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Part 5. Collecting Process

Chapter 10. Seizure and Sale

Section 1. Pre-Seizure Considerations

5.10.1  Pre-Seizure Considerations

5.10.1.1  (12-13-2005)
General

  1. The decision to seize a taxpayer's assets is one of the most sensitive decisions that a revenue officer will make. The case history must be well documented with all actions that have been taken in order to show the justification for seizing a taxpayer's assets. The decision to seize must be based on the individual facts and circumstances of each case, and the revenue officer must follow all legal and procedural guidelines. If the facts of the case indicate seizure of the taxpayer's assets would be the next appropriate step to take, the revenue officer should begin the seizure process.

  2. In order to ensure that enforcement action is used as an appropriate case action, collection employees should be familiar with the following policy statements (IRM 1.2.1, Policies of the Internal Revenue Service) related to seizure action:

    • P-5-1 Enforcement is a necessary component of a voluntary assessment system

    • P-5-28 Successive seizures — Timing to avoid undue hardship

    • P-5-34 Collection to be enforced through seizure and sale of assets of a taxpayer only after thorough consideration of all factors and alternative collection methods

    • P-5-35 Establishment of a minimum price in distraint sales

    • P-5-38 Seizure of assets located on private premises

  3. Revenue Officers have the authority to seize assets and Property Appraisal and Liquidation Specialists (PALS) have the authority to sell assets. Coordination between the revenue officer and PALS is essential before, during, and after the seizure. The revenue officer will make the seizure and take all seizure actions up through inventorying and securing the property. The revenue officer and the PALS may work together to complete the inventory after the seizure has been conducted. As soon as possible after the inventory, custody of the property will be transferred to the PALS, who will generally be responsible for all further sale related actions. The revenue officer, however, will still be responsible for the final case resolution.

5.10.1.2  (12-13-2005)
List of Prohibited Seizures

  1. The following types of seizures are prohibited in light of restrictions in the Internal Revenue Code (IRC):

    • Seizures where the taxpayer has insufficient equity in the property - there must be sufficient net proceeds from the sale to provide funds to apply to the taxpayer's unpaid tax liabilities

    • Seizures when there is a pending Installment Agreement (IA) plus 30 days after rejection of the IA, and during the pendency of an appeal filed within that 30 day period

    • Seizures when an IA is in effect, or if terminated, 30 days after termination and during pendency of any appeal filed within that 30 day period

    • Seizures when there is a pending Offer in Compromise (OIC), plus 30 days after rejection and during pendency of an appeal filed within that 30 day period

      Note:

      Employees should be familiar with the prohibition against seizure action on certain OIC or IA accounts, but should also be familiar with the applicable procedures for "Offers Submitted Solely to Delay Collection" (IRM 5.8.3.19) and "Installment Agreement Requests Made to Delay Collection Action" (IRM 5.14.3.2).

    • Seizures conducted on the day the taxpayer has to appear in response to a summons

    • Seizures for employment taxes or employment tax-based trust fund recovery penalty assessments that are also the subject of refund suits by the person whose property is to be seized unless jeopardy exists or the taxpayer waives suspension of collection in writing

    • Seizures during which communications with the taxpayer are initiated outside of the hours of 8 A.M. to 9 P.M. unless there is knowledge that such communications would not be inconvenient to the taxpayer

    • Seizures when the taxpayer is in bankruptcy and the Automatic Stay is in effect (Bankruptcy Code Section 362)

    • Seizures which allow the taxpayer less than the exempt amounts to which they are entitled

    • Seizure of any real property used as a residence by the taxpayer, or any real property (other than real property that is rented) used by any other individual as a residence, if the liability is $5,000 or less

    • Any other seizure where levy action is prohibited by the IRC, including seizures before Collection Due Process (CDP) notices are issued or while CDP hearings and appeals are pending (unless there is jeopardy), seizures while innocent spouse claims are pending, and seizures of principal residences without court approval

  2. Prior to conducting a seizure, the revenue officer must review the list of prohibited seizures to ensure the case does not meet any of these conditions. The case history should be documented to reflect that the revenue officer reviewed the list of prohibited seizures and that no prohibition against seizure exists.

5.10.1.3  (12-13-2005)
Actions Required Prior to Seizure by IRC 6331(j)

  1. IRC 6331(j) outlines specific actions that must be completed before the seizure of a taxpayer's assets can be recommended:

    1. The liability must be verified.

    2. Alternative collection methods must be thoroughly considered.

    3. An analysis must be conducted to show that the expenses expected to be incurred with respect to the seizure do not exceed the fair market value of the asset to be seized.

