IRS personnel is not presumptive of delivery Walton case §7502

              5. Joint income tax returns: Only one notice needs to be made to married persons filing jointly. §6212(b)(2).

            3. 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.

          5. Exceptions to notice:§6213

            1. 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.

            2. Jeopardy and termination assessment

            3. Assessments of certain claims for income, estate and gift taxes in receivership, and certain bankruptcy cases

          6. 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.

            1. Exceptions to Right to Petition TC:

              1. 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):

              2. Failure to file petition w/ TC w/in time prescribed. §6213©

                1. 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.

              3. Jeopardy/termination.

            2. Petitions for review of a Tax Court decision when a bond has not been filed.

          7. 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.

          8. Determination by TC: §6214

            1. TC has jurisdiction to increase/re-determine the deficiency §6214(a)

            2. TC can also look at other tax yrs and qtrs. §6214(b)

            3. TC will issue a decision and the secretary will issue a notice and demand for the amt re-determined by TC. §6125(a)

          9. Withdrawal of notice (ic) §6323(j)

            1. Secretary can withdrawal notice of a lien if:

              1. The filing was premature

              2. The taxpayer has entered into an agreement under §6159 to satisfy the liability.

              3. The withdrawal of notice will help facilitate collection of the tax liability.

      3. Non-deficiency cases; (A-8)

        1. 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.

        2. Penalty assessment:

          1. §6694(a) negligent or intentional disregard of rules and regulations by a tax return preparer causing an understatement of tax

          2. §6695 failure to sign a return

          3. §6694(b) willful understatement of liability by tax preparer

          4. §6701 aiding and abetting understatement of tax liability

      4. Jeopardy and Termination Assessment; §6851

        1. Income, estate and gift and certain other taxes are subject to pre-assessment deficiency procedures. Employment taxes are subject to these deficiency rules.

        2. In certain situations the collection is at risk. Jeopardy and termination of assessment allow for immediate assessment and collection of taxes. §6851-6867.

        3. 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.

        4. 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.

        5. Elements of jeopardy: (A-9)

          1. 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.

          2. Concealing or dissipating property; using an alias; engaging in illegal activity;

            1. Possessing large amounts of cash (over $10k §6867)

            2. Engaged in illegal activity

            3. Failing to fail returns or underreporting income

            4. Liquidating assets/flight

            5. Using an alias

          3. The tp’s solvency appears to be imperiled. §1.6851-1(a)(1)(i).

      5. Judicial review of assessment or levy:

        1. Congress enacted expedited judicial review of jeopardy and termination assessment under §7429 to protect against arbitrary IRS jeopardy determinations.

        2. 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).

        3. Discovery: There is no express provision in §7429 for discovery. The extent of discovery allowed is uncertain.

        4. 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.

        5. Appeal: §7429(f) states there is NO appeal from a district ct determination of the reasonableness of a jeopardy or termination assessment.

        6. Jeopardy levies; (A-15)

          1. 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.

            1. The rt to a written stmt of basis of IRS’s position

            2. Administrative and judicial reviews of the reasonableness of the levy. §7429.

          2. Jeopardy bonds;

            1. Seizure can be stayed if tp posts bond in an amt equal to the amt assessed.

          3. Stay of sale;

            1. §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.

    2. SFR §6020

      1. Substitute for return. When your return is prepared for you. They don’t have to let you know.

      2. §6020(b)(2) the prepared return is prima facia good.

    3. TFRP Trust Fund Recovery Penalty; §6672

      1. Really a collection device to get around corp (LLC, LLP) form

        1. ER is the agent for US

        2. §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.

        3. Requirements;

          1. Responsible person;

          2. Willful failure to pay.

 

 

  1. Collections:

    1. Collections Chp 64 §6301

      1. Collection Authority – secretary has collection authority §6301

        1. 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©

      2. Mode of time of collection §6302

      3. Notice and demand for tax §6303

        1. Within 60 days after making the assessment the secretary must give notice to each person liable for the unpaid tax.

      4. Fair tax collection practices §6304 (ic)

        1. Cant communicate with tp:

          1. At an unusual time or place which is inconvenient to tp. §6304(a)(1)

          2. If the secretary knows the tp is represented, then must talk to the tp’s counsel. §6304(a)(2).

 

          1. Can’t communicate w/ tp at tp’s place of employment. §6304(a)(3).

        1. Prohibition of harassment and abuse. §6304(b)

          1. Can’t threat violence or other criminal means to physically harm the tp’s person, reputation, or property.

          2. Cant use obscene or profane language

          3. Cant cause the telephone to ring repeatedly or continuously

      1. Collection of certain liability §6305

    1. Receipt of payment Sub chp B §6311

      1. Payment by commercially acceptable means §6311

      2. Payment by foreign currency §6316

 

  1. Penalties; §6665

    1. Assessable related and fraud penalties Part II §6662-6664

      1. Accuracy related fraud penalties §6662

        1. 20% of the portion of the underpayment

          1. If the underpayment is attributable to any one of the items below then there is a penalty:

            1. Negligent or disregard for rules or regulations §6662(c)

              1. Negligence means failure to make a reasonable attempt to comply with rules of this title and disregard includes any careless, reckless or intentional disregard.

