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  (07-03-2009)
Equity Determination

  1. To determine if there will be net proceeds available to apply to the liability, the revenue officer must complete and document an equity determination (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, contact the PALS to discuss how to value the property or to request that the PALS provide an appraisal for the property.

  3. Contact the PALS to discuss FMV, moving and storage issues and the estimated expenses in order to accurately determine the expected net proceeds of the sale. In certain situations, the PALS may wish to view the assets with the revenue officer. Examples of some instances where the PALS may need to view the assets to assist with the FMV include:

    • if it appears there is marginal equity,

    • the asset is unique or unusual,

    • there is a large volume of personal property involved, or

    • logistical and expense factors are a major consideration when determining net proceeds from the sale.

    When possible, the PALS and the revenue officer should agree on the FMV prior to the seizure. A discussion between the revenue officer and PALS is required to be held and documented in the case history within 60 days of routing the seizure approval request.

  4. In addition to determining the fair market value of the asset(s), conduct a complete public records search to verify ownership and 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 Accurint, 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:

    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 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 may only be charged to the balance due account as an expense of seizure and sale if the property is seized. A revenue officer or other Service employee will normally complete the records search themselves. Securing a commercial title report prior to seizure should be limited to those cases involving clouded title or complex lien issues identified in the employee's search of public records. 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. Payments for revenue officer commercial title searches must be made through the Request Tracking System (RTS). 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:

    A commercial title report is required on all cases requiring judicial approval for seizure of 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 5.17.2.6, 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. 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. Follow the requirements for third party contacts 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.

  10. 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

  11. 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.

  12. 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 5.10.4.11.1, Notice of Sale - Date and Place of Sale).

5.10.1.3.3.1  (07-03-2009)
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 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 5.10.2.19.3, 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 by anyone, including the taxpayer, after they are seized. The exception to this would be vendors hired to move the vehicles/equipment. 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 or stock certificates, 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 consists of heavy machinery, large inventories or numerous business assets that are not easily transported, the revenue officer should attempt to make arrangements for storage of the property on the premises. Unless the real estate where the property is located or the leasehold interest is seized in conjunction with the personal property, neither padlocking nor placing warning tags on the premises is appropriate. See IRM 5.10.1.3.3.6., Equity Determination - Leasehold Interests. If the property is leased, when possible, secure a copy of the lease and determine the status prior to the seizure. If necessary, contact Counsel to determine the "rightful occupant" or legal tenant. The rightful occupant or legal tenant has the authority to enter into an agreement with the Service to authorize padlocking of the premises. Prior to the seizure, the revenue officer needs to try to arrange with the rightful occupant or legal tenant, whether it be the taxpayer or the property owner, to padlock the premises or change the locks to secure the property with the Service having sole possession. The history must be documented with all the pertinent information as to rightful tenant/legal occupant, any authorization of storage or permission to change the locks and the file must include written agreement or consent. See Exhibit 5.10.1-2., Landlord Agreement. The estimate of the cost to move and storage the potential seized property needs to be documented in the ICS history and included in the seizure package if arrangements cannot be made to store the property at the seizure site. The estimate of the cost to move and storage the potential seized property needs to be documented in the ICS history and included in the seizure package if arrangements cannot be made to store the property at the seizure site.

  8. If the taxpayer has not made rent or lease payments to cover the period from seizure date to the proposed date of sale, then 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 5.17.3.6.5.1, Expenses of Sale). 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. The revenue officer will determine and document in the case history or a fact sheet the estimated minimum net sale proceeds to apply to the liability. The estimate should be prepared based on the input received from the PALS for both the FMV and the estimated expenses of sale. If the reduced forced sale value less senior encumbrances and estimated expenses is positive, then there are estimated net sale proceeds to apply to the liability. If the reduced forced sale value less senior encumbrances and estimated expenses is zero or negative and no net proceeds are expected, 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 and FMV

    • Sixty percent (60 %) or more as the reduced forced sale value (RFSV) calculation

    • Encumbrances that were located and the balances due

    • Estimated expenses of sale

    • the estimated minimum net sale proceeds

    Following is an example of the documentation of estimated minimum net sale proceeds:

    Fair Market Value: $100,000

    Reduced Forced Sale Value (60 % or higher of FMV) $ 60,000

    Less: Senior encumbrances $ 1,500

    Less: Expenses: $ 1,000

    Equals estimated minimum net sale proceeds: $ 57,500

    FMV was determined by county appraisal records, discussions with real estate professionals, and personal observation. Form 2434-B completed and shows Walker County real estate taxes are the only senior encumbrance. PALS estimated expenses at $1,000 for advertising.

  13. The revenue officer and PALS will agree when the revenue officer uses a higher than 60 % of FMV in the determination of estimated net sale proceeds.

    Note:

    If there are intervening claims with significant value that come into play during third party encumbrance v. Notice of Federal Tax Lien priority determination and will be paid out of the sale proceeds, this will lessen the amount available to apply to the liability but cannot be shown or included in the senior encumbrances total in the above computation. The revenue officer will document when and how this situation exists in their estimated net sale proceeds analysis.

  14. 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 are still 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  (07-03-2009)
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 2009:

    • 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 $8,230 in value

    • Books and tools necessary for the trade, business or profession of the taxpayer up to $4,120 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. Only if the asset is seized should the expense 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.

