5.12.5  Redemptions

5.12.5.1  (07-01-2001)
Redemption Overview

  1. In accordance with IRC § 7425, the Internal Revenue Service has the right to redeem real property which was sold in nonjudicial foreclosure action by a third party to satisfy an outstanding encumbrance which has a priority over the Notice of federal Tax Lien.

  2. In accordance with Title 28 U.S.C. § 2410(c), the Internal Revenue Service has the right to redeem real property which is sold in a judicial sale where the United States position is junior to the foreclosure party.

  3. The time period for a redemption after a foreclosure sale with respect to either a nonjudicial or judicial foreclosure is 120 days or the period allowable for redemption under State law, whichever is longer.

  4. IRS redemptions can benefit both the government and the taxpayer. In some instances the property is redeemed for an amount substantial enough to pay off the foreclosing instrument and apply funds to the taxpayer's liability and to the taxpayer. The key to a successful redemption case is locating a guaranteed purchaser willing to advance a deposit generally in the amount of 20 percent of the amount bid.

  5. IRM 5.12.5 contains procedural information on judicial and nonjudical redemptions. In addition, many of the procedures outlined in IRM 5.12.5 are intertwined with the procedures mentioned in IRM 5.12.4, Judicial and Nonjudicial Foreclosures. Procedures related to redeeming acquired property from seizure and sale may be found in IRM 5.10.7.

  6. The Advisory, Insolvency, and Quality (AIQ) advisor has primary responsibility for conducting redemption investigations. In addition, it is the responsibility of the advisor to coordinate with a revenue officer and/or Property Appraisal and Liquidation Specialist (PALS) when field investigation assistance is necessary.

  7. The primary role of the revenue officer and/or PALS is to assist the advisor in determining the government's interest and in recommending the appropriate action to close out the investigation.

  8. Each area, with the concurrence of the Advisory, Insolvency, Quality AIQ Territory Manager (Advisory TM), is responsible for establishing criteria for conducting redemption investigations.

5.12.5.1.1  (06-11-2010)
Elements of a Redemption

  1. The following are the elements of a redemption:

    • foreclosure sale

    • redemption investigation

    • sufficient property value to consider redemption

    • consideration given to releasing the right of redemption

    • foreclosure sale purchaser (or successor in interest) notification

    • guaranteed bidder for an IRS redemption sale

    • revolving fund loan to cover the foreclosure sale amount and allowable expenses

    • purchase the property from the foreclosure sale purchaser

    • record property ownership documents

    • conduct redemption sale of the property

    • transfer property ownership to the successful bidder at the redemption sale

    • complete paperwork

5.12.5.1.2  (06-11-2010)
Criteria for Working Redemption Investigations

  1. The Advisory Area Manager (Advisory AM) with the concurrence of the Director, AIQ has responsibility for determining the criteria for working redemption investigations. This responsibility can be delegated to the Advisory TM at the discretion of the Advisory AM or Director, AIQ.

  2. Currently, redemption investigations are determined by the taxpayer's unpaid balance of assessment and the government's equity in the property for redemption purposes. If this criteria is not met, then no investigation will be initiated. Any open redemption investigations that do not meet the redemption criteria should be resolved based on a decision between the advisor and his/her manager. At the discretion of the Advisory AM, this criteria is subject to change contingent upon geographical factors, economic conditions and other factors that warrant consideration. Other factors to consider include:

    1. Type of property involved

    2. Value of the United States' right to redeem

    3. Practical impact of local law

    4. Any other significant factor

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  4. Once established, the criteria are subject to periodic review by the Advisory AM or his/her designee to ensure that they remain relevant.

5.12.5.1.3  (06-11-2010)
Investigation Guidelines

  1. As stated in IRM 5.12.5.1(6) Advisory has the primary responsibility for redemption investigations, however, Revenue Officers may encounter the need to do redemption investigations while working cases.

  2. Once it is determined that a redemption investigation is warranted, the employee will be responsible for opening a NF OI - 144 - Redemption on ICS within 7 calendar days and documenting information of the investigation and redemption in the history section of ICS including: foreclosure sale date, foreclosure sale purchaser, last date to redeem, amount needed to redeem, guaranteed bidder or reason and approval authority obtained to redeem without a guaranteed bidder, date of redemption, amount the property was redeemed for, who the property was redeemed from and any reasons for a change if not redeemed from the foreclosure sale purchaser, amount of tax liability satisfied, and the date and place the certificate was recorded.

  3. Advisory should utilize whatever resources are deemed appropriate by Advisory managers to gather all available information regarding the value of the property, before requesting assistance from either a revenue officer or a PALS.

  4. When considering whether to recommend redemption, the investigator must:

    1. Determine by observation, independent appraisal (or both), the fair market value of the property. It is essential that all available sources are used and all geographical factors and economic conditions considered.

    2. Utilize all available internal and external research tools, including local property records to determine what encumbrances are prior to the foreclosing instrument, and the amounts outstanding on such encumbrances.

  5. Follow the guidelines in the table below to determine whether to proceed with a redemption investigation. Revenue officers and/or PALS will report his or her findings to Advisory.

    If ... And ... Then ...
    FMV reasonably exceeds amount paid by the foreclosure sale purchaser Amount of all liens senior to the foreclosing encumbrance Consider redemption
    Foreclosing party holds senior position to the United States FMV is less than either or both:
    1. amount of encumbrances senior to the foreclosing party

    2. foreclosing sale's successful bid

    Do not consider redemption
  6. At any time while redemption is under consideration, Collection personnel should be alert to whether liens prior to the foreclosing encumbrance are outstanding and, if so, whether arrangements have been made to satisfy or make payments on them. The Service has no authority to use the Revolving Fund to make direct payments on such encumbrances.

  7. Before property is redeemed, it should be reviewed for potential toxic waste problems. If the potential exists, clean up cost should be considered before the property is redeemed.

    Note:

    The overall objective in establishing the criteria is to ensure that a redemption is made whenever appropriate and that resources are used efficiently. Inquiries about possible redemptions frequently lead to lien payoffs and releases of our right of redemption.

  8. If the AIQ advisor, or revenue officer tentatively decides to recommend redemption, they will:

    1. Notify the purchaser of their rights

    2. Locate parties interested in submitting agreements to bid for the property

      Note:

      PALS may become involved in locating prospective bidders.

  9. During the course of a redemption investigation, when the foreclosure sale purchaser, guaranteed bidder, redemption sale purchaser, other participant, taxpayer, representative, or IRS employee misses a specific deadline, including submitting required documentation and/or payment, follow-up is based on meeting the Service's requirements to maintain its standing in the proceeding and should be initiated no later than 14 calender days after the missed deadline. This follow-up includes closing the case if this action is appropriate

  10. When circumstances dictate, the employee should use problem solving and negotiation techniques, and in so doing consider the taxpayer’s/POA/third party’s perspective when working toward case resolution.

  11. Any written notification or other communication should address the issue(s) clearly and in a language understandable to someone unfamiliar with Service terms, acronyms and jargon.

5.12.5.2  (06-11-2010)
Foreclosure Sale Purchaser Reimbursement Rights

  1. When redemption is considered and prior to the expiration of the redemption period, the Service must notify the purchaser (or successor in interest) of the property at the foreclosure sale that:

    1. They have the right to request reimbursement for certain payments made to a senior lienor

    2. They have the right to be reimbursed for such payments if:
      1) the Government redeems the property, and
      2) the purchaser (or successor in interest) has submitted a reimbursement request that meets the requirements of the regulations

5.12.5.2.1  (06-11-2010)
Notification to Foreclosure Sale Purchaser

  1. The Service's notice to the purchaser must be hand-delivered or sent by certified or registered mail. Pattern Letter P–597 (Exhibit 5.12.5–1 and also an ICS template) should be used for this purpose.