            2. A substantial understatement of income tax §6662(d)

              1. Greater of 10% of tax required or 5k. If corp then substitute 10k for 5k.

            3. Any substantial valuation misstatement

            4. Substantial overstatement of pension liabilities

            5. Substantial estate or gift tax valuation understatement.

      2. Fraud penalty §6663

        1. Add a tax equal to 75% of the portion attributable to fraud.

        2. If a joint return then the fraud penalty doesn’t apply to spouse unless that spouse is guilty of fraud.

      3. Reasonable cause exception; §6664©

        1. 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.

    2. Assessable penalties §6671-6716

      1. Trust fund recovery penalty §6672

      2. Sanctions and costs awarded by cts §6673

        1. 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

        2. Then the TC may impose a penalty not in excess of 25k.

    3. Understatement of tp’s liability by income tax preparer §6694

      1. 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.

      2. If reckless or intentional disregard of rules or regulations then the penalty is 1k. §6694(b)(2).

    4. Failure to furnish a copy of 1040 to tp §6695

      1. $50 penalty. The maximum penalty is 25K

    5. Failure to sign a return §6695(b)

      1. $50 and not excess $25k.

    6. Failure to furnish ID number; §6695

      1. $50; max 25k.

    7. Failure to correct info; §6695(e)

      1. $50; max 25k.

    8. Aiding and abetting understatement of liability §6701

      1. 1k & if a corp then 10k

    9. Frivolous income tax return §6702

      1. $500

    10. Burden of proof: §6703

      1. BOP is on Secretary

    11. Failure to keep records for reporting requirements §6704

      1. $50 not to exceed 50k

    12. Informational reporting §6721

 

  1. Lien; §6320 Chp 64 Subchp C

    1. Procedure:

      1. 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).

        1. Waiver: Form 870-AD

        2. Request for mediation §7123.

      2. 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).

      3. Notice of Lien: If no payment, then file a lien.

        1. Pmt: Tp has 10 days to make pmt after rec’ notice and demand of pmt§6331(a)

        2. 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.

      4. Seizure via sale: Then IRS may seize property.

    2. Creation of federal tax lien: FTL can be created without a judgment. All that is required to create a FTL is:

      1. (1)Assessment;(2) notice and demand, (3) and non-payment

      2. Notice of Lien: Due Process Notice requirement: §6320 (a)

        1. The secretary shall notify in writing the tp of the filing of the notice of lien.

          1. 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.

          2. Notice and demand;

            1. §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.

          3. Each person is liable for the entire amt is joint return. (Bauer v Foley 404 f2d 1215; (1968))

          4. Effect of no notice and demand;

            1. 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.

            2. 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.

      3. Right to a fair hearing: §6320(b)

        1. If the person request a hearing under §6320 (a) then such a hearing shall be held by the IRS office of Appeals.

        2. One hearing per period: a person shall be entitled to only one hearing per period.

        3. An impartial officer shall conduct the hearing. Or employee who has no prior involvement with respect to the unpaid tax specified.

        4. Special lien for estate tax deferred under §6166.

          1. 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

      4. Non-payment: §6321

        1. FTL arises if nonpayment

    3. Attachment (A-23)

      1. 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.

      2. After acquired property: any property acquired after the lien arises is immediately attached by the lien.

      3. Property transferred b4 assessment of tax: ex. Pursuant to divorce decree is not subject to lien (A-24)

      4. 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)

        1. 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.

        2. Divorce/separation can destroy JT

        3. 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:

          1. Prejudice to IRS from selling only the taxpayers interest.

          2. Non-tp’s joint owner’s legally recognized expectation of being exempt from a joint sale

          3. The costs of dislocation to the non-tp joint owner

          4. The character and value of the non-viable interest.

      5. T by E; (A-25)

        1. 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.

          1. Husband and wife sold the land by executing a qcd.

          2. Retroactive application if: (1) new rule of law, and (2) it and other cts must treat that same new legal rule the same.

          3. 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.

          4. Dissent (Thomas v Stevens, Scalia):

            1. 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.

            2. Eviscerates the statutory distinction btwn property and rts to property drawn by §6321

            3. Conflicts with unbroken line of authority from this CT, lower cts and the IRS.

            4. T by E is not a property rt in which tax lien could attach

            5. Lien extends beyond tp’s property rts and expands tp’s property rt

            6. Neither spouse has any separate interest in the property.

            7. T by E is “sole property” and belongs to neither the husband nor wife individually.

            8. Dissent doesn’t believe that T by E creates an abuse of the tax system.

        2. 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.

 

          1. The rt to use, exclude, share income produced from it, rt of survivorship, rt to become a T in Cmn, rt to sell, encumber.

          2. Ct said if neither H nor W had a property interest in entireties property then who did.

          3. Craft had retroactive application; New federal law.

          4. Property that cant be divided must be sold

          5. 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.

          6. Prof said it was a bad case.

      1. Curtesy and Dower: (A-26) These are marital rts. IRS must pursue judicial recourse to sell the entire property free of dower and curtesy.

      2. Community property A-27)

      3. Partnerships: two basic collection issues relating to partnerships:

        1. Collecting ptnrshp liabilities from partners

        2. Collecting partner liabilities from partnerships;

          1. No partnership tax so no tax is collected from partnership unless it checks the box or is a “large” partnership.

          2. 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).

          3. Liabilities of an individual partner may be satisfied only out of that partner’s surplus.

      4. Corporations:

        1. 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.

      5. Trusts: (A-28)

      6. Terminable interests: (conceptual opposites of future or contingent interests)

        1. 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.

      7. 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.