    4. There must be a determination that the equity is sufficient to yield net proceeds from the sale to apply to the liability.

5.10.1.3.1  (12-13-2005)
Verifying the Liability

  1. In order to verify the liability, the revenue officer should confirm during taxpayer contact that the taxpayer understands the assessment. If the taxpayer does not understand the assessment, the revenue officer should explain the assessment and address any concerns the taxpayer has. The revenue officer should:

    • Research IDRS

    • Review information from the taxpayer

    • Resolve any open items

    Note:

    In many cases, the verification of the liability will take place during the initial contact with the taxpayer or during follow-up contacts with the taxpayer.

  2. If the taxpayer claims the assessment is incorrect or has additional information that could impact the balance due, the case should be thoroughly investigated and the issue resolved prior to proceeding with enforcement action. The case history should be documented to reflect any concerns raised by the taxpayer and the steps taken to address them. If the liability is the result of an SFR assessment, the revenue officer should allow the taxpayer 30 days to prepare corrected returns.

  3. Some of the sources that can be reviewed to verify the liability include:

    • NMF/MF transactions

    • Pending transactions or adjustments

    • Litigation

    • Copies of cancelled checks

    • Innocent spouse claims

    • Abatement requests or amended returns

    • IDRS history items

    • Correspondence from the taxpayer

  4. If the issues raised by the taxpayer were already addressed under some other administrative or judicial proceeding (e.g., Collection Appeals Program (CAP), Taxpayer Advocate Services (TAS), audit reconsideration, etc.) prior to seizure action, further verification is not required and the taxpayer should be advised that the issue was previously addressed. This should be documented in the history.

  5. If the taxpayer does not respond to the attempted contacts, the revenue officer should review IDRS and any prior correspondence from the taxpayer but is not required to take any further actions to verify the liability.

  6. Document the case history with the steps taken to verify the liability.

5.10.1.3.2  (12-13-2005)
Alternative Methods of Collection

  1. The Service is required to consider alternative methods of collection prior to seizure. Some of the alternative methods of collection that can be considered include, but are not limited to:

    • Installment agreements

    • Offers in Compromise

    • Posting of bond by the taxpayer

    • Levy (Form 668-A or 668-W)

  2. The determination to seize should be based on the facts of the particular case and the risk to the government of pursuing these alternatives. The possible alternatives should be discussed with the taxpayer. If the taxpayer requests an alternative that is not acceptable to the Service, the reason the request is not acceptable must be explained to the taxpayer. If the taxpayer has requested an installment agreement and that request is being rejected, see IRM 5.14.9, Approval, Independent Review, Appeals, and Disposition of Documents, for the proper appeals procedures to follow. No enforcement action (except jeopardy action) may be taken while the taxpayer is undertaking an appeal.

    Note:

    Employees should be familiar with the prohibition against seizure action on certain OIC or IA accounts, but should also be familiar with the applicable procedures for "Offers Submitted Solely to Delay Collection " (IRM 5.8.3.19) and "Installment Agreement Requests Made to Delay Collection Action" (IRM 5.14.3.2).

  3. To assist in the consideration of alternative collection methods, a risk analysis must be conducted. A risk analysis involves comparing the advantages and disadvantages of the alternative method of collection to the proposed seizure action. If the alternative method of collection would put the government at greater risk of failure to recover the liability, it may not be acceptable. The following issues should be considered as part of the risk analysis:

    • Past compliance history — is there a history of non-compliance?

    • Current compliance — is the taxpayer current and has the cause of past non-compliance been corrected?

    • Current financial condition — can the taxpayer meet current obligations, including FTD's?

    • Future financial condition — can financial adjustments help the taxpayer experience future profits?

    • Collection statute — does the alternative provide for payment within the collection statute?

    • Interest in Asset — is the government's interest in the asset protected and will the taxpayer's interest in the asset increase?

    • Impact — what impact will the seizure have on third parties?

    • Yield — will an alternative collection method potentially yield more than the seizure and sale?

  4. Either the case history or a fact sheet submitted with the approval request must document the alternative methods that were considered, why the alternatives were not acceptable, and the results of the risk analysis.

5.10.1.3.3  (12-13-2005)
Equity Determination

  1. To determine if there will be net proceeds available to apply to the liability, the revenue officer must complete an equity determination and prepare a draft minimum bid (IRM 5.10.1.3.3.1(12), Equity Determination - Expenses of Sale) prior to recommending the case for seizure.