    Note:

    The regulations governing reimbursement for payments to a senior lienor impose certain special requirements on both the Service and the purchaser and, therefore, must be viewed separately from those that govern other amounts to which the purchaser may be entitled if the property is redeemed.

5.12.5.2.2  (06-11-2010)
Maintenance Expenses for Which Reimbursement May Be Requested

  1. If the Service redeems the property, it will pay an amount equal to the excess of the expenses necessarily incurred to maintain the property over any income realized from the property, plus a reasonable rental value of the property (to the extent the property is used by the foreclosure sale purchaser or with his/her consent is rented at less than its reasonable rental value);

  2. The foreclosure sale purchaser has the right to be reimbursed for necessary maintenance expenses/fees incurred during the time he/she is in possession of the property. These expenses/fees are subject to review and approval either in whole or in part by the employee assigned to work the investigation. The Advisory Group Manager has final approval whether the expenses are allowable.

  3. Specific maintenance expenses/fees to consider are those utilized to keep the property safe and intact. These expenses and/or fees are categorized within this section of the IRM. Expenses not listed can be considered as long as reasonable business prudence is administered when considering the expense. Examples of expenses to consider are:

    • Recording fees

    • Insurance

    • New locks for security purposes

    • Required repairs needed to fix damage that would directly impact the value of the property during this period of time

  4. The Service will not consider expenses to enhance the property. Examples of unallowable expenses are:

    • Cleaning

    • Utilities unless required to keep property from being damaged

    • Property taxes unless foreclosure proceedings are in effect

5.12.5.2.3  (06-11-2010)
Payments to Senior Lienor for Which Reimbursement May Be Requested

  1. A purchaser (or successor in interest) of real property at a foreclosure sale may request reimbursement for:

    1. Payment to a holder of a lien that was, immediately before the foreclosure sale, senior to the lien foreclosed

    2. Payment by an escrow agent of a real property tax or special assessment lien which was senior to the lien foreclosed

5.12.5.2.4  (06-11-2010)
Requirements for Consideration of Reimbursement

  1. The foreclosure sale purchaser's (or successor interest) reimbursement request must be:

    1. Mailed or delivered no later than 15 calendar days after the Service sends the notice identified in IRM 5.12.5.2.1

    2. Mailed or delivered to the IRS office specified in the notice identified in IRM 5.12.5.2.1

  2. The request must contain:

    1. Written itemized statement

    2. Claimant signature

    3. Amount paid to the senior lienor for which reimbursement is claimed

    4. Supporting evidence

    5. Waiver or other document that will be effective, upon redemption, to discharge the property from, or transfer to the United States, any interest in or lien on the property arising under local law with respect to the payment made to the senior lienor.

5.12.5.2.5  (06-11-2010)
Review of Requests for Reimbursement

  1. The employee assigned to work the investigation will review the request for reimbursement for adequacy and will promptly request the purchaser to correct any obvious defects. The request will then be referred through Advisory to Area Counsel for review.

  2. The Service will not reimburse a purchaser for payment to a senior lienor if the request is not timely mailed or delivered. However, if the purchaser shows reasonable cause, and the Advisory Territory Manager consents, the purchaser may request an extension for a reasonable period to submit, amend or supplement a request for reimbursement. Any such extension request must be submitted before expiration of the applicable period for redemption.

  3. In the event the Service exercises its right to redeem the property, the amount requested for reimbursement will be approved and paid from the Revolving Fund.

  4. If the right to redeem is not exercised or a request for reimbursement is withdrawn, the employee involved in the investigation will promptly return to the purchaser (or successor in interest) the waiver or other document by certified or registered mail or by hand delivery.

5.12.5.2.6  (06-11-2010)
Denial of Reimbursement

  1. Requests for reimbursement generally will be denied only in cases where:

    1. Reimbursement request not timely delivered and reasonable cause not shown

    2. Waiver or other document required to be submitted with the reimbursement request was not submitted or was unsatisfactory

    3. Evidence of payment to a bona fide senior lienor was not submitted or was unsatisfactory

  2. If reimbursement is denied:

    1. Advisory TM notifies the purchaser that the Service has denied the amount claimed

    2. States reason for the denial

    3. Sends denial by certified or registered mail or hand-delivered within 30 calendar days after receipt of the reimbursement request, or 15 calendar days before expiration of the applicable period for redemption, whichever is later

5.12.5.3  (06-11-2010)
Soliciting Agreements to Bid

  1. Before recommending redemption of real property, the employee assigned to work the investigation must obtain at least one offer to bid on the property. Letter 1879, found on the Publishing web site, can be mailed to each name shown on the public auction bidders list. Any bidders list would be maintained by the PALS. The offer, which must be reduced to a written agreement to bid, should be for an amount that is sufficient to ensure that redemption will be in the Government's interest. The employee working the investigation should give the prospective bidder the opportunity to inspect the property and to inquire about its condition and title, and should ensure that the agreement is consistent with the method by which the Government intends to sell the property.

  2. Any commencement of the redemption process without a secured or guaranteed bidder is prohibited without prior approval from the Advisory Area Manager.

5.12.5.3.1  (06-11-2010)
Commercial Advertising

  1. The judicious use of commercial advertising to solicit bids may broaden the field of potential bidders at the sale of redeemed property. Advertising should be considered before the property is redeemed and must be approved in advance by the group manager.

  2. The advertisement, regardless of size, should be limited to a statement such as, "Prospective Purchasers of Real Property . . . the Internal Revenue Service is considering the redemption of real property located at (given address) . . .  " A statement and number can also be provided for parties not interested in being a guaranteed bidder but who are interested in purchasing the property at our sale after our redemption.

  3. The expense of advertising for agreements to bid will be satisfied from the Program Costs Account, Sub-object Class 252D, Expenses of Seizure and Sale (Standard Announcement 200X-01, Financial Management Code Handbook). The voucher should reflect "Direct Charge to PAC 7D."

  4. The taxpayer's account will not be debited for these expenses even if the property is not sold.

5.12.5.3.2  (06-11-2010)
Deposit Submitted With Agreement to Bid

  1. To secure performance under an agreement to bid, a minimum deposit of 20 percent of the agreed bid is required. Pattern Letter P-338, Agreement to Bid, IRM Exhibit 5.12.5–3 should be used for this purpose.

  2. A deposit of less than 20 percent may approved by the Advisory group manager with Advisory territory manager concurrence. At a minimum, this will include written verification that this was discussed and agreed upon by both levels of management. In no case should the deposit be less than $1,000 unless the deposit amount represents 20 percent of the agreed bid. A decision to accept less than the 20 percent must be made based on the facts of the case, with the understanding that there is a greater risk to the government based on the potential for a bidder to default on a small amount.

  3. The deposit should be made by a certified, cashier's or treasurer's check drawn on any bank or trust company incorporated under the laws of the United States or under the laws of any state, territory, or possession of the United States, or by a postal, bank, express, or telegraph money order.

  4. Certificates of Deposit and irrevocable letters of credit are also acceptable if approved in advance by area counsel. However, care should be exercised in accepting and monitoring such instruments because of the period of time in which they are negotiable is generally limited.

  5. Upon receipt of a bid deposit, prepare Form 2276, Collateral Deposit Record, identifying the remittance as an "agreement to bid deposit. " The remittance and Form 2276 will be placed in a secured area in accordance with IRM 1.16.15.2 and with Exhibit 1.16.15-1 and 2.

  6. Pattern Letter P-338, Agreement to Bid, Exhibit 5.12.5-3 now includes the following statement:"I further understand and agree that if I do not bid at least the amount specified in this agreement, and the property is not sold within the time frame specified above, for at least such an amount, my deposit will be retained pending final determination of damages the government sustained because of default. If damages exceed the amount of the deposit, I will be liable for the excess damages."