      8. Licenses and franchises; other intangibles:

        1. FTL clearly attaches to accounts/trademarks, and franchises UCC §9-106

      9. Life insurance proceeds: they are not an asset of the recipient until the owner of the policy dies.

      10. Bank accounts:

        1. 21 day waiting period to garnish bank acct (ic)

        2. FTL attaches to all bank accts/credit union accts. FTL also attaches to funds deposited after assessment.

        3. Joint bank accts:

          1. General rule: only the tp’s interest in the property is attached to the federal tax lien and is subject to levy.

        4. Certificate of deposit: (ic) Rev Rul 75-355 is subject to levy.

      11. 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).

      12. Retirement accts (ic)

        1. 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.

      13. Negotiable instruments; (ic)

        1. Rev Ruling 75-355 says NI is tangible property.

      14. Social security benefits exempt §6334(a)(6), (10), (11)

      15. Alimony & child support: (A- 33) alimony is subject and child support is not subject.

      16. Nominee status:

        1. 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.

          1. TP exercises dominion and control, over property while the property is in the nominee’s name

          2. The nominee paid little or no consideration for the property.

          3. The tp placed property in nominee’s name in anticipation of a liability or lawsuit

          4. A close relationship exists between the tp and the nominee

          5. The tp continue to enjoy the benefit of the property is in the nominee’s name.

        2. Fraud:

          1. Alter ego: no difference btwn you and the corp: failure to adhere to corp formalities. (same entity) (ic)

          2. Nominee: wife owns assets (separate entity) (ic)

          3. Transferee theory: Reeves case.

    1. Perfection/priority;

      1. 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

      2. 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:

        1. Purchaser of securities or secured interest in securities §6323(b)(1)

        2. Purchaser of motor vehicles unless had notice §6323(b)(2)

        3. (Retail) Purchaser of personal property unless had notice §6323(b)(3)

        4. Casual sale of personal property §6323(b)(4)

        5. Possessory lien on personal property §6323(b)(5)

        6. Residential property subject to a mechanics lien. §6323(b)(6)

        7. Mechanics liens; §6323(b)(7)

        8. Attorney fees §6323(b)(8)

        9. Insurance contracts §6323(b)(9)

        10. Deposit-secured loans §6323(b)(10)

        11. PMSI Rev Rul 68-57 (ic)

      3. 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:

        1. Real property construction or improvement agreements §6323©(3)(A)

        2. Obligatory disbursement agreements §6323©(4)(A) Ex. Surety agreements.

        3. Commercial transactions financing agreements (A-48) §6323©(2)(A)

        4. Security interests created by disbursements made within 45 days after filing the NFTL in property existing at the time of the NFTL filing.

    2. Relief of federal tax lien: (ic) (A-56) steps to obtain relief from a lien:

      1. Post filing administrative hearing: hearing after notice & opportunity for hearing under §6320.

      2. Certificate of release of erroneously filed lien; §6326 Examples:

        1. The liability was satisfied b4 the lien was filed

        2. Liability was assessed in violation of the deficiency procedures under §6213

        3. S of L expired b4 the lien was filed.

        4. Liability was assessed in violation of the bankruptcy code.

      3. A certificate of nonattachment;

        1. When the wrong person appears on the NTFL.

      4. A certificate of discharge; Removes liens from property. (A-62)

        1. This is conclusive evidence that the FTL has been discharged. §§6325(f)(1)(B)

      5. A certificate of subordination;

      6. A certificate of release. §6325(a)

        1. Liability is satisfied or has become legally unenforceable.

    3. Release of lien §6325 (ic)

      1. Release of lien: §6325(a) Secretary shall issue a certificate of release of lien not later than 30 days after:

        1. The liability is fully satisfied or rendered legally unenforceable. §6325(a)(1).

        2. Bond has been accepted. §6325(a)(2)

      2. Discharge of property;§6325(b)

        1. 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.

        2. Substitution of proceeds of sale: tp sells hm and buys another home, which is promised to have the same tax lien.

      3. Subordination of lien;§6325(d) (ic)

        1. tp refinances mortgage.

        2. Compare discharge vs subordinate; former is extinguished and the latter has priority.

      4. Effect of Certificate of release: §6325(f) (ic)

        1. A certificate of release is conclusive that the lien is extinguished. §6325(f).

        2. Can rely on certificate of discharge.

    4. Administrative appeal on liens §6326 (ic)

    5. Extensions of liens duration: (A-67)

      1. The duration of a written waiver from tp or an extension by waiver in connection with an OIC. §6502.

      2. The period (plus 6 months) during which the tp’s assets are in custody of a ct.

      3. The period in which the tp is o/s the US §6503©.

      4. The period (plus six months) during which the automatic stay in a bankruptcy case is in effect.

      5. 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

 

 

 

 

 

 

  1. Levy/Seizure of property for collection of taxes; §6330 Subchp D

    1. Notice and opportunity for a hearing b4 levy. §6330

      1. 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).

      2. 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.

      3. Time and method of notice §6330(a)(2)

      4. Information included in the notice: §6330(a)(3)

    2. Levy and distraint §6331

      1. Liens (encumbers property) and levies (command 3rd parties to pay-aka collection devices) are administrative rather than judicial devices.

      2. 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).

      3. 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©

      4. 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:

        1. 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.

          1. Jeopardy: no notice is required if secretary has made a finding that the collection of tax is in jeopardy. §6331(d)(3).

          2. What is included in a notice is on (A-70).

        2. 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.

 

          1. 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).

            1. A fax is ok IRM 5.11.2.1.4 (5-5-98) (A-70) but must still mail.

        1. 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).