    Note:

    There is no minimum amount that is required to be applied to the liability. In situations where there is a minimal amount of expected net proceeds, it is extremely important for the revenue officer and PALS to discuss the fair market value as well as logistical issues related to moving and storage of the property and the timing of the seizure so that expenses can be controlled in order to ensure that proceeds can be applied to the liability.

  2. The first step is to determine the fair market value (FMV) of the property. The revenue officer must document how the FMV of the asset was determined. The FMV should reflect the condition of the property at the time the seizure is being considered. Information about the condition of the asset should be documented in the case history. The FMV can be influenced by market conditions, age of the asset, condition of the asset, zoning requirements, technology, demand, fitness for use, and other factors. Whenever possible, the revenue officer should attempt to personally view the assets to determine the FMV. If the taxpayer is uncooperative in providing information about the assets, the revenue officer has access to many internal and external sources that can be used to determine the FMV of the property. Some of the sources, in addition to information provided by the taxpayer, that can be used to determine the FMV are:

    • Used vehicle guides

    • Assessment office

    • Property appraisals

    • Comparable sales

    • Financing statements

    • Tax returns

    • Contact with businesses or dealers that are familiar with the particular type of asset

    • Personal observation

    • Area realtors

    • Trade Publications

    • Banks

    • Collection Information Statement

    • Daily stock quotations

    • Valuation Engineers

    • Property Appraisal and Liquidation Specialist (PALS)

      Note:

      If the property under consideration for seizure consists of assets where an accurate FMV is not easily determinable, it is highly recommended that the revenue officer contact the PALS to discuss how to value the property or to request that the PALS provide an appraisal for the property.

  3. The PALS must be contacted to discuss moving and storage issues and the estimated expenses in order to accurately determine the expected net proceeds (IRM 5.10.1.3.3.1(2), Equity Determination - Expenses of Sale). The PALS may wish to view the assets with the revenue officer before providing guidance as to the FMV and the estimated equity in the assets. Even if the value can be easily determined, contact with the PALS should still be made to review the property valuation since any differences between the FMV on Form 2433, Notice of Seizure, prepared by the revenue officer, and the FMV on Form 4585, Minimum Bid Worksheet, prepared by the PALS, must be documented in the history. When possible, the PALS and the revenue officer should discuss and agree on the FMV prior to the seizure.

  4. In addition to determining the fair market value of the asset(s), a complete public records search must be conducted to verify ownership and to identify all recorded encumbrances against and interests in the property including, but not limited to:

    • Joint owners

    • Senior lienholders

    • Junior lienholders

    • Nominee/Alter Ego situations

    • Transferees

    • Intervening lienholders

    Reminder:

    Simply checking only a computer based record service, such as Choice Point, is not an adequate records check when seizure is being considered since it may not accurately reflect the current status of the taxpayer's interest in the property or encumbrances against the property.

    Caution:

    On July 1, 2001 revised Article 9 of the Uniform Commercial Code became effective in most states. When making an equity determination, the employee must be alert to local law as to where security interests are filed against corporations as to personal property (e.g., inventory and equipment). The new general rule is that the security interest is filed in the state of the debtor's incorporation.

  5. At local management option, commercial firms may be contracted to provide title search and encumbrance information reports. The delegation authority to approve the use of commercial title searches is contained in SB/SE Delegation Order 5.6. If the title search is requested in anticipation of a seizure, the cost of these reports should be charged to the balance due account as an expense and should be input as a TC 360 on Form 4844, Request for Terminal Action. If public records cannot be checked prior to seizure because of a jeopardy situation, they will be checked at the earliest possible date after the seizure is made and documented in the history. The case history must be documented with the facts that led to the determination that a jeopardy situation existed. See IRM 5.11.3, Jeopardy Levy Without a Jeopardy Assessment, for information on jeopardy situations.

    Note:

    Title search reports are required on cases seeking judicial approval to seize a principal residence.

  6. A Notice of Federal Tax Lien (NFTL) must be filed on all open periods and assessments included on Form 668–B, Levy, prior to seizing property. Liens must be filed even if the modules do not meet the general lien filing requirements in IRM 5.12.2, Lien Filing Requirements. This is not a statutory requirement; however, to maintain priority against other parties to whom the taxpayer might convey an interest in the property, it is the Service's policy to file the NFTL on all modules before property is seized.