  7. It is imperative that any potential bidders are fully aware of the provision discussed in (7) above.

5.12.5.4  (06-11-2010)
Processing Recommendations to Exercise Redemption Rights

  1. Upon receipt of the advisor's, revenue officer's, or PALS report (Form 4376), which generally must indicate that a prospective purchaser(s) has been secured, the respective manager will review the report and if in concurrence forward it to the Advisory Group Manager (Advisory GM) for review. If the Advisory GM concurs he/she will submit the report to the Advisory TM. See Delegation 5-4 found in IRM 1.2.44.4(29 - 31). The Advisory TM will:

    1. review the report

    2. sign Form 4376, Report of Investigation

    3. ensure that a redemption serial number is assigned to the case

    Note:

    If the recommendation is against exercising the right of redemption, only the Advisory GM review and approval is needed.

  2. Any redemption recommendation without a secured/guaranteed purchaser must be approved by the Advisory AM. See Delegation Order 5-4 in IRM 1.2.44.4(35-37).

  3. The advisor will be responsible for documenting the information in the history section of ICS to include the date of redemption; amount the property was redeemed for; amount of tax liability satisfied; and the date and place the certificate was recorded.

  4. When it is determined the redemption will be made, the advisor will:

    1. Forward an original and one copy (with all necessary enclosures) of the report to the local area counsel for approval of the determination of the amount necessary to redeem and determination of the title the United States will acquire from the purchaser if redemption is made.

    2. This should occur as soon as possible, but not later than 30 days from the date of the sale. This deadline is to be used as a guideline and can be further discussed with the local area counsel. With area counsel concurrence, deadlines can be determined on a case-by-case basis.

    3. Upon receipt of area counsel approval, forward a copy of the investigator's report and the area counsel approval determination to the Advisory TM for information purposes as well as keep copies in the redemption file. Forwarding this information to the Advisory TM can be at the discretion of the Advisory TM.

    4. Prepare a memorandum to be signed by the Advisory GM requesting an advance from the revolving fund (see IRC 7810) and provide the following information extracted from the redemption report:

  5. When preparing the memorandum, referenced in IRM 5.12.5.4(4)(d) above, provide the following information extracted from the redemption report.

    • redemption serial number

    • amount requested to redeem property

    • date of sale

    • date the redemption right expires

    • estimated property redemption value

    • date the funds are required

    • amount the prospective/guaranteed purchaser will pay for the property

    • approximate repayment date

    • name and address of the taxpayer

    • person/organization to whom the check is payable, and

    • IRS office and employee to whom the check should be sent

  6. The request for funds for the redemption of real property will be faxed to the SB/SE Field Budget Officer at (215) 861–1406 by the advisor. The time period to exercise our right of redemption is generally 120 days from the date of the foreclosure sale. It is therefore necessary to process requests for funds as promptly as possible. The request being forwarded to the SB/SE Field Budget Officer should include the following:

    1. memorandum (as mentioned above) requesting funds from the revolving fund account;

    2. area counsel memorandum concurring with the request for funds;

    3. copy of Form 4376, Report of Investigation

    4. Advisory GM approval on the memorandum and/or Form 4376; and

    5. evidence that there is a secured/guaranteed purchaser or if there is no guaranteed purchaser, the approval of the Advisory AM.

  7. Allow a minimum of five working days for processing of requests for revolving fund advances. It is important to ensure that there is ample time to process the request and for mailing of the funds from Beckley Financial Center.

  8. The SB/SE Field Budget Office will determine availability of funds and the priority for disbursement when available funds may be insufficient to meet two or more requests. This will serve to avoid depletion of the fund.

  9. The Field Budget Office employee will forward a memorandum to the Advisory GM and/or advisor to certify that funds are available. The memorandum will serve as documentation of an approved request for funds for the redemption of real property.

  10. Based on authorization from the Budget Office, Beckley Finance Center will generally issue a manual check to the field employee making the request. Beckley Finance Center must have a copy of the memorandum referenced in (8) above. This is required for their file documentation.

  11. The Advisory GM has follow-up responsibilities to ensure that the revolving fund is repaid. See IRM 5.12.5.7.3(6), Transmittal and Application of Proceeds, as well as IRM 5.10.7.7, Report of Disposition - Sale of Redeemed Property, for additional information.

5.12.5.4.1  (01-01-2006)
Redemption Serial Numbers

  1. The redemption serial number will be completed following the format outlined below:

    Technical Services Advisory Territory and RED to identify Redemption   Technical Services Advisory Group   Four Digit Sequence Number
    CWRED   04   0001

  2. In the above example, the redemption investigation is being investigated in the South Atlantic Territory (05); advisory group (04); and the redemption represents the first redemption serial number issued.

  3. Since the revolving fund is not governed by fiscal year the files are maintained geographically and by territory.

  4. The Advisory TM will determine where the serial numbers will be maintained and monitored.

5.12.5.4.2  (01-01-2006)
Guaranteed Bid Determination

  1. As stated in IRM 5.12.5.2 (1) and (2), redemption recommendations must include a guaranteed purchaser unless the redemption will be approved by the Advisory AM. IRM 5.12.5.4 In addition, this purchaser is generally required to submit a deposit on an" Agreement to Bid" form, for 20 percent of the bid amount.

  2. For purposes of establishing a guaranteed bid amount, the investigating employee will use the following guidelines:

    1. The prospective purchaser must guarantee his/her bid with a non-refundable deposit equal to 20 percent of the promised bid amount.

      Note:

      A deposit of less than 20 percent must be approved by the employee's group manager. This must also be discussed with the advisor and his/her group manager for concurrence. The Advisory TM will be briefed and must concur with the proposed deposit provisions. Any discrepancies will be resolved by the Advisory TM.

    2. In no case should a deposit be for less than $1,000.00 unless the deposit represents 20 percent of the agreed bid.

    3. The guaranteed bid must be an amount determined to be reasonable in relationship to the cost of redeeming, maintaining, and selling the property. This amount does not need to represent forced sale value.

      Note:

      Please refer to IRM 5.10.4.6 (5), Establishment of Minimum Bid for additional information regarding "forced sale value."

  3. The amount arrived at as a guaranteed bid is subject to approval by the employee's manager. Final approval rests with the Advisory GM. If the field manager and the Advisory GM are unable to concur with the guaranteed bid amount, then the final decision will rest with the Advisory TM for the area in which the property is located.

  4. Pattern Letter P-338, Agreement to Bid IRM Exhibit 5.12.4-4 and IRM 5.12.4.14.2 provisions have been revised. Pattern Letter P-338 now will include the following phrase: "I further understand and agree that if I do not bid at least the amount specified in this agreement, and the property is not sold within the time specified above, for at least such an amount, my deposit will be retained pending final determination of damages the government sustained because of default. If damages exceed the amount of the deposit, I will be liable for the excess damages" .

5.12.5.4.3  (01-01-2006)
Redemption Investigations Requiring $100,000.00 or More From the Revolving Fund

  1. When a recommendation is made to exercise the right of redemption, the investigation is routed to the Advisory GM for initial approval. If an initial determination has been made to redeem the property, and it requires an expenditure of $100,000.00 or more from the revolving fund, the Advisory GM must consider the benefits of either assigning an Other Investigation to a PALS, and/or enlisting the services of an IRS appraisal engineer, or a professional appraisal firm. This decision must be documented prior to approving and forwarding the recommendation for Advisory TM approval. In addition, when there is a question as to the extent of property boundaries, the Advisory GM is encouraged to consider the use of a professional surveyor to establish the exact nature of the property to be redeemed. The decision not to utilize these services will be documented and attached to the Form 4376, Report of Investigation. Form 4376. Otherwise, the results of the appraisal and/or survey will be included as a part of the investigation.