5.10.1.3.3.6  (07-03-2009)
Equity Determination - Leasehold Interests

  1. If you are considering seizure of personal property of a business and the taxpayer rents the premises housing the personal property from a third party, you must consider the value of the leasehold interest as part of the seizure determination. Secure and review a copy of the lease agreement and determine if the taxpayer is current or in default of the lease. If the taxpayer is in default, secure information on the default and determine what actions the lessor has taken to cure the default.

  2. A leasehold interest constitutes property and rights to property and therefore may be seized and offered for sale to satisfy a tax liability. A lease can independently have value or, when combined with other assets, contribute to an overall value when the business assets are appraised as a turn-key or on-going business concern. To determine if a lease independently has value, contact a commercial realtor in the area and find out what similar properties are renting for per square foot. If the taxpayer’s lease contains a lower dollar per square foot amount, the lease may independently have value and there is potential for the lease to be seized and offered for sale separately from the other assets. For all seizures of leasehold interests, contact and secure a PALS appraisal.

  3. In the appraisal of the leasehold interest consider any potential for the lessor to bring litigation against the tax sale purchaser. While most lease agreements contain a provision that the property cannot be transferred or sub-leased to another party without the pre-approval of the lessor, such a provision will not prevent the Service from seizing and selling the taxpayer’s right, title, and interest in the lease, even without the lessor's approval. Generally the Service does not need the lessor’s approval when a leasehold interest passes by operation of law such as an IRS tax sale. See Stagecrafters' Club v. District of Columbia Division of American Legion, D.C., 110 F.Supp. 481 (D. D.C. 1953); aff’d, 211 F.2d (D.C. Cir. 1954) (dictum).

    Note:

    However, as stated above, the appraisal of a leasehold interest requires consideration of any potential litigation the lessor might bring against the purchaser of the taxpayer’s interest. You must determine the extent to which that potential for litigation depresses the value of the leasehold interest and factor that determination into the appraisal. In addition, apart from the issue of valuation, you should also be mindful of the interests of the landlord, a third party, with regard to a new tenant. It would be helpful if, in considering the leasehold, you initiated contact with the landlord.

  4. Consult with Counsel for questions concerning a delinquent lease payment encumbrance priority. Take into consideration any delinquent amounts due the lessor on the lease when determining the estimated minimum net sale proceeds and final minimum bid if they are considered a priority encumbrance against the lease.

  5. When considering a perishable goods sale and there is a leasehold interest, this leasehold must be addressed. There should be a valuation of the leasehold interest as part of the PALS appraisal and included in the Perishable Goods Criteria and Sale Plan Memorandum. The memorandum should state the reason why the lease does or does not have value independently or as a part of the aggregate assets of the business. For perishable goods cases, the PALS will complete an appraisal and Perishable Goods Criterion and Sale Plan memorandum as part of the pre-seizure work.

  6. If the taxpayer has a verbal month-to-month rental agreement, this must also be addressed when considering a perishable goods sale. If the agreement is current, there may be value in seizing the leasehold interest of the taxpayer, which may provide additional time for the Service to market the assets and /or provide time for a purchaser to remove property. PALS will address in the Perishable Goods Criteria and Sale Plan Memorandum.

  7. Consult Counsel with any questions concerning the lease and who is the rightful occupant. State law and the terms of the lease can affect this determination. For example, if the taxpayer is current on the lease, the taxpayer may be the only rightful occupant and the lessor may not have access to the property and not able to negotiate a Landlord Agreement with the Service in a situation where the personal property is the only asset being seized. If the taxpayer is delinquent, determine if the lessor is considered a rightful occupant under state law and the terms of the lease itself. When the Service enters into a Landlord Agreement with the taxpayer or owner of the property, the Landlord Agreement stands by itself and is not an eviction of the rightful occupant. After the sale, return the possession of the premises to the rightful occupant based on the terms of the Landlord Agreement. For example, the taxpayer is determined to be the rightful occupant of the real estate where the personal property is seized and agrees to a short term Landlord Agreement with the Service until a sale is completed. At the conclusion of the sale, access and keys to the real estate are returned to the taxpayer as the rightful occupant and not the owner of the real estate.

  8. When seizing the leasehold interest along with the personal property located at the leased real property location, it is appropriate to change the locks to secure the real estate and personal property. The lessor is due a reasonable amount of rental payments for the time the Service has possession of the space once the current paid up period expires. In addition, if provided under the terms of the taxpayer's lease, the lessor is entitled to access the premises. Seizure of the leasehold interest early in the month after the current lease payment is made will reduce both the amount of rent due directly from the Service and the expenses associated with the seizure and sale. A leasehold interest cannot be seized for the sole purpose of storing personal property and locking the taxpayer out of the property during the seizure and sale process. The leasehold interests must be seized for purposes of sale.

  9. Use the following description on the Form 2433, Notice of Seizure, when seizing a taxpayer’s leasehold interest and reference the specific lease agreement only when you have determined that the Service will offer the leasehold interest for sale: "The right, title and interest of the above-named taxpayer in and to the real property, including any leasehold interest and/or rental rights as shown in the lease..."