      1. Continuous levy on salaries/wages until the levy is released b/c of economic hardship under §6343.

      2. Prohibited levies: No levy during pendency of proceedings for refund or divisible tax. §6331(i) (A-69)

        1. No levy before investigation of status of property. §6331(j).

          1. Verify the tp’s liability

          2. Determine the equity in such property – is sufficient to yield net proceeds to satisfy ta liability.

          3. Prohibition on levy:

            1. During certain refund proceedings; §6331(i)

            2. During Offer in Compromise; §6331(k)(1)

            3. During Installment agreement. §6331(k)(2)

            4. Uneconomical levies: if secretary determines that the expenses of the prop > the property value then no levy may be made. §6331(f)

    1. Seizures: Surrender of property subject to levy §6332

      1. General: Any person in possession of property subject to levy shall surrender such property rts to the secretary. §6332(a).

        1. §6332(d) (ic)

        2. IRS can seize property held by tp or 3rd party §6331(b)

        3. IRS typically files NFTL b4 seizure to preclude tp transferring encumbered property.

        4. 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.

      2. Life Insurance and endowment contracts:

      3. Residences/businesses: §6334(a)(13); (A-72)

        1. 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.

          1. Need probable cause.

        2. Tp will be criminally prosecuted if he trys to re-enter the premises after the property has been seized §7212(b).

        3. IRS must safe keep property and not allow waste to occur.

        4. 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).

    2. Property subject to levy; (A-73) §6331(a)

      1. In general; all property and rts to property belonging to the tp are subject to levy.

      2. 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.

        1. Exceptions to levy on current property:

          1. Continuing levy on salaries/wages §6331(e) levy until liability is satisfied.

          2. The levy on fixed, determinable and periodic payments when the tp has an unqualified fixed rt to rec’ pmts under trust or K.

      3. Specific types of property subject to levy; Property held by 3rd parties. Reg §301.6331-1(a)

        1. Wages:

          1. §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.

            1. May levy severance payments.

        2. Bank acct: banks must surrender tp funds w/in 21 days after being served with levy notice. (A-75)

          1. 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).

        3. Retirement accounts;

          1. If the tp has a fixed determinable rt to the pension payments then the IRS may attach to that rt.

            1. Air-force pension payments can be levied upon. (A-77)

    3. Production of books §6333

    4. Property Exempt from levy: §6334(a)

      1. Wearing apparel and schoolbooks §6334(a)(1); excluding luxury apparel.

      2. Fuel, provisions, furniture and personal effects: Not to exceed $6,250 in value. §6334(a)(2)

      3. Books and tools of a trade or business; not to exceed $3,125 in value. §6334(a)(2)

      4. Unemployment benefits; §6334(a)(4) Federal payments are limited to 15% §6331(h)(1)

      5. Undelivered mail: §6334 (a)(5)

      6. Workmen’s compensation: §6334(a)(7) Federal payments are limited to 15% §6331(h)(1)

      7. Judgments for support of minor children. §6334(a)(8)

      8. Minimum exemption amount for wages §6334(a)(9).

      9. Disability payments: §6334(a)(10).

      10. Exempt amt of wages §6334(d)

    5. Recovery of seized property (A-84)

      1. §7426(b) empowers Dist ct to

        1. Issue an injunction to prohibit a sale

        2. Order the return of specific property

        3. Grant a judgment equal to the money levied upon

        4. Grant a judgment equal to the greater of fmv on date of levy or amt realized from IRS sale of prop.

        5. Grant a judgment ordering a refund of the amt the owner deposited.

    6. Tp defenses:

      1. Release from levy. §6343; aka liability is satisfied; S of L, IRS determines that release would facilitate collection. This is IRS’s discretion.

      2. 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.

      3. 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.

      4. Taxpayer advocate services: (A-80) if the levy creates a significant hardship for the tp; file form 911, Application for Tp Assistance Order (ATAO)

      5. Tp says he has no rts to property

      6. Property is subject to a prior judicial attachment or execution. §6332(a) US v Nat’l Bank of Commerce 472 US 713 (1985). .

    7. Redemption of property: §6337(a)

      1. Anytime prior to sale.

      2. Redemption after sale: (b) within 180 days after the sale.

      3. NO redemption exists for personal property

      4. Have rt to surplus of proceeds.

    8. Certificate of sale; Deed to real property §6338

      1. Certificate of sale: Secretary shall give the purchaser a certificate of sale upon the payment in full of the purchase price. §6338(a)

      2. 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.

    9. Certificate of sale: Deed to personal property; §6339(a)

      1. Authority to transfer title to motor vehicles.

    10. Records of sale §6340

    11. Expense of levy and sale §6341

 

  1. Interest Chp 67 §6601 Interest on underpayments §6601(a).

 

  1. Sale of levied property;

    1. Procedure;

      1. 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).

      2. Sale procedure:

        1. Time and place: (A-87)

          1. 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.

          2. Tp can request that IRS sell property w/in 60 days after the request. IRS can use its discretion.

        2. Minimum is the lessor of :

          1. 80% or more of the property’s forced sale value less encumbrances that has priority over the federal tax lien OR

          2. The value of the line interest (IRS policy statement P-5-35 (4-7-78) printed IRM 1.2.1.5.8

          3. 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.

        3. Right of redemption:

          1. §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.

          2. No right of redemption exists for personal property sold. The rt of redemption must be exercised within 180 days after the sale.