5.12.5.4.4  (01-01-2006)
Outside Contractors

  1. Under certain circumstances and as warranted the group manager of the revenue officer or PALS will coordinate with the Advisory GM for the advisor assigned the investigation in order to determine the feasibility of contracting out for a professional survey. This should be considered with redemptions involving acreage, multi-structure parcels, or any other property where a professional survey would prove to be in the Government's best interest. This will prove beneficial when considering the field employee’s (revenue officer and/or PALS) determination of exact boundaries, as well as ensuring property is included or excluded in the investigation, as appropriate. Contracting professional property appraisal services should also be considered when the services of a PALS or valuation engineer are not readily available, or if specialized expertise is required to accurately determine the value of a unique property.

  2. The initial decision to utilize an outside contractor generally will be made by the revenue officer or PALS and his/her group manager. The feasibility of contracting out should then be discussed with the advisor and his/her group manager. The Advisory GM and the field group manager should be in agreement that circumstances warrant outside contractor consideration, although the final decision rests with Advisory. If the two managers are in disagreement, then the final decision rests with the Advisory TM.

  3. When outside services are to be used, expenses must be requested and approved through the Web Request Tracking System (webRTS). Instructions and procedures can be found on the AWSS web site. The URL for this site is: http://awss.procurement.irs.gov/webrts.htm . Expenses incurred for this type of procurement will be paid from the "enforcement expense budget." This expense is predicated on an internal decision to utilize an outside contractor and will not be assessed against the taxpayer’s account. Specifics regarding the request and approval of funds should be discussed in detail with the SB/SE Field Budget Office.

  4. The approval path hierarchy and the request information to be established in the Web Request Tracking System (RTS) for all outside contractor requests will include:

    1. The approval path
      initiator
      Advisory GM
      Advisory TM
      SB/SE Field Budget plan manager

    2. The "item/description"
      Include the statement, "Appraisal/Survey related to possible redemption." in the item/description field.

    3. The Federal Supply Classification"FSC" Code
      The current FSC Code for Appraisal/Survey services is R411

    The requester should not enter any accounting code. The appropriate accounting code will be entered by the plan manager. Access to RTS is at the discretion of the group manager. Any questions pertaining to costs associated with outside contractors should be directed to the plan manager.

5.12.5.4.5  (06-11-2010)
Revolving Fund for Property Redemption

  1. A revolving fund was created for the redemption of real property by the United States, based on the Government's federal tax lien. (See IRC 7810 and IRC 7425(d)).

  2. By exercising its right of redemption, the Government can purchase property sold at distress prices and resell the property at a profit. In some instances this procedure is the only means by which Federal tax liabilities can be collected.

  3. When redeemed property is sold, the proceeds of the sale, to the extent of the costs of redemption, are to be redeposited in the revolving fund.

  4. See IRM 5.12.5.7.6 for disposition of redemption sale proceeds.

5.12.5.4.6  (06-11-2010)
Advances from the Revolving Fund

  1. When the revenue officer or PALS secures a prospective/guaranteed purchaser, a report will be forwarded through the employees group manager to the Advisory GM. The following information is required in their report:

    1. serial number

    2. amount required to redeem

    3. estimated redemption value of property

    4. amount of agreed bid

    5. date required payment is needed

    6. date of sale

    7. date redemption right expires

    8. approximate repayment date

    9. person or organization to whom check is payable, and

    10. IRS office and person to whom check should be sent

  2. Please refer to 5.12.5.4 for detailed procedures regarding the approval process between the field, SB/SE Field Budget Office and Beckley Finance Center for requesting and obtaining funds from the revolving fund.

  3. When a redemption investigation is subsequently cancelled, advances must be returned immediately to Beckley Finance Center.

  4. Forward a copy of the cancellation notice to the SB/SE Field Budget Office and to Beckley Finance Center.

  5. Obtain instructions from SB/SE Field Budget Office and/or Beckley Finance Center for the exact procedures for returning funds due to cancellation.

  6. If a revolving fund advance has been distributed and cannot be returned to Beckley Finance Center, consult with Area Counsel for avenues to retrieve the advance. The advisor will submit a status report monthly. After 90 days, the Advisory GM will need to secure Advisory TM concurrence of continued delays. Advisory TM concurrence will be required every 30 days thereafter until the fund is reimbursed or Advisory TM determines the funds are irretrievable and a memorandum signed by the Advisory TM reports a loss for the revolving fund to both Beckley Finance Center and the SB/SE Field Budget Office.

5.12.5.5  (07-01-2001)
Amount to Redeem

  1. There must be an actual payment of money as distinguished from a mere proposal or proposition to pay it.

5.12.5.5.1  (07-01-2001)
Payment of Money

  1. The employee who has been designated to tender the amount required to redeem must be accompanied by at least one witness, preferably an advisor, area counsel attorney or revenue officer.

  2. In the event that the tender to redeem is refused, a joint report of the transaction should be prepared and forwarded through Advisory to area counsel for an advisory opinion and guidance as to the next action to be taken.

  3. The report should include a request for instructions as to the immediate disposition of the check that had been tendered. Place the redemption check in an area meeting the Minimum Protection Standards (MPS) as outlined in IRM 1.16.15 and in Exhibit 1.16.15-1. Depending on the type of payment, this is generally an Special Security (SP-2 or SP-3) requirement. Generally, an acceptable location would be a qualified safe used by Advisory or Criminal Investigation. IRM 1.16.15 The payment will remain in a secured place until advice is received from area counsel regarding the next proposed action to be taken. Prepare Form 2276, Collateral Deposit Record for safekeeping of the property.

    Note:

    The period to redeem (e.g. 120 days from the date of foreclosing sale or the State allowed period whichever is longer) may expire while the check is being held by the IRS. However, to perfect the redemption of the property, the Certificate of Redemption must be properly recorded prior to the expiration of the redemption period.

  4. See IRM 5.12.5.6.2 for preparation and disposition of the certificate.

5.12.5.5.2  (07-01-2001)
Proper Person

  1. It is essential that a timely tender of the amount required to redeem be made to the proper person. Even if the person who purchased the property at the foreclosure sale conveys it to another, the Service may still redeem the property from the subsequent purchaser. The advice of area counsel should be solicited to ascertain the proper party and amount to be tendered.

5.12.5.5.3  (06-11-2010)
Reimbursable Expenses

  1. The Service will pay an amount equal to the excess of the expenses incurred to maintain the property over income from the property.

  2. See IRM 5.12.5.2 and its subsections for the expenses that may be claimed by the foreclosure sale purchaser, the documentation needed, and the consideration given in determining which, if any, expenses will be reimbursed.

  3. Any type of maintenance expense/fee claimed must be verified and justified as necessary under the circumstances. Unusual claims should be discussed and agreed to by the manager. If the legality of the expense is being challenged area counsel concurrence is also needed.

5.12.5.5.4  (06-11-2010)
Amount To Be Paid

  1. In any case in which the United States redeems real property under 28 USC 2410 or IRC 7425, the amount to be paid for the property will be the sum of:

    1. the actual amount paid by the purchaser at such sale (which, in the case of a purchaser who is the holder of the lien being foreclosed, shall include the amount of the obligation secured by such lien to the extent satisfied by reason of such sale),

    2. interest on the amount paid (as determined under (a) above) at 6 percent per annum from the date of such sale,

    3. the amount (if any) equal to the excess of the expenses necessarily incurred in connection with such property after the sale but before redemption, over the income from such property plus (to the extent such property is used or allowed to be used by the purchaser) a reasonable rental value of such property, and

    4. the amount, if any, of a payment made by the purchaser (or successor in interest) after the foreclosure sale to a holder of a lien senior to that foreclosed.