5.10.1.3.3.7  (07-03-2009)
Equity Determination - Turn Key and On Going Concerns

  1. When the PALS completes an appraisal of a taxpayer’s leasehold interest and the lease does not independently have value, the leasehold interest cannot be seized for the sole purpose of storing personal property or locking the taxpayer out of the property during the seizure and sale process See IRM 5.10.1.3.3.1.(7), Equity Determination - Expenses of Sale. If the lease is being seized along with the taxpayer’s other assets based on its contribution to an overall value, the PALS’ appraisal must address the value of the lease when seized and offered for sale with other assets. If the lease does not independently have value, it may have value if it is an oral month to month leasehold interest with additional paid up days available, or when the business is valued as a turn-key or on-going business concern.

  2. A turn key business valuation and sale normally involves the potential of seizure and sale of the lease along with the other assets without intangible assets included in the sale. In this situation, a purchaser has all or most of the assets needed to open a business immediately after the purchase of the assets. For example, the inventory and other assets of a retail plumbing supply company are seized along with the lease, stored on location and offered for sale under IRC section 6335. The sale is held in 45 days. The day after the sale the purchaser opens the doors for business.

  3. An on-going business concern normally involves the sale of the lease along with the tangible and intangible assets, with the intangible assets and other intangible assets not normally reduced to possession contributing largely to the over-all value of the business. The intangibles that cannot be seized but may flow with the sale of the company include, but are not limited to the established customer base, goodwill, performance on outstanding contracts, and sub-contractors involved with the business. For example, the personal property, lease, trade name, telephone number, rights to current advertising and domain name are seized from a well known day spa located in an affluent area. The personal property itself has a value of $15,000. If the business can operate and retain its walk-in customer base, perform on its pre-sold vacation packages, retain its sub-contractor staff, and maintain its reputation and goodwill, it has an income based on-going business valuation of $125,000. These intangibles are not something you have seized, but their contribution to the over-all business valuation as an on-going concern was considered in the PALS appraisal. The sale is approved as a perishable goods sale based on the criteria that there is an expectation that a great loss in the property’s value as an on-going concern would occur and the loss of value would be rapid in relation to the amount of time it would take to hold the sale under normal IRC Sec. 6335 sale time frames. Pre-seizure marketing was completed and a perishable goods sale held within 2 days of the seizure. The purchaser re-opened the doors that afternoon with 80 % of its previous staff in place.

  4. The determination of value for a business as a turn key or on-going business concern is based the facts and circumstances of each case, as well as the decision to recommend approval for the seizure and sale under IRC section 6335 or 6336. When recommending seizure of a business based on the turn key or on-going concern value, a PALS appraisal is required.

    Note:

    Normally, sales are conducted under section 6335; it is the exceptional case in which a sale under section 6336 will be appropriate. In appraising the value of a business, the PALS must determine the value of the business and the amount of proceeds that would be available to apply to the taxpayer’s liability if the sale were to occur under the provisions of section 6335. The PALS must also the value of the business and the amount of proceeds that would be available to apply to the taxpayer’s liability if the sale were to occur under the provisions of section 6336. In only those cases where one of the criterion set forth in section 6336 and explained in IRM 5.10.1.4, below, is present is a sale under section 6336 appropriate.

5.10.1.4  (07-03-2009)
Perishable Goods Criteria, Definitions, and Examples

  1. Approval under IRC section 6336 is for an expedited sale and not approval for a perishable goods seizure. One of three criterion must be met to allow for the expedited sale of assets classified as perishable goods under IRC section 6336. The criterion and definitions with examples are as follows:

    1. Property is liable to perish: To meet this criteria, the property must have a short life expectancy or limited shelf life, an expectation of spoilage, or will rapidly go bad, rot, decay, decompose, or expire. A determination must be made that the property cannot be kept and sold under normal IRC section 6335 sale time frames. Some examples of these types of assets would be food, flowers, plants, or livestock. Example: A revenue officer determines a seizure of the assets of a sole proprietor flower nursery is the next appropriate case action. The business’ personal property consist of flowers, plants, shrubs, gardening equipment, pottery, landscaping supplies, trailers, vehicles, tools and display shelving. The taxpayer leases the real estate housing the business from a third party and is delinquent with lease payments. The PALS completes an appraisal on the leasehold interest and determines it has no value. Counsel reviews the lease agreement and advises the Service can negotiate with the landlord as the rightful occupant. The landlord agrees to let the Service store the assets on site for a nominal fee for 60 days. It is determined the flowers, plants, and shrubs will likely perish if kept and sold under normal IRC section 6335 sale time frames. The revenue officer requests and secures approval for a perishable goods sale of those specific assets. On the day of the seizure, the revenue officer documents the specific assets and their value up to the dollar exemption amount allowed for tools of the trade and does not include them as part of the seized assets. The revenue officer and PALS complete an inventory of all assets and the flowers, plants, and shrubs are sold at a perishable goods sale two days later. The remainder of the assets are stored on site and sold under IRC section 6335 sale procedures.