          3. The redeeming party must notify the IRS District Director for the district in which the property is located of

          4. Rt to surplus proceeds. §6342(b)

        4. Buyers Concerns: (A-90)

          1. Certificate of sale and directors deed.

            1. 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.

            2. Property sold by the IRS is discharged from all liens, encumbrances and title over which the federal tax lien had priority.

          2. Practical considerations;

            1. 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 encumbrances. If a junior encumbrance holder does not rec notice of sale, the sale may be invalid as to that interest thereby leaving that lien intact against the property.

            2. The buyer should file the certificate of sale with all appropriate public officials and personally notify all persons claiming an interest in the property of the purchase.

            3. Buyer holds real property acquired at an IRS sale subject to the §6337 right of redemption. During the redemption period, the tp remains the legal owner of the property subject to the federal tax lien and to the buyer’s equitable lien. The buyer cannot refuse a timely and proper redemption. The buyer is entitled to interest on the purchase price if a sale is set aside for defective notice or if the right of redemption is exercised.

 

 

 

 

 

 

 

  1. Judicial procedures; chp 76 subchp A thru E

 

    1. Civil actions by US (Chp A)

      1. Authorization §7401

        1. The IRS can’t sue or be sued. All actions are in the name of the US.

      2. Jurisdiction §7402

        1. Grants federal district courts to hear collection suits.

          1. Personal jurisdiction; Federal rules of civil procedure

          2. SMJ §7402(a) grants jurisdiction to fed district cts to hear collection suits.

          3. Venue; 28 USC §1655

          4. S of L;

            1. Assessment §6501(a).

            2. Collection §6502 10 yr

      3. Action to enforce lien or to subject property to payment of tax §7403 (ic)

        1. gov relies on this § to collect on levy (foreclosure and get a judgment)

      4. Action to enjoin income tax preparer §7407

    2. Proceedings by tps and 3rd parties (Chp B)

      1. Prohibition of suits to restrain assessment or collection §7421

      2. Civil action for refund §7422 (ic)

      3. Intervention §7424

      4. Discharge of liens §7425: A secured party of the tp’s property enforces his security interest that is senior to the FTL may discharge the FTL from the property. §7426. There are 2 types of foreclosure sales.

  1. Judicial sale;

    1. Formal hearing on the merits and results in a direct sale of property. A court ordered sale pursuant to execution of a judgment is not always a judicial sale. A judicial sale resulting from a proceeding in which the IRS was joined as a party is binding on the IRS. In such a situation the IRS takes whatever interest is provided by the judgment. If FTL is not filed by time of action or suit then it is discharged. If it has been filed at the time of action then the property is subject to FTL.

  2. Non-judicial sale; (A-64)

    1. Contract for deed or conditional sales K. Reg §301.7425-2(a).

      1. Significance of Notice of Sale

      2. Notice of sale requirements.

      3. IRS’S rt to redeem

      1. Income tax return preparers §7427

      2. Review of jeopardy levy or assessment procedures §7429

      3. Awarding costs and certain fees §7430

      4. Civil damages §§7431-7435 (ic §7431,7432,7433)

    1. Types of suits; (A-94)

      1. Suit to reduce tax claim to judgment §7402 is the authority

      2. Lien foreclosure suit §7401 & 7403 is the authority

      3. Suit for failure to honor levy; §6332© impose person liability upon the party served with the levy. Suit brought under §7402 authority.

      4. Erroneous refunds suit; §7405 is the authority

      5. Suit to impose receivership; §7403(d) is the authority

      6. Suit to open a safe deposit box;§7402 is the authority

      7. Action to quiet title §7402 is the authority

      8. Intervention suit §7424 is the authority

    2. The tax Court (Chp C)

      1. §7441

      2. Procedure §7451

        1. Fee is not to exceed $60. §7451

        2. Services of process §7455

        3. Disputes involving $50k or less §7463

    3. Court review of TC decisions (Chp D)

      1. Date when TC decision becomes final §7481

      2. Courts Review §7482

      3. Notice of Appeal §7483

    4. Burden of Proof (Chp E)

      1. §7491

 

 

 

 

 

 

  1. Crimes: Chp 75 §7201

    1. Attempt to evade tax §7201 “tax evasion statute” (ic)

      1. Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title shall in addition to other penalties provided by law be guilty of a felony and, upon conviction, shall be fined not more than $100k ($500k in the case of a corp) or imprisoned not more than 5 yr or both with costs of prosecution. §7201

    2. Willful failure to collect or pay tax §7202

      1. (Same as above) and $10k or imprisoned not more than 5 yrs or both with costs of prosecution.

    3. Willful failure to file a return or supply information §7203 (MISDEMEANOR)

      1. Guilty of a misdemeanor and not more than $25k ($100k in the case of a corp)

    4. Fraud and false stmts §7206 (FELONY)

      1. On a return, document, statement or verified by a written declaration that is made under penalties of perjury

      2. Or aids or assists, counsels or advises the preparation of a return, affidavit, claim or other document, which is fraudulent or is false as to any material matter

      3. Or removes or conceals with intent to defraud

      4. Shall be guilty of a felony and shall be fined not more than $100k ($500k for a corp) or imprisoned not more than 3 yrs or both together with the costs of prosecution.

    5. Fraudulent returns: §7207

      1. $10k ($50k if corp) 1yr in prison or both with court costs.

    6. Failure to obey summons §7210

      1. Any person summoned to appear to testify or appear to produce books, accounts, records or papers under §67602, 7603, 7604 and neglects to appear or to produce such books, accts shall be guilty of a misdemeanor and fined not more than $1k or 1 yr in prison or both with costs of preparation.