5.12.5.6  (07-01-2001)
Redemption Certificate

  1. Certificates of redemption will be issued when investigations are complete and all statutory requirements are met.

5.12.5.6.1  (01-01-2006)
Certificate of Redemption

  1. If a Advisory TM exercises the right of redemption, his or her designee will apply to the officer designated by local law for the documents necessary to evidence the fact of redemption and to record title to the redeemed property in the name of the United States.

  2. If no such officer has been designated by local law, or if the office so designated fails to issue the necessary documents, the Advisory TM is authorized to issue the certificate of redemption. Preparation and disposition of the certificate of redemption will be accomplished by the advisor assigned to work the investigation.

  3. The authority to sign a certificate of redemption has been delegated to the Advisory TM, as stated in Servicewide Delegation Order 5-4. See IRM 1.2.44.4(29-31)

  4. In cases where there is no guaranteed purchaser, the certificate of redemption must be signed by the Advisory AM. See Delegation Order 5-4, IRM 1.2.44.4(35-37).

5.12.5.6.2  (07-01-2001)
Preparation and Disposition of Certificate

  1. Area counsel will provide the Advisory TM or his/her designee instructions as to the form and control of the certificate to be used in each jurisdiction.

  2. The certificate of redemption may be prepared either before the check is delivered to the payee or immediately afterwards provided sufficient time exists to permit filing the certificate before the redemption period expires.

  3. The certificate will be prepared in duplicate by the advisor and disposed of as follows:

    1. Original to be filed with recording official.

    2. Duplicate to be retained by Advisory.

  4. Advisory is responsible for periodic follow-up action until the redeemed property is disposed of. The frequency of follow-up activity can be determined by the Advisory TM.

5.12.5.6.3  (07-01-2001)
Filing Certificate

  1. The Advisory office should promptly cause the certificate to be recorded in the proper recording office. A revenue officer or PALS will ensure that the certificate is personally delivered and verify recordation.

  2. If the State in which the real property is redeemed has not designated an office in which the certificate may be recorded, the certificate shall be filed in the office of the clerk of the United States District Court, for the judicial district in which the redeemed property is situated.

  3. Area counsel should be requested to indicate the proper place for recording the certificate in each jurisdiction.

5.12.5.7  (06-11-2010)
Administration of Redeemed Property

  1. The Advisory TM should periodically request status reports from their area advisory office involved in the redemption investigation. If the investigation is assigned to a revenue officer or PALS, the advisor should obtain necessary status updates as required by his/her Advisory TM.

  2. The Advisory GM will ensure that redeemed property located within the jurisdiction of the area office is maintained as determined to be appropriate for the type of property involved. Ordinary and necessary expenses may be incurred in the preservation of the property. These expenses may include the cost of minor repairs to the property if deemed necessary for its preservation. The procedures relating to the protection of property the during period of seizure also apply to redeemed property. Refer to IRM 5.10.3.6 for the correct procedures to follow.

  3. Maintenance expenses or fees may be incurred while administering redeemed property. Refer to IRM 5.12.5.2 for specific guidance on what are appropriate maintenance expenses.

  4. Estimated expenses expected to be incurred in connection with the preservation or sale of the property should be documented and paid in the same manner as is required with seized property. Review the procedures as discussed in IRM 5.10.3.7.

5.12.5.7.1  (07-01-2001)
Lease of Redeemed Property

  1. Real property may be leased if it is determined that it will be in the possession of the Advisory TM over an extended period of time and that the Government's interest will best be served by such action. The initial determination will be made by the advisor with concurrence from the Advisory GM, and will be based upon the circumstances of the investigation. However, the final decision rests with the Advisory TM and his or her approval must be secured before the property is offered since the Advisory TM must sign the lease.

  2. If it is determined that redeemed property will be leased and a prospective lessee has been secured, the advisor and his/her manager, should request that area counsel prepare a lease agreement in duplicate. The terms of the lease should generally not be more than a year and should not contain any provision which would prevent selling the property, subject to the lease, at any time a suitable purchaser is found. The lease agreement should specify that payments be made by certified or cashier's check or money order and sent directly to the advisor. Area counsel should be furnished the following information:

    1. name and address of the lessee

    2. area involved

    3. description and location of property

    4. how property was acquired by the United States

    5. period of the lease

    6. terms of payment (amount, manner, due date and place of payment)

    7. any special provisions to be contained in the lease, such as property maintenance, authorized alterations, improvements, etc

    8. any other pertinent information

  3. Upon receipt of the proposed lease agreement from area counsel, the Advisory GM will:

    1. review the lease to see that it conforms to the intent of the parties involved

    2. forward original and duplicate to the Advisory TM for his or her review and subsequent approval

  4. After the Advisory TM has signed the lease agreement, both copies will be returned to the Advisory GM, who will assign the advisor responsible for the investigation to:

    1. secure the signature of the lessee on the original lease agreement.

    2. furnish duplicate lease agreement to the lessee which may be considered authority for the lessee to have possession of the property in accordance with terms of the agreement.

    3. file original lease agreement in the related Disposition of Redeemed Property case file.

  5. Payment received from leased property should be discussed with Area Counsel for a determination as to how these funds should be applied. Most likely any payments will be applied first to the revolving fund balance and then to the taxpayer's liability. Please refer to IRM 5.10.7.2(4) for additional information on preparation of a memorandum for lease payments. IRM 5.10.7.2

  6. If a payment is not received within a reasonable time after the due date, the Advisory GM should contact the lessee to secure payment. If payment is not received, area counsel should be consulted as to the legal action required.

    Note:

    Please refer to IRM 5.10.7.2.1, Lease of Real Property for additional information.

5.12.5.7.2  (06-11-2010)
Sale of Redeemed Property

  1. Authority to sell redeemed property is contained in IRC 7506 (real property). The administration and disposition of real property is the responsibility of the Advisory TM for the area in which the real property is situated. In the case of real property, the Commissioner may, if deemed advisable, take charge of and assume responsibility for the administration and disposition of the property by giving written notice to the Advisory TM through the Advisory AM or the Director, AIQ.

  2. If real property consisting of a single parcel is situated in more than one area/territory, the responsibility for the administration and disposition of the property will be that of the Advisory TM under whose direction the property was redeemed. If there is doubt as to which Advisory TM is to have charge of the property, the pertinent facts should be reported to the Advisory AM so that a designation may be made.

    Note:

    For additional information on the sale of "acquired property" please refer to IRM 5.10.7.3, Preparations for Sale.

5.12.5.7.3  (07-01-2001)
Report of Sale

  1. Advisory will receive the original and duplicate, with all attachments, of the report entitled "Report of Sale of Redeemed Property." The report will include:

    1. name and address of purchaser

    2. sale price of property

    3. expenses of sale shown by amount, names and addresses of payees and the services rendered

    4. date of sale

    5. place of sale

    6. places and dates that notices of sale were published and/or posted

    7. a statement signed by the employee conducting the sale and by the employee who assisted in the sale. The statement will certify the sale was conducted in accordance with IRC 7506 and regulations, and that the information reported is a true and correct record of the sale proceedings

  2. Vouchers for sale expenses should be attached to the duplicate report.

  3. Attachments to the original of the report will include:

    1. copy of the notice of sale

    2. triplicate of the memorandum transmitting the sale proceeds

    3. Forms 2593–A, Sealed Bid For Purchase of Property Redeemed by the United States, if applicable. Form 2593-A

    4. tabulation of bids

  4. Upon receipt of the reports, Advisory will:

    1. note the ICS history screen

    2. forward the duplicate report, with any vouchers not previously submitted to both SB/SE Budget Finance office and to Beckley Finance Center. In addition, the area counsel concurrence memorandum will be included as part of the report

    Note:

    Please refer to IRM 5.10.7.7, Report of Disposition - Sale of Redeemed Property for additional information.