    2. Property is liable to become greatly reduced in price or value by keeping: To meet this criteria, there must be an expectation that a great loss in the property’s value will occur. The loss of value must be rapid in relation to the amount of time it would take to hold the sale under normal IRC section 6335 sale time frames. Example A: A revenue officer determines the seizure of an automotive repair shop operating as a corporation is the next appropriate case action. The personal property of the business consists of small tools, miscellaneous parts and inventory, several medium sized pieces of equipment and one large hydraulic lift. The taxpayer leases the real estate housing the business from a third party and is delinquent more than a year in lease payments. The PALS completes an appraisal on the leasehold interest and determines it has no value. Under the terms of the lease agreement and state law, the landlord has not taken steps to enter the property, evict the taxpayer, or perfect their interest in the personal property. As such, the corporation is the rightful occupant and the corporate president indicates he will not give the Service a short term lease if a seizure of the corporation’s personal property is made. The appraisal completed on all of the personal property indicates a total value of $30,000. The hydraulic lift is the most valuable asset and is worth approximately $20,000 if it can be shown to be in operating condition without hydraulic leaks or problems. Experts in the industry indicate if the hydraulic lift is disassembled and moved to another location for storage before sale and cannot be shown to be in operating condition without hydraulic leaks or problems, a buyer will only purchase it for parts and in a disassembled, non-working state is only worth $2,000. In order to re-assemble the hydraulic lift, after it is moved, the storage facility must have a 16 feet height clearance, and the lift will have to be bolted to the concrete floor. Because bolting the lift to the floor would cause damage to the storage facility this is not a feasible option. The revenue officer requests and secures approval for a perishable goods sale of the hydraulic lift due to the documented expectation that a great loss in the property’s value will occur by moving and storing it to keep for a sale conducted under IRC section 6335. Arrangements have been made to move the remainder of the assets to another location on the same block for minimal moving and storage costs. Outcome 1A: Immediately after the seizure is made, the corporate officer believes he can go to the bank and borrow the money and agrees to give the Service a 45 day, no cost lease in order to keep the assets on site while he attempts to borrow the money. As such, the hydraulic lift is left intact on site and is included with the remainder of the assets in a sale conducted under IRC section 6335. Outcome 2A: On the day of seizure, the taxpayer still refuses to enter into a short term lease agreement with the Service. A perishable goods sale is held for the hydraulic lift and the successful bidder removes the lift after issuance of the Certificate of Sale. The remainder of assets are moved to the other location and a sale under IRC section 6335 is held at a later date. Example B: On-Going Business Concern: A revenue officer determines the seizure of a day spa operating as a corporation is the next appropriate case action. The revenue officer determines the personal property is worth $5,000 and secures a copy of the lease. During the four way meeting it is determined the PALS will complete a valuation of the business as an on-going concern. The PALS completes an income approach appraisal considering the value of the tangible and intangible assets of the business, to include the leasehold interest, customer base, goodwill, domain name and the business’ trade name. The appraisal indicates the value of the business is dependant on the customer base generated by the sub-contracted specialists who work on contracts for the corporation. The value of the business as an on-going business concern is $150,000 if the business is not closed for more than a couple of days and the potential buyer can retain the sub-contractors after the sale and re-open immediately. The value of the physical assets is verified at $5,000. Based on the rapid loss of value as an on-going business concern if the business is closed and the sub-contractors are not retained by a new owner in relation to the amount of time it would take to hold the sale under IRC section 6335 sale time frames and compared to the expected sale proceeds for just the sale of the personal property, the revenue officer requests and secures approval of a perishable goods sale. A seizure of the tangible and intangible assets, to include the leasehold interest, personal property, trade name, contract rights, phone numbers, domain name and rights to current advertising is made. A sale under IRC section 6336 is conducted within three days.

    3. Property cannot be kept without great expense: To meet this criteria, a determination must be made to balance the cost of maintaining the assets, such as moving and storage costs, against the net amount expected to be obtained at a sale conducted under the normal IRC section 6335 sale provisions. Example: A revenue officer determines the seizure of a construction machinery rental shop operating as a partnership is the next appropriate case action. The partnership owns the real estate housing the business. The mortgage balance is $200,000 and the realty is worth $200,000 so seizure of the real estate along with the personal property is not an option. The partners indicate they will not give the Service a short term lease agreement if a seizure of the partnership’s personal property is made. The assets of the business are 5 large graders, 8 front end loaders, and 6 dump trucks, for a total value of $140,000. Vendors indicate the graders and front end loaders require a special road permit at $1,000 each to move. The best price for moving and towing is $1,000 each for the graders and front end loaders and $500 each for the dump trucks. Because of their size, the best storage price found is $100 each per day. In order to market the assets appropriately, the PALS indicates a normal sale could be conducted within 60 days. The estimated minimum net sale proceeds is determined to be $84,000. The estimated expenses associated with a sale conducted in 60 days under IRC section 6335 are $13,000 for road permits, $16,000 for moving and towing, $108,000 for storage, and $2,000 for advertising, for total estimated expenses of $139,000. The PALS develops and implements a pre-seizure marketing plan to identify potential bidders prior to the seizure. The revenue officer requests and secures approval of a perishable goods sale because the property cannot be kept without great expense and a sale conducted under IRC section 6335 would result in little or no proceeds to apply towards the liability. On the day the property is seized, the partners still will not agree to a low or no cost agreement and a sale is conducted that evening under IRC section 6336.

5.10.1.5  (07-03-2009)
Perishable Goods Pre-Seizure Development

  1. Upon identification of a possible perishable goods sale, the revenue officer group manager will schedule a pre-seizure 4-way conference with the revenue officer, Property Appraisal and Liquidation Specialist (PALS) group manager and PALS. The purpose of the conference is to discuss the revenue officer’s initial perishable goods sale criteria determination, determine any additional seizure and sale case strategy development work, agree on responsibilities and timeframes for both the PALS and the revenue officer to accomplish additional work, and start development of a perishable goods sales plan.