    7. Attempt to interfere with administration of IRS §7212

      1. $5k or imprisonment not more than 3 yrs or both

      2. US v Varani 435f2d 758 (1970) D tried to intimidate and officer of the IRS. “Said any force to take his property would be met with superior force” “I want to fight you so bad”

      3. US v Jansen 475 f2d 312 (1973) hit IRS officer when they tried to take his bar/restaurant. (ic) interference case.

    8. Offense by officers and employees of the US §7214

      1. Unlawful acts by revenue officers or agents;

        1. Who extort or willfully oppress under color of law

      2. Shall be dismissed from office and upon conviction, shall be fined not more than $10k or imprisoned not more than 5 yrs or both.

    9. Disclosure or use of information by preparer of returns §7216

 

 

  1. Civil damages against the IRS §7433 (Offensive) (ic)

    1. General: If IRS acts recklessly or intentionally or by reason of negligence, the tp can bring a civil action against the US in a district ct of the US. Civil action is the exclusive remedy for recovering damages.

    2. Civil damages for unauthorized inspection or disclosure of returns: §7431

      1. (ic-unauthorized disclosure to someone who doesn’t own tp’s asset)

      2. If any officer or ee of US knowingly or by reason of negligence inspects or discloses any return info in violation of §6103, the tp may bring a civil action for damages against the US in a district ct of US.

      3. Period for bringing the action: (d) within 2 yrs after the date of discovery by tp of the unauthorized inspection or disclosure.

    3. Civil damages for failure to release lien §7432(a)

      1. If an officer or ee of IRS knowingly or negligently fails to release a lien under §6325 on property, such tp may bring a civil action for damages against the US in a district ct. . Damages are the actual, direct economic damages sustained by tp and the costs of the action.

    4. Civil damages for certain unauthorized collections; §7433 (ic; unauthorized collection)

      1. Damages: Cap is 1m (100k in negligence cases). This covers:

        1. Actual, direct economic damages sustained by the P as a proximate result of the reckless or intentional or negligent action of the officer or ee and the cost of the action. §7433(b)(1)&(2).

        2. Limitations: §7433(d);

          1. All administrative remedies must have been exhausted

          2. Mitigation of damages

          3. Period for bringing an action is 2 yrs after the date the right of action accrues.

    5. Forms: (ic)

      1. Collection appeals process Form 9423

      2. Tp assistance order Form 911

      3. Collection due process hearing Form 2153

 

 

 

 

  1. Defensive Measures: (A-109)

    1. S of L:

      1. S of L: §6502 “Limitation on assessment and collection” §6501

        1. General rule: IRS has 3 yrs from date return is filed (mailbox rule)to give notice of a deficiency. §6501(a). If the return is filed early then its considered filed on the last day prescribed by law for filing the return. §6501(b)(1). Must be one of the 3:

          1. 3yr

          2. 6yr

          3. open ended

        2. Amended returns: if a tp claims that he ows more money 60 days before the end of the S of L, the period for assessment last 60 days longer §6501©(7).

        3. S of L is suspended §6503:

          1. For the period during which the IRS is prohibited from making the assessment or collecting the tax and for an additional 60 days. §6503(a)(1). So if the IRS issues a valid notice of deficiency and the tp does not file a petition with the TC then the S of L on assessment is suspended for 150 days: 90 following issuance of the notice of deficiency plus 60 days thereafter.

          2. If the tp is o/s the US; shall be suspended for 6 months. §6503©.

        4. Prompt assessment:

          1. Estates can request prompt assessment

          2. Bankruptcy trustees can negotiate to extend to S of L.

        5. Extensions;

          1. By agreement; Form 872:

        6. Exceptions §6501©

          1. False return: fraudulent return with intent to evade tax

          2. Willful attempt to evade tax

          3. No return

          4. Special rule for certain amended returns.

          5. Extension by agreement

        7. Substantial omission: §6501(e)

          1. (a)(1): If the taxpayer omits from gross income an amount that is in excess of 25% of the amount of GI stated in the return, the S of L is 6 yrs after the return was filed.

          2. Exception: Understatement where IRS had notice (say in the 1040) takes the tp out of the 6 yr rule §6501(e)(a)(A)(ii). K-1’s may not be proper notice

        8. Ending S of L;

          1. Send a general assessment letter (90 day letter). IRS cant assess during the 90 days b/c the tp can petition the TC

    2. Innocent Spouse Relief:

      1. Generally both spouses are jointly and severally liable §6013(d)(3). §6013(e) adds innocent spouse relief. There are 3 ways for a spouse to be relieved from joint liability:

        1. 1st ground for relief; §6015(b) permits innocent spouse relief if

          1. Filed a joint return

          2. The understatement is attributable to the guilty spouse

          3. The innocent spouse did not know and had no reason to know on signing the return of the understatement of tax

          4. It w/be inequitable to hold the innocent spouse liable for tax deficiency.

          5. The innocent spouse elects to apply for relief no later than 2 yrs from the date of the IRS’s first collection activity after July 22, 1998 with respect o the innocent spouse provision.

          6. If all five conditions are met a spouse can claim the innocent spouse relief.

        2. 2nd §6015©; standard applies to spouses that are divorced, legally separated or not members of the same household during the 12-month period ending on the date of election of relief.