  7. If the NFTL is mailed, ensure that it is recorded with the local registrar before proceeding with the seizure. Taxpayers must be notified in writing that the NFTL has been filed within five business days of such filing, and they are entitled to Due Process Appeal rights for the first NFTL filed for each tax year at issue. Due Process rights for NFTLs do not suspend collection. See IRM 5.1.9.3, Collection Due Process, for information on the Collection Due Process appeal procedures that must be followed.

  8. The priority of the NFTL must be determined in relation to other creditors. See IRM 5.17.2.5, Priority of Tax Liens: Specially Protected Competing Interests, and IRM 5.12.2, Lien Filing Requirements, for information on the priority of the tax lien.

  9. If the taxpayer has a loan through the Small Business Administration (SBA), see IRM 5.1.7.1, Small Business Administration (SBA), for the procedures to follow when enforcement action is being considered.

  10. The revenue officer should contact all senior and intervening lienholders in order to determine the balance remaining on each encumbrance. Letter 1029, Letter Requesting Information on a Property Lien, or a similar letter, may be used for this purpose. The requirements for third party contacts should be followed for these types of requests.

    Note:

    Ensure that the relationship between the NFTLs and any intervening lienholders is accurately analyzed, particularly if the intervening liens are of significant value compared to the senior NFTL.

  11. For the Tenth Circuit states of Kansas, Oklahoma, Wyoming, Utah, Colorado, and New Mexico, pursuant to Neece v. I.R.S., 922 F.2d 573 (10th Cir. 1990), a summons must be used instead of Letter 1029 when any of the following situations exist:

    • The financial institution is located in the Tenth Circuit

    • The taxpayer resides in the Tenth Circuit

    • The Internal Revenue Service office is located in the Tenth Circuit

  12. Document on Form 2434–B, Notice of Encumbrances Against or Interests in Property Offered for Sale (Exhibit 5.10.1–1), all encumbrances and interests of record, including federal tax liens. If no recorded interests other than the NFTL are found, prepare Form 2434–B listing only the NFTL information.

    Reminder:

    The complete name and address of all encumbrances and interests of record must be shown on Form 2434–B.

  13. The records check must be updated no more than 30 days prior to submitting the seizure to the group manager for approval.

    Reminder:

    After the seizure has been conducted and before the sale occurs, a current records check must be completed and Form 2434-B must be updated if the most recent records check is more than 90 days prior to the sale date (IRM 5.10.4.10.1(2), Notice of Sale - Date and Place of Sale).

5.10.1.3.3.1  (12-13-2005)
Equity Determination — Expenses of Sale

  1. After the fair market value and encumbrances have been verified and documented, the revenue officer should determine the estimated expenses of sale. Most seizures will require the expenditure of funds. The revenue officer and the PALS should coordinate to manage these costs in order to preserve the equity in the asset while still securing the maximum proceeds from the sale. Any travel related expenses of the revenue officer or the PALS should not be included as an expense of the seizure. Expenses that should be considered include, but are not limited to:

    • Towing fees

    • Storage costs

    • Transportation costs

    • Locksmith fees

    • Advertising costs

    • Auctioneer services

    • Appraisal fees

    • Title search expenses

    • Other miscellaneous expenses

      Reminder:

      Payments to senior encumbrances are not an expense of sale since the property is sold subject to the prior encumbrances.

  2. In most cases the PALS will have responsibility for custody of the property immediately after the seizure is made, and the expenses that occur after the initial seizure will be controlled by the PALS. Coordination with the PALS during the planning stage is extremely important and must be made in order to discuss the potential expenses that may be incurred. In some cases, the PALS may be more familiar with moving and storage facilities and may be able to secure a service for less than the revenue officer can on his/her own. In other cases, the revenue officer may be more familiar with local vendors and may be able to secure a lower cost for the service. The PALS will be aware of how long it will take before a sale can be scheduled, so timing of the seizure to reduce the number of storage days should be discussed. Custody of the property should be transferred to the PALS as soon as possible after the seizure so that expenses can be reduced, especially when storage costs are involved.

    Note:

    Because of the large geographic areas that the PALS cover, it is important to discuss the potential timing of the seizure prior to the actual seizure date to ensure a smooth transfer of custody and to reduce potential storage expenses.

  3. During the planning stage, the revenue officer should anticipate any problems which may arise in connection with the storage and protection of property during the period of a seizure. Special actions requested to protect seized property will be noted in the case history.