  2. Complete an analysis of the location and storage of the assets, along with the related expenses. Explore options of leaving the assets at the current location versus moving and storing them at another location. If the taxpayer is leasing the location where the assets are located, the determination must address the potential value and consideration of a seizure of the leasehold interest along with the other assets.

  3. A PALS appraisal is required for all perishable goods sale cases. Development of a case strategy to include, when appropriate, leasehold interests, turn-key businesses and on-going concerns is an important part of the appraisal process.

  4. Responsibility for all perishable goods sale plans, final criteria determination, and sale responsibilities will reside with the PALS function. The PALS will prepare and secure PALS group manager concurrence for a Perishable Goods Criteria and Sale Plan memorandum for every perishable goods case. See Exhibit@IRM 5.10.1-3. for the template for this memorandum. The memorandum includes:

    • Identification of the appropriate criteria and the analysis for which the sale should be conducted under IRC section 6336

    • Asset valuation to include appraisal and inventory list.

    • Analysis of estimated expenses for both moving the assets to another location and storing on site for an IRC section 6335 sale.

    • Analysis of estimated expenses and proceeds under an IRC section 6336 sale.

    • A marketing plan to include consideration of pre and post seizure marketing of the assets.

    • Additional information for the revenue officer consideration as to whether or not a Consent or Writ of Entry is required.

    • An estimate of the timeframe from the point of seizure to sale

    • Resources required to conduct the sale, e.g. personnel, supplies, security, etc.

    • Group manager concurrence signature line.

    Upon approval, the memorandum and other documents will be forwarded to the revenue officer for completion of the estimated minimum net sale proceeds, and inclusion in their seizure approval request file.

5.10.1.6  (07-03-2009)
"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 5.10.1–4 and 5.10.1–5 contain scenarios that illustrate how case decisions can be made based on these factors.

5.10.1.7  (07-03-2009)
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 5.10.1.7.1, 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 Advisory and area counsel when considering a jeopardy seizure. See IRM 5.11.3, Jeopardy Levy Without a Jeopardy Assessment, and 5.10.1.9, 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.

5.10.1.7.1  (07-03-2009)
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 in person or by telephone. Use Letter 3174 (CG), New Warning of Enforcement. Use Letter 3174-A(CG), New Warning of Enforcement for Joint Filers, when the letter is issued to both spouses for joint income taxes.

  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.

5.10.1.7.2  (07-03-2009)
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 Publication 594, Understanding the Collection Process (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.

5.10.1.7.3  (07-03-2009)
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 Seizure, explains the Collection Appeal Rights. The case file must be documented as to when the Publication 1660 was delivered.

  2. Appeal rights after the seizure has been conducted are contained in IRM 5.10.3.5.1, Management Review Process and Taxpayer Appeal Rights.

5.10.1.8  (07-03-2009)
Pre-Seizure Activity for Courtesy Seizures

  1. When a taxpayer's assets are located in another territory and it becomes necessary to enforce collection by seizure, Form 2209, Courtesy Investigation, will be prepared. The revenue officer in the originating territory and the revenue officer in the receiving territory each have specific responsibilities for the seizure. The approving official in the receiving territory has the final authority for approval or disapproval of the seizure.

    Exception:

    If the property subject to levy is located in a contiguous territory within easy access of the office where the assessment is outstanding, it may be advisable to have the seizure conducted by revenue officers from the territory holding the assessments. The concurrence of the appropriate seizure approving officials from both territories must be secured and, where appropriate, a revenue officer from the territory where the property is located should be requested to assist in the seizure. This coordination between territories should ensure that all local laws and conditions which might have a bearing on the seizure and sale proceedings are given proper consideration.

  2. The revenue officer in the originating territory will issue the appropriate notices and due process documents to the taxpayer and advise the taxpayer of the proposed seizure. The group manager in the originating territory must document in the ICS history their concurrence of the proposed seizure. The revenue officer in the originating territory will include the following information with the Form 2209:

    • Sufficient information for the receiving revenue officer to prepare Form 668–B

    • Copies of the Collection Information Statement, Notices of Federal Tax Liens, and any other relevant documents

    • Statement of facts involved, including alternatives considered, results of risk analysis, any information regarding fair market value and encumbrances, due process notifications, etc.

    • Any other relevant information

  3. A revenue officer in the receiving territory will make an investigation of the facts involved to determine the taxpayer's equity and interest in the property to be seized. If the investigation reveals there is no seizure potential due to insufficient equity to yield net sale proceeds to apply to the unpaid tax liability, the revenue officer in the receiving territory will furnish a report documenting these facts to the initiating office. If it is determined that there is sufficient equity to yield net proceeds, the revenue officer in the receiving territory will:

    • Verify that the Notices of Federal Tax Lien are filed in the appropriate jurisdictions

    • Verify that the taxpayer was provided with all appropriate publications and appeal rights

    • Complete the appropriate records checks in the local jurisdiction

    • Coordinate with the PALS for the seizure and sale of the property

    • Determine and document in the case history the estimated minimum net sale proceeds to apply to the liability based on the procedures in IRM 5.10.1.3.3.1(12), Equity Determination.