          1. Innocent spouse cant have had actual knowledge when signing the tax return

          2. Or cant have had disqualified assets transferred to the innocent spouse. Disqualified assets are assets transferred to the innocent spouse if the principle purpose for the transfer was avoidance of tax payments.

        3. 3rd §6015(f); if (b) or (c) is inapplicable then: the IRS on its own volition can grant innocent spouse relief if under the facts and circumstances it would be inequitable to hold the individual liable for the tax shown on a return for a deficiency.

 

    1. Taxpayer Assistance Order:

      1. If tp can show that the IRS’s collection activities have resulted or are about to result in significant hardship, the tp can file form 911 with the taxpayer advocate in the district where the tp resides and request the issuance of a Taxpayer Assistance order (TAO). The order is issued by the national tp advocate and may require the IRS to release levied property or to cease collection activities. §7811(b).

      2. Significant hardship:

        1. Immediate threat of adverse action

        2. A delay of more than 30 days in resolving account problems

        3. The likelihood that the tp will incur significant costs if relief is not granted.

        4. Irreparable injury, harm, or adverse impact. §7811(a)(2)

    2. Request for a new Audit if:

      1. The to never received prior notification of a balance due from the IRS

      2. The tp moved since filing the related return and did not receive correspondence from the IRS

      3. Or the tp never had an opportunity to substantiate tax info and is now able to do so.

    3. Administrative Appeal:

      1. Intent is to resolve tax controversies without litigation IRM 8.1.3.2 (5-19-98)

      2. AN appeal must be provided

        1. Following the filing of a FTL (Collection due process appeals) §6320

        2. When a levy is contemplated but not yet issued

        3. When an installment agreement is to be terminated.

    4. Injunctive Relief:

      1. Only time you can sue for purpose of restraining the assessment of collection:

        1. §6015(e); innocent spousal relief

        2. §6212(a);

        3. §6213(a);

        4. §6225(b); attempt to collect from a partnership b4 proceedings are completed

        5. §6246(b);

        6. §6330(e)(1); if IRS levy on tp property or rts while levy action is statutorily suspended under administrative collection process

        7. §6331(i); the IRS levies on the tp’s property or rts to property for an unpaid divisible tax during the pendency of a judicial proceeding for a refund of the tax

          1. Prohibits the IRS from levying on tp property during a pending refund proceeding.

        8. §6672(c);

        9. §6694(c); the tp has petitioned the TC for a re-determination of the IRS’s employment status determination.

        10. §7426(a) & (b)(1); the tp has successfully contested a jeopardy or termination assessment.

        11. §7429(b);

    5. Installment Agreement: §6159©

      1. At the tp’s request the IRS MUST enter into an installment agreement if:

        1. The aggregate amount of the tax liability does not exceed 10k excluding penalties and interest

        2. Within the previous 5 yrs the tp has not failed to file or pay

        3. The tp demonstrates that he is unable to pay the tax in full

        4. The installment agreement provides for full payment of the liability within 3 yrs

        5. The installment agreement provides for full payment of a liability that is 25k or less within 5 yrs

        6. And, the tp agrees to remain in full compliance with the tax laws and the terms of the agreement for the period the agreement is in place. §6159©.

      2. Tp must fill out form 433-A and B

      3. Typical candidate for instilment agreement is a tp with significant income but few assets.

    6. Extensions: ST / LT

    7. Offer in Compromise: §7122 FORM 656

      1. General;

        1. Closing agreements §7121

          1. Secretary can enter in an agreement in writing with any person relating to liability.

          2. (b) Such agreements are final and conclusive, except upon a showing of fraud, malfeasance or misrepresentation of a material fact.

        2. Compromises §7122

          1. Secretary may comprise any civil or criminal case arising under the IRS

          2. Secretary shall publish a schedule for allowance for basic living expenses.

        3. Appeals dispute resolution procedures; §7123

          1. Secretary shall provide procedures by which any tp may request early referral of one or more unresolved issues from the examination or collection division of the IRS.

      2. §7122 permits the IRS to compromise civil and criminal tax liabilities before the case is referred to the department of justice. OIC is a provision settling unpaid tax accounts for less that the full amount of the assessed balance. OIC can cover all taxes and penalties. §301.7122-1(a)(2)

      3. OIC objectives;

        1. To effect collection of what could reasonably be collected at the earliest time possible and at the least cost of the government

        2. To achieve resolution that is in the best interest of both the tp and the gov

        3. To give the to a fresh start to enable them to voluntarily comply with tax laws

        4. To collect funds which may not be collectible through other means.

      4. Rejection: IRS can’t reject an OIC from a low income tp or any tp regardless of income level, solely on the basis of the amount offered by tp. §7122©(3)(A).

        1. IRS does not consider OIC from bankruptcy debtors. IRM 5.8.3.2 (2-4-00)

      5. Requirements: OIC requires the tp to keep current on the tp’s payment and filing requirements for 5 yrs from the date of acceptance of OIC. The tp must also return and refund rec’d for all tax yrs up to and including the yr of acceptance of the OIC.

      6. Form: OIC is form 656.

      7. Type of OIC:

        1. OIC based on doubt as to liability;

          1. Stated position: Tp can challenge the merits of the IRS assessment. IRM 5.8.1.3L3) (2-4-00)

          2. Stated amount tp is offering:

          3. If OIC is rejected: If OIC is rejected then the tp has a rt of appeal of the rejection meet with an appeals officer. §7122(d); §301.7122-1(f)(5).