  4. Movable property, in the public area of a business premise, can best be protected at another location. Whenever possible, government storage facilities in the area should be used; otherwise property should be stored in a warehouse operated by a responsible party. If storage, towing, transportation, or other similar charges are required, the revenue officer, with input provided by the PALS, should determine what the expected costs will be prior to the seizure. The PALS should determine whether to move the property themselves or if they should retain the services of a commercial shipper or mover based on the particular circumstances of the case:

    • Nature of the property — value, location, size, weight, ease of transport

    • Amount of property involved

    • Cost of moving the property

    • Time and availability of the PALS and assisting employees

  5. The use of an armed escort (IRM 5.10.2.16.4, Armed Escorts) or bonded courier should be considered if the property is of significant value, such as jewelry or gold/silver, and a commercial shipper is not being used to transport the property.

    Caution:

    Vehicles may not be driven to the storage location. Based on the type of assets involved, the PALS manager may be consulted regarding transportation and security of the seized assets. The PALS manager must approve the use of an armed escort or bonded courier, as well as the personal transportation of seized assets.

  6. Property, such as expensive jewelry, is best stored in an IRS office. It should be protected in accordance with the nature and value of the property, as described in IRM 1.16.15, Minimum Protection Standards. Normally, storing such items in a safe in a local office will afford it sufficient protection.

  7. When the property to be seized is located in premises that are not being seized, and it consists of machinery or other property not easily transported or is comprised of a considerable quantity of business assets, attempt to make arrangements for storage of the property on the premises. Unless the real estate housing the seized assets is also being seized, neither padlocking nor placing warning tags on the premises is appropriate. Whenever possible, arrangements should be made before the seizure with the taxpayer or owner/landlord in order for the premises to be padlocked or the locks changed so that the Service has sole possession of the premises. Contact area counsel to determine who has the authority to authorize padlocking of the premises, particularly if the taxpayer is current on the rent. Document the case file with information on who authorized storage on the premises and the terms of the storage (secure written confirmation whenever possible). If arrangements cannot be made to store the property on the premises, include in the estimated expenses the costs for moving and storage of the assets.

  8. If the taxpayer has not made rent or lease payments in sufficient amount to cover the period through the proposed date of sale, a reasonable charge for storage should be arranged. This charge should be based only on the number of days of actual occupancy under the seizure. In certain situations, the Government may be required to pay rent due to the nature of state law and/or the terms of the taxpayer/landlord rental agreement (see IRM 5.17.3.3.7.6.1, Expenses of Sale). Technical Services (Advisory) should be consulted when there is doubt as to whether the Government is obligated to pay rent in such cases. IRM Exhibit 5.10.1–2 contains an example of a landlord agreement. A landlord agreement may be signed by the territory manager, area director, or manager of the PALS.

  9. Padlocking and changing locks is not appropriate in the seizure of personal residences and rental real property where the tenant is not the taxpayer, as the right of possession of the real property remains with the owner of the personal residence or tenant occupant for rental property.

  10. If there are indications that the taxpayer or third parties may resist the sale of seized property, additional security may be necessary to protect seized property from vandalism. If private security guards or local police services are needed to protect the seized property, the revenue officer should determine these costs as well.

  11. Generally, there is no authority for the United States to purchase insurance coverage for seized property during the period between the date it is seized and the date it passes to a purchaser or is returned to the taxpayer. However, if the circumstances are unique, insurance coverage may possibly be acquired. Submit a request stating all of the pertinent information to the area director, who has the authority and responsibility for any subsequent purchase, when seizure is first contemplated. Insurance coverage is to be acquired only by an authorized contracting officer through the Facilities Management function.

  12. Prepare a draft minimum bid in order to determine if there will be net sale proceeds to apply to the liability. IRM 5.10.4.6, Establishment of the Minimum Bid, contains the procedures for preparing a minimum bid. The draft minimum bid should be prepared based on the input received from the PALS for both the FMV and the estimated expenses of sale. If the draft minimum bid is greater than the expected expenses of sale, then there should be expected net proceeds to apply to the liability. If no net proceeds are expected based on the minimum bid calculation, the revenue officer cannot recommend the case for seizure. Either the case history or a fact sheet submitted with the approval request must contain:

    • Records that were checked

    • Results of the research

    • FMV calculation

    • Encumbrances that were located and the balances due

    • Estimated expenses of sale

  13. After approval of the seizure has been secured, follow the procedures in IRM 5.10.2.18, Contracting for Services, in order to formally contract for all of these services.

5.10.1.3.3.2  (12-13-2005)
Expenses of Sale — Disclosure Issues

  1. Disclosure issues can arise during the pre-seizure process, particularly when contacting vendors for services. Disclosure for investigative purposes is permissible under IRC 6103(k)(6) and for contracting for services under IRC 6103(n). These contacts would be still be subject to third party reporting requirements.