    • Prepare all seizure documents and submit the case for approval (IRM 5.10.2.17), Securing Managerial Approval of Seizure Actions) by the receiving office.

5.10.1.9  (07-03-2009)
Jeopardy Assessments and Seizures

  1. Jeopardy assessments are made when the taxpayer is, or appears to be, placing assets beyond the reach of the government by removing them from the United States, by concealing them, by dissipating them, or by transferring them to other persons. Jeopardy should also be considered in cases where the taxpayer's financial solvency is or appears to be imperiled. This last criterion does not include insolvency as a result of accrual of federal tax liabilities.

  2. See IRM 5.11.3, Jeopardy Levy Without a Jeopardy Assessment, regarding jeopardy levy. Counsel approval is normally required prior to jeopardy levy. These procedures also apply to a jeopardy seizure. A jeopardy seizure requiring Counsel approval occurs when the tax is assessed and one of the following conditions exists:

    • Notice and demand for payment has not been issued

    • It is less than 10 days after notice and demand for payment is issued

    • It is less than 30 days (and the 15 day waiting period) after notice of intent to levy is issued or that notice has not been issued

  3. Although an L–1058 is not required prior to a jeopardy seizure, the taxpayer must still receive certain notices, forms, and letters after the seizure. IRM 5.11.3.4, Forms and Pattern Letters for a Jeopardy Levy Without a Jeopardy Assessment, outlines the appropriate notices that must be sent for jeopardy seizures.

  4. For jeopardy seizures, IRC 7429 provides that the taxpayer may request the Service to review whether:

    • The making of the assessment was reasonable

    • The amount of the assessment is appropriate

    • The levy is reasonable under the circumstances

  5. Such requests will be coordinated with the Compliance Examination office that made the assessment. The sale of seized property will generally be suspended during this administrative review process.

  6. IRC 6863(c) prohibits the sale of property seized after a jeopardy assessment until the taxpayer has exhausted the specified administrative and judicial review procedures. IRC 6863 only applies to the sale of property and does not prohibit seizure of any type of property or rights to property of the taxpayer. However, before property is seized, a determination should be made as to whether the mere filing of a notice of lien would be adequate protection. If the notice of lien will not fully protect the Government's interest, the property may be seized and maintained under seizure until it can be lawfully sold or returned to the taxpayer.

  7. The intent of IRC 6863 is to prevent irreparable damage to taxpayers by forced sale of their property before a determination is made as to their actual tax liabilities. The Code does not prohibit levies at any time during the suspended period on such assets as accounts receivable, bank accounts, salaries, fees, etc. The application of the proceeds of such levies to the taxpayers' accounts will not cause irreparable damage to them since the full value of the assets are normally reducible to their cash equivalent by the taxpayers without financial loss to them. See IRM 5.17.3.3.6, Jeopardy and Termination Cases, and 5.17.3.6.1.4, Jeopardy.

5.10.1.10  (07-03-2009)
Mutual Collection Assistance Requests (MCARs)

  1. International appraisal and seizure and sale cases include the collection of treaty partners' taxes in the United States and of federal taxes in U.S. Territories (also known as Possessions or Insular Areas). In treaty collection cases, the Service collects the treaty partner's finally determined taxes in accordance with U.S. laws as if they are U.S. tax liabilities.

  2. There are five treaty countries with which the Service has ongoing programs for MCARs that may involve seizure and sale. The treaty partners and types of taxes covered for collection by the Service are as follows:

    • Canada — All taxes

    • France — Income, Estate and Gift, Wealth and other specified taxes

    • Denmark — Income and other specified taxes

    • Sweden — Income and other specified taxes

    • Netherlands — Income and other specified taxes

  3. MCAR procedures allow for the collection of foreign taxes by a revenue officer through enforcement, including levies, liens, proofs of claim, and seizures. In the same way, the treaty partner's tax agency will collect a U.S. citizen's or entity's taxes from assets located in the treaty partner's country. All treaty collection requests to, or from, these countries are made through the Deputy Commissioner (International), LMSB, who is the Competent Authority in all tax treaties.

  4. Collection of these liabilities takes place through MCARs. After the Deputy Commissioner (International), LMSB, has accepted the request for treaty collection assistance, a revenue officer in International will issue a courtesy investigation requesting that a revenue officer where the asset is located conduct the seizure. The revenue officer conducting the seizure will contact the PALS responsible for the location where the seizure is being made in order to conduct the sale.

  5. See IRM 5.1.8.7.7.2.3, Seizure and Sale on MCARs, for the exceptions to normal seizure and sale procedures to be followed when conducting seizures and sales on MCARs. Coordination with the revenue officer in International is essential for both the seizure and the sale, since all money collected is forwarded to the revenue officer in International for transmittal to the treaty partner through the Deputy Commissioner (International), LMSB, and is not applied to the account. Unless the revenue officer in International has made arrangements for the treaty partner to pay the expenses of sale outside of the remittance, the successful bid remittance should be secured in two parts — one for the seizure and sale expenses and the balance of the remittance made payable to the treaty partner.

  6. After the sale, the PALS will prepare a memo to the revenue officer in International summarizing the sale information and transmitting the sale proceeds to him or her so the proceeds can be forwarded to the treaty partner.

  7. The seizure files should be maintained in the Advisory office for the location where the seizure was conducted.

  8. Advisory will be responsible for issuing the deed after the appropriate redemption period has expired when real property is sold.