        2. OIC based on doubt as to collectibility

          1. When tp’s assets and income are less than the full amount of tp’s liability.

          2. If the offer is accepted the tp’s collection account is closed. §301.7122-1T. The IRS releases any related NFTL’s once the full amt of the offer is paid unless the NFTL is not required to be released under a specific provision in a collateral agreement. §301.7122-1(e)

          3. The IRS has no authority to compromise un-assessed taxes.

          4. The assessment can be revised if tp violates the terms of the OIC.

          5. NRV: tp can utilize “quick sale” value for real property and personal property. This is normally 80% of fmv.

        3. OIC that promotes effective tax administration/discretion of the IRS. 301.7122-1(b)(2).

          1. Consider:

            1. Economic hardship for tp

              1. §301.6343-1 lists factors (employment, dependants, and their status)

              2. Medical, illness, disability and capability to earn $ in future,

              3. Can tp borrow against property?

            2. Public policy and equity considerations.

            3. Tp’s prior non-compliance with filing requirements

            4. Intent of tp

          2. Principle residence exempt b/c of hardship §6334

          3. Levy on business assets: expedited determination.

    8. Bankruptcy (A127)

      1. Injunction:

        1. 11 USC §524 provides an injunction against creditors (including the IRS) against the debtor.

        2. If IRS trys to collect from debtor and IRS has no NFTL, sovereign immunity is waived to allow the injured party to recover damages, provided that the IRS collection actions are shown to be willful. 11 USC §105.

      2. Creation of a bankruptcy estate;

        1. Debtor creates a bankruptcy estate by filing a bankruptcy petition.

      3. Exempt property:

        1. §552 allows certain real and personal property to be exempt from the bankruptcy estate. This property can’t be used to satisfy unsecured debts that arose before the bankruptcy petition is filed. However, exempt property is subject to IRS collection following discharge of the bankruptcy proceedings if the federal tax liability is non-dischargeable or if the taxes are dischargeable but secured by a tax lien for which an NFTL was filed pre-petition.

      4. Proof of claim;

        1. After debtor supplies bankruptcy court with a list of creditors, the creditors must file a proof of claim setting forth the amount the debtor owns and the status of the debt.

        2. Must be filed w/in 180 days after the order for relief or the date set in the bankruptcy rules.

      5. Classification of tax claims;

        1. Pre-petition;

          1. If the taxable yr for the taxes ends b4 the tp files the bankruptcy petition.

        2. Post-petition;

        3. Secured claims;

          1. Filing a NFTL gives the IRS a secured claim for the amt of its interest in the value of the tp’s property. 11 USC §506

          2. Tp must have an interest in that property.

          3. §6321 creates a lien on property or rts to property of the tp.

        4. Unsecured claims;

          1. If no NFTL has been filed b4 the bankruptcy petition is filed, the IRES treats the underlying pre-petition tax liability as an unsecured claim. The tax claim is also unsecured to the extent that the value of a secured tax claim, which is represented by a filed NFTL, exceeds the equity in the bankruptcy estate’s property encumbered by the NFTL.

        5. Non-pecuniary loss penalty;

          1. While a tax lien cant be avoided, 11 USC §724(a) provides that a tax lien can be avoided if the lien is for:

            1. A fine, penalty

            2. Multiple exemplary or punitive damages arising before the earlier of the order for relief or the appointment of the bankruptcy trustee and to the extent that forfeiture damages arising do not compensate the IRS for an actual loss.

              1. §724 is to protect unsecured creditors from the debtor’s misconduct. By permitting the trustee to avoid a lien that secures a claim for forfeiture or a penalty, creditors are not punished for the debtor’s wrongdoing. Therefore, if a lien securing the IRS’s claim for a non-pecuniary loss penalty encumbers exempt property there is no reason to avoid the line, sine the unsecured creditor’s claims are not deductible out of exempted property.

        6. Equitable subordination;

          1. Under this doctrine, innocent unsecured creditors are to be protected from debtor’s misconduct. ES is triggered by showing that a claimant has engaged in some type of inequitable conduct and that the misconduct causes injury to other creditors or gives the claimant an unfair advantage. 11 USC §510©.

        7. Priority of payment;

          1. General rule: creditors holding secured claims are entitled to receive the value of their security first; then priority claims are paid in their order of priority under 11 USE §507; and finally unsecured claims are paid before the balance is turned over to the debtor.

        8. Chp 7;

          1. Chp 7 claims are liquidation proceedings

          2. Distribution;

            1. 1st to lines senior to the IRS’s lien

            2. 2nd, to priority claims under 11 USC §507(a)(1) up to the amount of the IRS’s secured tax claims

            3. 3rd, to the IRS for the excess of the IRS’s secured tax claims over the amount distributed.

            4. 4th, to any secured claims junior to the secured claims

            5. 5th, to secured tax claims to the extent these tax claims are not paid because of the payments made under #2

 

            1. 6th, to the bankruptcy estate for distribution under 11 USC §726

      1. Cases:

        1. Toti v US; 24 f.3d 806. A debtor is generally discharged from all debts that arose b4 the filing of the bankruptcy petition 11 USC 27(b). 11 USC §523(a)(1)(c) doesn’t discharge a debtor from individual income taxes were the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat tax.

        2. Hindenlang v US; 164 f.3d 1029 (1999); 11USC §523(a)(1)(B) prohibits discharge of taxes for which the debtor did not file a tax return. D sent IRS a tax return 2 yrs after assessments had been made and after bankruptcy ct petition had been filed.

          1. Priority tax;

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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