5.12.5.7.4  (07-01-2001)
Deed to Real Property

  1. Regulations under IRC 7506 provide that, upon payment in full of the purchase price, the Advisory TM will issue a deed to the purchaser.

  2. The deed will be prepared in duplicate by Advisory and forwarded to Area Counsel for approval. When the approved deed is received in the Advisory GMs office, he or she will:

    1. remove the original report of sale from the suspense file

    2. secure the signature of the Advisory TM on the original deed

    3. furnish the original deed to the purchaser

    4. note on the duplicate deed the date the original deed is executed and the date it is delivered to purchaser

    5. file duplicate deed and original report of disposition in the redemption case file

5.12.5.7.5  (06-11-2010)
Disposition of Redemption Sale Proceeds

  1. Proceeds from the redemption sale are first used to reimburse the revolving fund. If there are insufficient funds from the sale of the property to fully reimburse the fund, notify Beckley Finance Center by memorandum or by secure E-mail and follow the procedures in IRM 5.12.5.4.(6) and IRM 5.12.5.7.7(4).

  2. Surplus proceeds remaining after reimbursing the revolving fund are applied in accordance with IRC 6342(a) and in the same manner as funds realized from levy proceeds. Legitimate property maintenance, preservation, and sale expenses incurred while bringing the redeemed property to sale are deducted first and the net amount is credited to the taxpayer's account by the advisor handling the case.

  3. Any remaining surplus after reimbursement of the revolving fund and full payment of the taxpayer's liability is refunded, in accordance with IRC 6342(b), to the person entitled to receive the funds. Interest is paid on surplus proceeds in accordance with IRC 6611. The party generally entitled to these surplus proceeds is the taxpayer. Junior lienholders are not entitled to proceeds from the sale of redeemed property, and they should not be notified. If Advisory cannot determine the party entitled to the surplus proceeds, the case will be referred to area counsel for a legal opinion prior to any disposition of this surplus.

5.12.5.7.6  (01-01-2006)
Transmittal Memorandum for Redemption Sale

  1. A transmittal memorandum entitled " Proceeds from the Sale of Redeemed Property" and any accompanying remittances will be controlled by the advisor. If the memorandum is prepared by a revenue officer or PALS, it will be forwarded to Advisory for review. The memorandum will contain the following information:

    1. name and address of the taxpayer as shown on the Form 4376, which would have been submitted at the time redemption of the property was recommended

    2. name and address of the purchaser

    3. redemption sale price

    4. amount previously deposited with agreement to bid, if applicable

    5. identification of remittances accompanying the transmittal, including the amount submitted with the winning bid, if applicable, and the amount remitted to pay the balance of the purchase price

  2. The advisor is responsible for transmitting the memorandum, remittances, and the purchaser's deposit (if any) to Beckley Finance Center.

  3. The Advisory advisor is also responsible for returning any other deposits submitted with unsuccessful "agreements to bid" unless it was as a result of the depositor defaulting on the agreement.

  4. Where payment of the full purchase price is deferred, the purchaser's deposit will be promptly forwarded to Beckley Finance Center for deposit to the revolving fund. This also applies to any deposit the purchaser may have made with an "agreement to bid" prior to the sale. The advisor must ensure that the funds are correctly identified to Beckley Finance Center.

  5. The purchaser's payment of the balance must also be clearly identified for Beckley Finance Center. Duplication of memorandums is not required for each of these scenarios, as long as Beckley Finance Center is understanding of what the funds represent. This can be accomplished through an telephone call, memorandum or secured E-mail message. The advisor is responsible for ensuring that communication efforts with Beckley Finance Center are clearly understood and well documented in the ICS history.

  6. The Advisory GM will follow-up on the authorization for redemption within 60 days from the initial repayment date or any subsequent repayment date if the funds have not been repaid. If there is a delay in repayment to the revolving fund, the advisor will notify Beckley Finance Center by memorandum or by secure E-mail, giving the redemption serial number, amount to redeem, explanation for the delay, and the new estimated repayment date. The advisor must submit a status report to Beckley Finance Center every 30 days after the initial 60 day time period has expired. If, after 90 days, the amount remains unpaid, Advisory GM concurrence must be obtained for continued delays.

  7. See also IRM 5.10.7.7, Report of Disposition - Sale of Redeemed Property for additional information.

5.12.5.7.7  (06-11-2010)
Process, Application, and Recordation of Redemption Sale Proceeds

  1. A record of the distribution of all redemption proceeds will be maintained in the redemption file that is kept by Advisory.

  2. The advisor is responsible to:

    • identify the taxpayer's account to which the surplus over the amount advanced from the revolving fund is to be applied in accordance with IRC 6342(a), and

    • request a copy of the transmittal be returned to the Advisory office with the surplus funds so that there will be no difficulty in properly applying the funds

  3. Upon receipt of the transmittal and gross proceeds from Advisory, Beckley Finance Center will:

    • deposit the check;

    • credit the appropriation with the amount originally disbursed to the Advisory area office,

    • forward the remainder by check to the advisor for crediting to the taxpayer's account.

  4. If the revolving fund is not reimbursed by the repayment date because of default, litigation, etc., the advisor will submit a status report monthly, until such time as the fund is reimbursed. After 90 days, the Advisory GM will need to secure Advisory TM concurrence of continued delays. Advisory TM concurrence will be required every 30 days thereafter until the matter is resolved.

  5. In the case of surplus proceeds remaining after reimbursement of the revolving fund and application of proceeds under IRC 6342(a), Advisory will deposit these funds in the 4720 Deposit Fund Account located at the Ogden campus. A memorandum will be completed in duplicate. The memorandum will be titled "Surplus Proceeds—Redemption Sale" and will contain the following:

    1. taxpayer's name and address;

    2. the redemption serial number;

    3. amount of surplus proceeds; and,

    4. date of the sale.

  6. The original of the memorandum will be used as a posting document to submit the funds to the Ogden Campus for processing. A copy of the memorandum will be placed in the Redemption file and in the "Surplus Proceeds—Redemption Sale" File to be established.

  7. Payment of surplus proceeds will need to be coordinated between the Ogden Campus staff and the advisor assigned to monitor the status of payment. This will likely be in the form of a manual check being issued to the advisor for delivery to the appropriate party in accordance with IRC 6342(b). A record of the surplus proceeds will be referenced in the history section of ICS. Indicate the amount as "Surplus Proceeds—Redemption Sale. "

  8. All payments, directly related to Redemption and Release of Right of Redemption, secured by AIQ staff (Advisory/PALS) and applied to the taxpayer's account will use the Designated Payment Code (DPC) 58 for the Transaction Code (TC) 670. Payments received by a revenue officer should be applied using TC 670 DPC 07.

5.12.5.8  (07-01-2001)
Release of Right of Redemption—Judicial Sales

  1. The U.S. Government may release its right to redemption. This right cannot be sold, but the government can issue a certificate stating that it will not exercise the right to redeem. Generally, this requires payment of the value of the right of redemption as determined by the advisor and approved by the Advisory GM.

  2. Authority to release any right of redemption is delegated to the Department of Justice by section 0.70 of Title 28 of the Code of Federal Regulations. In any case involving a private request, a consideration equal to the value of the right of redemption or $50, whichever is greater, is required by the Department of Justice and must be paid for the release. However, no consideration will be required for releases of right of redemption issued to Federal agencies when it has been determined that the redemption right has no value.

5.12.5.8.1  (06-11-2010)
Applications for Release of Right of Redemption—Judicial Sale

  1. Any person desiring a release of right of redemption with respect to a Federal tax lien arising from a judicial proceeding shall submit to the United States Attorney for the area in which property subject to the right is located an application in quadruplicate, executed under penalties of perjury, in form and content as set forth in the Department of Justice Form No. OBD–225, requesting that the right be released. Form No. OBD–225 may be secured by applicants from the office of the United States Attorney.