5.10.1.11  (07-03-2009)
Seizure and Sale Procedures in U.S. Territories

  1. International revenue officers conduct collection activities, including seizures, to collect federal taxes in U.S. Territories, such as Puerto Rico, U.S. Virgin Islands, Guam, American Samoa and Commonwealth of Northern Mariana Islands (CNMI). Seizures and sales are conducted under normal procedures, and local law guides are available for each of the U.S. Territories. Other U.S. Territories include the following:

    • Baker Island

    • Howland Islands

    • Jarvis Island

    • Johnston Island

    • Kingman Reef

    • Midway Islands

    • Palmyra

    • Wake Island

  2. Revenue officers in International groups located in the United States and working taxpayers located in a U.S. Territory should contact the PALS manager who handles cases for the U.S. Territory where the asset is located for assignment of a PALS to provide assistance on the appraisal and to conduct the sale. Revenue officers located in Puerto Rico or the U.S. Virgin Islands should contact the PALS Manager, Southeast Group. Revenue Officers in Guam should contact the PALS Manager, West Coast Group.

  3. The Advisory office assigned International cases will be responsible for:

    • Pre-seizure case file reviews

    • Seizure advice

    • Assigning seizure numbers

    • Transmitting seizure files and documents

    • Maintaining the permanent record

    • Any other Advisory items

  4. PALS will conduct the sale under normal sale procedures, including the collection and posting of successful bids.

Exhibit 5.10.1-1  (12-13-2005)
Form 2434–B and Instructions Reference: 5.10.1.3.3(12)

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Form 2434–B Instructions Reference: 5.10.1.3.3(12)
1. Date on or before which copies of Notice of Sale were mailed to all parties identified on Form 2434-B (completed prior to sale by the employee who prepared the final version of Form 2434-B)
2. Taxpayer's name
3. Specific type of encumbrance or interest should be shown (lien, judgment, mortgage, joint owners, nominee, transferee etc.) All encumbrances senior and junior to the Federal Tax Lien should be shown in addition to all Notices of Federal Tax Lien. If no recorded interests other than the NFTL were identified, complete Form 2434-B with just the NFTL information. Spell out "Notice of Federal Tax Lien" .
4. Amount of encumbrance as of the date records were checked. The amount should be the current balance due when the secured party is contacted or the original amount recorded if the secured party cannot be contacted.
5. Date the encumbrance was created or secured; for NFTL's, enter the 23c date(s).
6. Date and place the encumbrance was made a public record.
7. The complete name and address of the party holding the encumbrance or interest.
8. Date that the records were checked or the date the information was provided by the secured party, not the date of form preparation.
Signature - should be signed and dated by the employee responsible for completing the final Form 2434-B (usually the PALS).

Exhibit 5.10.1-2  (07-03-2009)
Landlord Agreement Reference: 5.10.1.3.3.1(7)

LANDLORD AGREEMENT
U.S. TREASURY DEPARTMENT
INTERNAL REVENUE SERVICE
-VS-
Date ____________
STIPULATION
____________  
On the __day of_____, ____ an Area Director of Internal Revenue, through his duly authorized agents, has seized for the United States of America certain machinery, equipment and other personal chattels of __________ in the enforcement of a lien held by it against the said property and wishes to store the property so seized at premises where now located namely ____________ until the sale thereof.
It is therefore stipulated and agreed by and between_______________landlord of the above described premises, hereafter referred to as "landlord " and the Area Director of Internal Revenue through his authorized agent, hereafter referred to as Director, that Director will pay landlord for use and occupancy of the premises of the property so seized from the date hereof until the date on which the sale of said property has been held unless landlord is notified of termination of the said agreement at an earlier date, at the rate of $_____ per day.
It is expressly agreed and understood by and between the parties to this agreement that the U.S. Government shall not be liable for any damage or injury to person or property caused by the intentional, negligent, or reckless acts of the Internal Revenue Service or its agents or employees that occurs during the term of this lease.
In the event Landlord is a corporation the undersigned _______________hereby individually warrants that this Agreement is entered into with full power and authority on the part of the corporation and all of its stockholders.
IN WITNESS WHEREOF, the parties have hereunto subscribed their names the day and year first above written.
  ________________
ATTEST BY: ________________
________________
Title of Authorized Agent for
Internal Revenue Service (Territory Manager or PALS Manager)

Exhibit 5.10.1-3  (07-03-2009)
Perishable Goods Criteria and Sale Plan Template, Reference IRM 5.10.1.5(4)

Date (MM-DD-YYYY)
MEMORANDUM FOR NAME
  Property Appraisal and Liquidations Specialist (PALS) Group Manager
FROM: NAME
  PALS
SUBJECT: Perishable Goods Criteria and Sale Plan
     
Following is the criteria selection and sale plan for a perishable goods sale approval:
Taxpayer name and address:  
EIN:  
Proposed Sale Location:  
Information for revenue officer consideration and determination as to whether Consent or Writ of Entry may be required:
Yes ________ No ________ (Provide short explanation)
     
Selection of Perishable Goods Sale Criteria:
___________ is liable to perish (discuss the specific assets)
___________ is liable to become greatly reduced in price or value by keeping (explain how)
___________ cannot be kept without great expense – see analysis below
Asset description and valuation: (Attach copy of appraisal and inventory list)
Reduced Forced Sale Value: $
Reductions used and reasons for reductions to arrive at forced sale and reduced forced sale value:
 