  2. IRC 6103(k)(6) allows the revenue officer to "disclose return information to the extent that disclosure is necessary to obtain information which is not otherwise reasonably available with respect to the correct determination of tax, liability for tax, or the amount to be collected..." . See IRM 11.3.21, Investigative Disclosure, for additional guidance on investigative disclosures. Examples of this type of disclosure include contacts with:

    • Real estate professionals to secure appraisal information

    • Third parties familiar with the value of specialized equipment

  3. IRC 6103(n) allows the revenue officer to "disclose return information.... to the extent necessary in connection with the. . .procurement of equipment, and the providing of services, for purposes of tax administration. " See IRM 11.3.24, Disclosures to Contractors, for additional guidance on disclosures to contractors for purposes of tax administration. Examples of this type of disclosure include contacts with:

    • Vendors to determine availability and costs for locksmiths, towing, storage, etc.

    • Landlords to determine lease information, storage of assets

5.10.1.3.3.3  (12-13-2005)
Equity Determination — Exempt Assets

  1. If seizure of an individual taxpayer's assets is being considered, revenue officers must be aware of the property that is exempt from levy. These exemptions do not apply to partnerships or corporations. Revenue officers must document the case history as to how the exempt property value was determined.

  2. The following exemptions, which will be indexed annually for inflation, apply to individual taxpayers for calendar year 2006:

    • Any wearing apparel and school books that are necessary for the taxpayer or members of his or her family

    • Fuel, provisions, furniture, personal effects in the taxpayer's household, arms for personal use, livestock, and poultry up to $7,430 in value

    • Books and tools necessary for the trade, business or profession of the taxpayer up to $3,710 in value

      Reminder:

      Vehicles are not considered exempt property either as personal effects or as tools of the trade.

  3. For seizures of the assets, including vehicles, of an individual taxpayer used in the trade or course of business the revenue officer must document that the taxpayer's other assets are insufficient to satisfy the amount due plus expenses. Other assets must also include the future income that may be derived from the commercial sale of fish or wildlife harvested under a state fish or wildlife permit. These types of seizures require approval by the area director.

  4. Undelivered mail is exempt from seizure.

5.10.1.3.3.4  (10-01-2004)
Equity Determination — Documented Vessels

  1. In order to determine the equity in a documented vessel, an abstract may be required. An abstract provides:

    • The history of the vessel

    • Bills of sale

    • Information about mortgages, maritime liens, and assignments

  2. The abstract can be obtained through the United States Coast Guard by contacting the National Vessel Documentation Center (NVDC). Provide the NVDC with the official vessel number and as much information as possible about the vessel, e.g., the owner's name, hull number, and the name of the vessel.

  3. The letter must be accompanied by a $25 money order made out to the National Vessel Documentation Center. The expense should be debited to the taxpayer's account through the input of a TC 360. The abstract request should be sent to:

    National Vessel Documentation Center
    2039 Stonewall Jackson Drive
    Falling Waters, West Virginia 25419–9502.

5.10.1.3.3.5  (10-01-2004)
Equity Determination — Computer Equipment

  1. When determining the equity in computer equipment that will be seized, the revenue officer and the PALS need to be aware of the procedures that must be followed to remove taxpayer data from the hard drive and the impact the removal may have on the fair market value of the equipment.

  2. Before selling computer equipment that contains taxpayer information, the contents of the hard drive, including the file allocation tables (FAT), must be removed. If the taxpayer has software that can be resold according to the software licensing agreement, it can be reloaded onto the computer prior to sale. Area counsel should be consulted in order to determine which software may be reloaded.

  3. Prior to the Service removing the FAT, the taxpayer will be given the opportunity to download all of the information from the hard drive. The procedures to be followed are contained in IRM 5.10.3.6.4, Seizures Involving Computer Equipment.

  4. In order to accurately determine the FMV of the computer equipment, the value of the computer must be determined based on the contents of the hard drive that will be available to the purchaser at the time of sale.