5.12.5.8.2  (06-11-2010)
Referral of Applications

  1. Applications for release of right of redemption, together with remittance and all necessary evidence, will be sent by applicants directly to the United States Attorney. Any applications received in the area office will be referred to Advisory for immediate transmittal to the United States Attorney.

  2. The United States Attorney will forward the original and two copies of the application, together with one set of the appraisals, to Advisory for verification and recommendation. Applications received in the area office from any Federal agency may be processed by Advisory without first being referred to the United States Attorney.

  3. If an application is complete and proper, a field investigation will not be required unless Advisory has information warranting an investigation. A field investigation will not be required on any application made by the Veterans Administration or any other Federal Agency regardless of value or use. An exception to the general rule may be determined by the Advisory GM with Advisory TM concurrence. In those rare cases requiring a field investigation, a copy of the application and any attachments should be promptly forwarded with Form 2209, Courtesy Investigation, to the Area office having jurisdiction in the area where the property is located. The original and one copy of the application and attachments should be retained for reference and follow-up purposes.

  4. Advisory will complete Part B of any application that does not require a field investigation. Before a recommendation is made, Advisory must be satisfied that the appraisals were made by disinterested persons and that they were qualified to make appraisals. A memorandum report specifically stating that the appraisers involved are disinterested and qualified will be prepared and accompany the application. In those cases in which the applicant is a Federal agency, the appraised value furnished in the application will be accepted as correct and no statement will be necessary.

5.12.5.8.3  (07-01-2001)
Investigation of Applications

  1. Applications in which field work is required shall be investigated promptly by a revenue officer or a PALS in order that final disposition may be made by Advisory within 30 days. The employee assigned to investigate the application shall verify each item contained in the application or which, in accordance with the requirements prescribed, should have been contained in the application.

  2. The investigating employee shall gather sufficient facts in order that a determination may be made as to whether the United States should release its right of redemption.

  3. In accordance with Servicewide Delegation Order 5-4, the release of the right of redemption is currently delegated to the Advisory GM.

5.12.5.8.4  (07-01-2001)
Report of Investigation

  1. The investigating employees report of investigation will be prepared when the investigation is completed. The report will then be submitted to Advisory. The Advisory GM is responsible for determining whether the final report will be on Form 4376, Report of Investigation Form 4376 or in memorandum form. The report will specifically state whether the appraisers involved are disinterested and qualified.

5.12.5.8.5  (07-01-2001)
Disposition of Application

  1. Upon receipt of the investigator's report, the advisor will review it to ensure that there is sufficient information to determine whether the right of redemption should be released. The advisor will complete the application by indicating the Service's recommendation and forward the report to his/her manager for approval.

  2. Upon completion of the recommendation, the original and one copy of the application, with copies of the investigator's report attached, will be forwarded to area counsel for submission to the Department of Justice. A copy of the application, the set of appraisals and a copy of the report will be maintained by Advisory.

  3. Upon verification (usually by a copy of a letter sent to the applicant, and receipt of the payment of the amount required for the release of the right of redemption), such payment shall be applied to the taxpayer's outstanding liability.

5.12.5.9  (07-01-2001)
Release of Right of Redemption — Nonjudicial Sales

  1. IRC 7425(d) provides for redemption, by the Government, of real property sold in a nonjudicial proceeding when the sale is made to satisfy a lien that is prior to that of the United States. The 120-day (or longer, if State law so provides) period for redemption is applicable.

  2. In nonjudicial proceedings, if it is determined that the right of redemption is valueless, no consideration shall be required to waive the Government's redemption right from either a private individual or Federal agency.

  3. Any questions arising as to the value of the right of redemption shall be referred to area counsel for an advisory opinion.

5.12.5.9.1  (06-11-2010)
Application Investigations - General

  1. Applications for release of right of redemption, and all necessary evidence, will be sent by applicants to the attention of the Advisory GM, for the area in which property subject to the right is located. Applicants should be furnished a copy of Publication 487, How to Prepare Application Requesting the United States to Release Its Right to Redeem Property Secured by a Federal Tax Lien. In addition, Publication 4235, AIQ Advisory Group Addresses should also be referenced for the correct Advisory group address. Publication 487Publication 4235 Right of Redemption investigations originate in Advisory.

  2. Applications arising out of nonjudicial proceedings will be processed promptly. It is important to utilize the services of area counsel whenever the need arises. This decision must be made promptly by the advisor or the employee assigned to handle the investigation.

  3. The investigating employee shall gather sufficient facts to determine whether the United States should release its right of redemption. The investigation may be terminated when it is found that there is an encumbrance(s) prior to the foreclosing lien holder in excess of the value of the property.

5.12.5.9.1.1  (06-11-2010)
Applications Investigated by Advisory

  1. If an application is complete and proper, a field investigation will not be required unless there is information in Advisory that indicates such investigation is warranted. A field investigation will not be required on any application made by the Veterans Administration or any other Federal Agency regardless of value or use. Any exceptions to this would be determined by the Advisory GM.

5.12.5.9.1.2  (06-11-2010)
Applications Referred to the Field for Investigation

  1. Certain situations may warrant field involvement. When this occurs, the advisor will assign the redemption OI to either a revenue officer or a PALS to investigate. This decision will be contingent upon factors such as geographic feasibility and the need for investigative field work.

  2. Due to the need for immediate assignment of these cases, OIs will be routed directly to the field revenue officer group working the zip code. The group manager will be required to treat these OIs as priority work. Redemption OIs will be assigned to a revenue officer or PALS expeditiously, to ensure that the Government’s interest is not compromised and that the investigation is completed accurately and timely. Redemption OIs will be exempt from existing case delivery parameters.

5.12.5.9.1.3  (06-11-2010)
Applications Investigated by the Field

  1. Applications in which field work is required will be investigated promptly by a revenue officer or PALS, in order that final disposition may be made by Advisory within 30 days of receipt. The investigating employee will verify every item contained in the application and identify any item which should have been included in the application.

  2. Except in unusual cases, it will not be necessary for the revenue officer or PALS to secure outside appraisals to establish the value of the property prior to making a recommendation. If the situation arises to consider the services of an outside contractor, please refer to the procedures outlined in 5.12.5.4.4

5.12.5.9.2  (07-01-2001)
Report of Investigation

  1. The investigating employee's redemption report shall be prepared upon completion of the investigation. The report will be completed using Form 4376, Report of Investigation, and may include a memorandum containing additional information, if necessary. The report will be forwarded with the copy of the application and all exhibits to the group manager. He or she will review the report and, upon approval, return the file to the employee for forwarding to Advisory.

5.12.5.9.3  (06-11-2010)
Release of Right of Redemption Issued

  1. When a Release of the Right of Redemption is warranted, the advisor will prepare the appropriate document for signature approval.

  2. Use the ICS Templates created for this purpose. If the Release of Right of Redemption is for value use the template "certRightValue " . If the investigation has determined there is no value in the property to redeem, use the template "certRightValueless" .

  3. The release shall be prepared in duplicate, the original will be given to the applicant, upon receipt of the amount determined to be the Government's interest. The duplicate information will be retained by Advisory.

  4. In accordance with Servicewide Delegation Order 5-4 found in IRM 1.2.44.4(32-34), the release of the right of redemption is currently delegated to the Advisory GM.

  5. Any payment secured for the release of the right of redemption shall be applied to the taxpayer's outstanding liability.

  6. Payments received by AIQ employees (Advisor/PALS) will be applied using Transaction Code (TC) 670 with the Designated Payment Code (DPC) 58. The DPC 58 is not for Field employee use.

  7. Payments received by revenue officers should be applied using TC 670 DPC 07.

Exhibit 5.12.5-1 
Pattern Letter P–597

This Pattern Letter can be found with other ICS template letters.