Complete the following for all cases:
IRC section 6335 estimated expenses to move and store off-site:
Vendor Service Estimate
  Moving $
  Storage $
  Advertising $
  Other (specify) $
Total all expenses:   $
     
IRC section 6335 estimated expenses to store on-site: (Provide a short explanation if the asset(s) cannot be stored on-site):
     
Vendor Service Estimate
(Rightful Occupant) Rent $
  Utilities $
  Advertising $
  Other (specify) $
Total all expenses:   $
Analysis of IRC section 6335 sale proceeds after expenses:
     
IRC section 6336 perishable goods sale estimated expenses:
Vendor Service Estimate
(Rightful Occupant) Rent $
  Utilities $
  Advertising $
  Other (specify) $
Total all expenses:   $
Analysis of IRC section 6336 perishable goods sale proceeds after expenses:
     
Marketing plan:
     
Sale will be scheduled within _____days after seizure (If sale will be conducted the same day, provide a short explanation of the reason).
     
Sale resources required (personnel, supplies, etc.):
     
______________________________ _______________
Name and Signature Title: PALS   Date
     
I concur with the criteria selection and the IRC section 6336 sale:
______________________________ _______________
Name and Signature   Date
Title: PALS Group Manager  

Exhibit 5.10.1-4  (07-03-2009)
CASE SCENARIO #1 Reference: 5.10.1.6(4)

Type of Business: Sanitation
Type of Entity: Corporation
Amount of Liability: $200,000
Number of Quarters Delinquent: 4
Years Remaining on Statute: 8
Status/Priority of NFTL: Filed; junior to first lienholder
Is Business Current on Deposits? Now current on deposits
Number of Employees: 25
Ability to Pay: Analysis of CIS shows ability to pay $5,000 per month, TP agrees with IA amount and has requested an installment agreement
Will Payment Amount Full Pay Within Statute? Yes
Status of Trust Fund: 433A shows no monthly ability to pay; officer is borrowing full equity of $25,000 on property he owns personally; TFRP investigation completed and TFRP waiver secured through length of proposed installment agreement plus one year
 
Levy Sources:
Bank Account
Accounts Receivable
   
     
Assets:
10 Trucks
Office Furniture, Computers
Fair Market Value:
$50,000 each
$4,000
Encumbrances:
$250,000
$0
     
Additional Facts of Case:
Taxpayer had previous liabilities that have all been satisfied. The vehicles were all purchased at the same time and the encumbrance was established when the vehicles were purchased. Taxpayer has been denied a loan at three banks. Estimated expenses of sale for towing, storage, advertising, etc. are $3,000.
 
Recommended Course of Action:
The revenue officer should complete an equity analysis and ; using 60 % of FMV, the RFSV of the vehicles is $50,000; with estimated expenses of $3,000, the expected minimum net sale proceeds would be $47,000. The revenue officer then conducts a risk analysis — the alternative collection method would be an installment agreement. The taxpayer is a "will pay/can't pay" taxpayer because the corporation is in compliance with Federal Tax Deposits and has requested and qualifies for an installment agreement. Since the government would be at no greater risk by granting the installment agreement, the taxpayer should be given the installment agreement. The tax lien will protect the government's interest in the asset if the taxpayer later defaults and seizure action is required.

Exhibit 5.10.1-5  (07-03-2009)
CASE SCENARIO #2 Reference: 5.10.1.6(4)

Type of Business: Sanitation
Type of Entity: Corporation
Amount of Liability: $200,000
Number of Quarters Delinquent: 4
Years Remaining on Statute: 8
Status/Priority of NFTL: Filed; junior to first lienholder
Is Business Current on Deposits? Not in Compliance
Number of Employees: 25
Ability to Pay: Unknown, TP has not complied with requests to complete CIS
Will Payment Amount Full Pay Within Statute? N/A
Status of Trust Fund: Investigation still being completed, CIS needed for collectibility determination
 
Levy Sources:
Bank Account
Accounts Receivable
   
     
Assets:
10 Trucks
Office Furniture, Computers
Fair Market Value:
$50,000 each
$4,000
Encumbrances:
$250,000
$0
     
Additional Facts of Case:
Taxpayer had liabilities for a prior corporation that were satisfied through enforced collection. The vehicles were all purchased at the same time and the encumbrance was established when the vehicles were purchased. Levies on bank account and receivables have resulted in minimal funds and have not led to case resolution. Estimated expenses of sale for towing, storage, advertising, etc. are $3,000.
 
Recommended Course of Action:
The revenue officer should complete an equity analysis and using 60 % of FMV, the RFSVof the vehicles is $50,000. With estimated expenses of $3,000, the expected net sale proceeds would be $47,000. The taxpayer is a "won't pay" taxpayer because the corporation is not in compliance with Federal Tax Deposits and will not provide financial information. The revenue officer then conducts a risk analysis — there are no reasonable alternative collection methods. The taxpayer does not qualify for an installment agreement or offer in compromise. Other methods of enforcement have already been considered. Since the assets have equity and the risk analysis provides no reasonable alternatives, the seizure should be recommended after all appropriate pre-seizure actions have been completed.

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