5.10.1.4  (10-01-2004)
"Will Pay" , "Can't Pay" , and "Won't Pay" Factors

  1. Seizures will not be conducted on taxpayers who "will pay" or "can't pay" . These categories include taxpayers who:

    • Do not agree with the assessment and are working with the Service to properly adjust their account

    • Will full pay their liability within a reasonable time frame

    • Require a reasonable period of time to sell an asset or secure a loan

    • Qualify for and submit an offer in compromise

    • Have no ability to make payments and have no distrainable assets (currently not collectible)

    • Request and qualify for an installment agreement

  2. Seizure should be considered for taxpayers who "won't pay" . This category includes:

    • Taxpayers who have the ability to remain current and/or resolve their delinquent taxes through an alternative collection method but will not do so

    • Taxpayers who do not have the ability to remain current and/or resolve their liability, but who have assets in excess of exempt amounts that will yield net proceeds to apply to the liability and are unwilling or unable to borrow on or liquidate these assets

    • Taxpayers who are pyramiding liabilities

    • Taxpayers who use unsupported tax arguments and continue to resist the requirements to file and pay

    • Taxpayers who will not cooperate with the Service, e.g., taxpayers that evade contact, will not provide financial information, etc.

    • Taxpayers who will not comply with the results of the Service's financial analysis or will not enter into an installment agreement or OIC

    • Wage earners who have not paid their tax liability and will not adjust their withholding to prevent future delinquencies

    • Self-employed taxpayers who have not paid their tax liability and will not make estimated payments to prevent future delinquencies

    • Taxpayers who do not meet their commitments (without a valid reason) as set forth by an installment agreement, OIC, or extension of time to pay

  3. The decision to seize will not be automatic on any account. The taxpayer's current situation should be the determining factor in the seizure decision. During the life of a collection account, a taxpayer will sometimes move from one category to another and the decision to seize must be based on their financial situation and actions at the time the seizure decision is being made.

  4. Exhibits 5.10.1–3 and 5.10.1–4 contain scenarios that illustrate how case decisions can be made based on these factors.

5.10.1.5  (12-13-2005)
Pre-Seizure Taxpayer Notifications

  1. Letter 1058 (L–1058), Notice of Intent to Levy and Notice of Your Right to a Hearing, or ACS LT 11 must have been provided to the taxpayer at least 30 days before the seizure for each tax period and each assessment that will be identified on the Form 668–B.

    Caution:

    The CP 504 issued when a case enters status 58 does not include the required due process notification. Do not include any assessments on Form 668–B for which the L-1058 has not been issued.

  2. The following information must be included with the L–1058:

    • Publication 594 (Understanding the Collection Process)

    • Publication 1660 (Collection Appeal Rights)

    • Form 12153 (Request for a Collection Due Process Hearing)

    • Copy of the letter

    • Envelope

  3. Taxpayers should receive only one pre-levy notice regarding their rights to a collection due process hearing for each tax assessment. If the required notice for a module has already been sent and additional tax is assessed, a new notice offering a due process hearing must be sent before the additional assessment may be included on Form 668–B. See IRM 5.10.1.5.1, Supplemental Pre-Seizure Taxpayer Notification, for information on the timeliness of this notice.

    Note:

    An additional notice offering a due process hearing only needs to be issued in instances where the tax involved is a different type of tax or where the same type of tax for the same tax period is involved, but the amount of tax has changed as a result of an additional assessment of tax for that period or an additional accuracy-related or filing delinquency penalty has been assessed. The taxpayer is not entitled to an additional notice offering a due process hearing if the additional assessment represents accruals of interest, accruals of penalties, or both.

  4. In jeopardy situations L–1058 is not required to be sent 30 days before the enforcement action; however, the taxpayer must receive a notification of a right to a hearing immediately after the enforcement action. Counsel approval of a jeopardy situation is required in addition to all other required approvals. Consult with Technical Services (Advisory) and area counsel when considering a jeopardy seizure. See IRM 5.11.3, Jeopardy Levy Without a Jeopardy Assessment, and 5.10.1.7, Jeopardy Assessments and Seizures, for jeopardy information.

  5. See IRM 5.11.1, Background, Pre-Levy Actions and Restrictions on Levy, for additional information on proper delivery, joint return considerations, required transaction codes, and documentation required for delivery of the L–1058.

  6. If the taxpayer is deceased, the CDP notice should be sent to the executor or administrator of the estate. Consult local Counsel if there are questions as to who should receive the CDP notice on behalf of the estate.

5.10.1.5.1  (12-13-2005)
Supplemental Pre-Seizure Taxpayer Notifications

  1. If the L–1058 was sent more than 180 days prior to the seizure date, it is still legally valid to seize. However, it has been administratively determined that the taxpayer will get a new warning of enforcement before enforcement action is taken.

  2. The warning must be documented in the case file, and it can be either:

    • Given in person or by phone that there is a deadline (not necessarily 30 days) after which there will be seizure action or

    • Given in writing if the taxpayer cannot be contacted (see Exhibit 5.10.1–5, Pattern Letter 3174, for an example)

  3. Do not issue another L–1058 when a supplemental warning is warranted. Taxpayers are only entitled to one L-1058 per tax assessment that advises them of their rights to a pre-levy due process hearing.