    P-597  
Internal Revenue Service Department of the Treasury
Washington, D.C. 20224  
       
Date: Property Location:
       
       
      Date of Sale:
       
      Contact Telephone Number:
       
       
[Salutation]  
       
 We understand that you purchased property identified above at a foreclosure sale. This property was subject to a Federal tax lien junior to the foreclosing lien. Under 2410 of Title 28 or Section 7425(d) of the Internal Revenue Code, the Internal Revenue Service has the right to redeem the property from you by paying you the amount specified in the regulations issued under that section.
       
 We are considering this action and can take it within the period that begins with the date of the sale and ends on ( Enter date, and number of days after) after the date of the sale. We may release our right to redemption before the redemption period expires if you pay an amount determined to be equal to our redemption right. Publication 487 is enclosed. It describes how to apply for a release. If the right of redemption is determined to be without value, you will not be required to pay to obtain a release.
       
 If we redeem the property, we will pay you the sum of the following amounts:
       
  1. The actual amount you paid for the property at the foreclosure sale, including the amount of the obligation secured by the foreclosing lien to the extent satisfied by the sale if you were the holder of that lien;
       
  2. Interest on the amount paid at the rate of six percent a year for the period from the date of the sale to the date of redemption:
       
  3. An amount equal to the excess of (A) the expenses you incurred to maintain the property over (B) any income you realized from the property, plus a reasonable rental value of the property (to the extent the property is used by you or with your consent, or is rented at less than its reasonable rental value); and,
       
  4. The amount you paid after the foreclosure sale to a holder of a senior lien, if you properly request reimbursement for such payment and your request is approved.
P–597 (Rev. MM-YY)
(Reference: IRM 5.12.4.13)
       
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 If you plan to request reimbursement for payments made to a senior lienor (see paragraph 4, above), you have 15 days from the date this letter was sent to do so. Your request must contain an itemized statement, signed by you, of the amount claimed, together with supporting evidence. The request must also include a waiver or other document that will be effective, on redemption by the United States, to discharge the property from, or transfer to the United States, any interest in or lien on the property that may have arisen under local law from payment made to a senior lienor.
       
 No amount may be reimbursed to you for payments made to a senior lienor unless we redeem the property and you file a timely request for reimbursement. If you need more time to prepare your request, we may be able to give you an extension.
       
 If your request for reimbursement for payments to a senior lienor is denied, you will receive a notice of denial within 30 days of receipt of your request, or 15 days before expiration of the period for redemption, whichever is later.
       
 If we redeem the property, we must issue our check to the proper person before the redemption period expires. Please help us by answering the questions in the attachment to this letter. Then return the attachment to us within 15 days from the date it was sent. An addressed envelope is enclosed for your convenience. The copy of this letter is for your records.
       
 If you have any questions, please contact me at the telephone number or address shown in the heading of this letter.
       
      Sincerely yours,
       
      [Space for signature]
       
      Title
       
Enclosures:
Publication 487
Attachment
Copy of this letter
Form P–597 (Rev. MM-YY)
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Attachment
 
IDENTITY OF PERSON TO WHOM PAYMENT SHOULD BE MADE FOR REDEMPTION OF PROPERTY UNDER SECTION 7425 OF THE INTERNAL REVENUE CODE OR SECTION 2410 OF TITLE 28 OF THE UNITED STATES CODE
 
1. Name and address of person to whom payment should be made (if person is your agent, please   indicate):
2. Area code and telephone number:
3. Dates when person will be available to accept payment:
 
 
  Between   (date)   and   (date)   ( Note: Second date should not be less than 20 days    before the redemption period expires.)
  Give days of week and hours when person will be available during the above period:
SIGNATURE:  _______________ Date:  _______________
Form P–597 (Rev. MM-YY)

Exhibit 5.12.5-2 
Letter 1879(P)

This letter can now be found on the Publishing web site.

  Person to Contact:
  Badge Number:
  Telephone/Fax Number:
  Refer Reply To:
  Date:
   
Information for Prospective Purchasers of Real Property
   
   
The Internal Revenue Service is seeking to redeem and sell the real property located at (Street address).
   
  Guaranteed Minimum Bid Amount: $
   
  To Redeem Real Property:
In order to redeem the property under (Section 7425(d) of the Internal Revenue Code or Section 2410 of title 28 of the United States Code) , the IRS must obtain a written agreement to bid. If you are interested in bidding, I can send you an "Agreement to Bid" letter. The IRS generally requests a minimum deposit of 20% of the amount bid on the property.
  Deposits for Real Property
  Deposits generally are made in the following forms:
  Cashier's or certified check
  Bank or postal money order
  Certificate of Deposit
  Irrevocable line of credit
   
Redeemed Real Property
  If redeemed the property will be sold pursuant to Section 7506 of the Internal Revenue Code. Property is sold subject to any prior outstanding mortgages, encumbrances, or other liens having priority over the foreclosing instrument.
  If you have any questions, or require additional information, please contact me at the telephone number above.
  Sincerely,
   
  Title

Exhibit 5.12.5-3 
Pattern Letter P–338

AGREEMENT TO BID
   
(Because of limited use, the Headquarters Office will not provide a form for this purpose.)
   
   
   
 I, the undersigned, in consideration of the United States Government offering for public sale the property described below, agree to bid at least the amount of $  ____ for the property if offered for sale within _days from the date of this agreement.
   
(Description of Property)
 *I authorize the enclosed deposit of $  ____ to be applied against the sale price if I am the successful bidder.
   
 *I further understand and agree that if I default in payment of the bid price, and the property is not sold for at least that amount, my deposit will be retained pending final determination of the damages the government sustained because of default. If damages exceed the amount of the deposit, I will be liable for the excess damages.
  __________________________.  ________
  Signature ________Date     
   
  Print Name:
  Street Address:
  City/State/Zip Code:
  Telephone/E-mail:
 *These paragraphs should be omitted if a deposit is not required.

Exhibit 5.12.5-4 
Federal Tax Lien Revolving Fund Request

DATE:
REQUESTOR/BADGE NUMBER:
REQUESTOR'S TELEPHONE NUMBER:
REQUESTOR'S FAX NUMBER:
TERRITORY:
AREA OFFICE:
  1. REDEMPTION SERIAL NUMBER:
  2. AMOUNT REQUIRED TO REDEEM:
  3. ESTIMATED REDEMPTION PROPERTY VALUE:
  4. AMOUNT OF AGREED BID:
  5. DATE CHECK REQUIRED:
  6. DATE OF SALE:
  7. DATE REDEMPTION RIGHT EXPIRES:
  8. APPROXIMATE REPAYMENT DATE:
  9. PERSON/ORGANIZATION RECEIVING THE CHECK:
  10. SEND CHECK TO: IRS OFFICE ADDRESS, ATTN: ADVISOR/REVENUE OFFICER'S NAME

Exhibit 5.12.5-5 
FTL REVOLVING FUND

FUNDS FROM SALE OF REDEEMED PROPERTY
DATE:    
TECHNICAL SERVICES ADVISOR:
TERRITORY:  
AREA OFFICE:  
  1. REDEMPTION SERIAL NUMBER:
  2. TOTAL OF ADVANCE FROM THE FUND:
  3. AMOUNT REALIZED FROM THE SALE:
  4. AMOUNT OF ANY PARTIAL PROCEEDS:
  5. AMOUNT BEING SUBMITTED:
  6. AMOUNT TO BE RECORDED AS A REPLENISHMENT:
  7. AMOUNT OF LOSS TO THE FTLRF ESTIMATED:
  8. AMOUNT OF ADMINISTRATIVE COSTS:
  9. AMOUNT OF TAX LIABILITY SATISFIED:
  10. AMOUNT OF ANY SURPLUS:

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