  4. A supplemental warning is not required:

    • If collection of the tax is in jeopardy

    • If enforcement has taken place in the last 180 days: enforcement only includes seizure or levy action, and the taxpayer must have been aware of the enforcement action. A pending judicial proceeding for court approval of a principal residence seizure is an enforcement action. A notice of levy issued to a former employer would not be considered as enforcement since the taxpayer would have no way to know about the action. If, however, a levy is sent to a bank and a copy of the levy is provided to the taxpayer, even if there were no proceeds the taxpayer would be aware of the levy and this action would qualify as enforcement.

      Note:

      The Appeals Collection Due Process (CDP) Notice of Determination or a Decision Letter (Equivalent Hearing) also constitutes a warning of enforcement. For cases that were submitted to Appeals, a new warning of enforcement does not need to be sent unless it is more than 180 days after the CDP Notice of Determination or Decision Letter date.

  5. The L–1058 is required to be sent for every module that is included on Form 668–B. However, the taxpayer has had a timely warning as long as there has been warning of enforcement for at least one module included on Form 668–B within the last 180 days. The L-1058 notice requirement must be met for each module included in the seizure, but the timeliness of the warning is for the entity, rather than each individual module.

5.10.1.5.2  (12-13-2005)
Personal Contact to Advise the Taxpayer of Proposed Seizure Action

  1. In addition to the L–1058 notification, the revenue officer must attempt to personally contact the taxpayer either by a phone call or field call prior to seizure. The revenue officer should attempt to meet with the taxpayer and discuss what is necessary to avoid seizure action. In situations where employee safety is an issue, the attempt at personal contact should be made by telephone.

    Reminder:

    If the taxpayer has an authorized representative, then the personal contact, by phone or in a field call, to advise of the proposed seizure action should be made with the authorized representative, not the taxpayer unless the taxpayer has consented to such contact, a court has permitted such contact, or the authorized representative does not respond in a timely manner (see IRM 5.1.10.5.2, Right to Representation, for taxpayer contact provisions when the taxpayer has an authorized representative).

  2. During this contact, the revenue officer should:

    • Advise the taxpayer that seizure is the next planned action

    • Give the taxpayer an opportunity to resolve the tax liability voluntarily; if the liability is the result of an SFR assessment the taxpayer should be given an opportunity to file corrected returns (if not previously provided)

    • Provide and discuss the provisions of Publication 1, Your Rights as a Taxpayer, and 594 (if not previously provided)

    • Advise the taxpayer about the Taxpayer Advocate, provide Form 911, Application for Taxpayer Assistance Order, and explain its provisions; if the taxpayer indicates the seizure would create a hardship, the revenue officer will assist the taxpayer with the preparation of Form 911 and should forward the form to the local Taxpayer Advocate if the revenue officer cannot or will not provide the requested relief (see IRM 13.1.7, Taxpayer Advocate Case Processing, for other situations that qualify for Taxpayer Advocate referral and the appropriate procedures to follow).

    • Provide the taxpayer with the name and location of the immediate supervisor if the taxpayer requests to have the case reviewed by a supervisory official

    • Document on Form 9297, Summary of Taxpayer Contact, specific actions and deadlines communicated to the taxpayer

  3. If personal contact is not made, document the steps taken to attempt to achieve personal contact and the reasons why contact with the taxpayer could not be achieved. Even if the taxpayer was previously unresponsive, the revenue officer must attempt to personally advise the taxpayer of the proposed seizure; however, the taxpayer's refusal to respond to attempted contacts should not prevent the revenue officer from submitting the seizure for approval.

    Note:

    The personal contact to advise the taxpayer of the seizure action can also be considered the supplemental warning of enforcement. If the revenue officer personally contacts the taxpayer to advise of the proposed seizure, then there is no need to issue an additional supplemental warning.

5.10.1.5.3  (10-01-2004)
Collection Appeal Rights

  1. The Collection Appeals Program (CAP) was created to give taxpayers a chance for an independent administrative review. Taxpayers can appeal under CAP when they are told that a seizure action will be taken or has been taken. Their right to appeal under CAP is connected to a specific planned or actual collection action. See IRM 5.1.9, Collection Appeal Rights, for additional information on how to handle appeals under this program. Publication 1660, which should be provided with the L–1058 and again with the Notice of