5.17.3  Levy and Sale

Manual Transmittal

November 05, 2014

Purpose

(1) This transmits revised IRM 5.17.3, Legal Reference Guide for Revenue Officers, Levy and Sale.

Background

This section provides guidance for instituting levy and sale to enforce a federal tax lien.

Material Changes

(1) Throughout the section the terms "husband" and "wife" are revised to gender-neutral terms in light of U.S. vs. Windsor.

(2) IRM 5.17.3.3.5.1 is added to explain that levies may not be issued to collect penalties imposed under the Affordable Care Act (ACA) Provision 1501: Requirement to Maintain Minimum Essential Coverage (Individual Shared Responsibility) (IRC § 5000A).

(3)

Effect on Other Documents

This supersedes IRM 5.17.3 dated January 7, 2011.

Audience

SB/SE Revenue Officers

Effective Date

(01-01-2015)

Rocco A. Steco
(Acting) Director, Collection Policy
Small Business/Self-Employed

5.17.3.1  (01-07-2011)
Overview

  1. IRM 5.17.2 deals with the federal tax lien in some detail. As that section discussed, the federal tax lien attaches to all of the taxpayer’s property and rights to property, both real and personal. This section discusses how the IRS administratively enforces the tax lien using its power to levy on and sell property of the taxpayer or property encumbered with a federal tax lien.

  2. A levy is an administrative means of collecting taxes by seizure and sale of property to satisfy delinquent taxes. It enables the government to collect outstanding taxes without first going to court. An exception is the seizure of a principal residence, which requires court approval. See IRM 5.17.3.4.5, below. A levy is a summary self-help extra-judicial remedy used to compel the payment of the tax. United States v. Nat’l Bank of Commerce, 472 U.S. 713 (1985).

  3. Collecting taxes by levying upon the taxpayer’s property or rights to property warrants serious consideration. This section does not describe the step-by-step actions to be taken by a revenue officer in levying upon and seizing property, because such material is in IRM 5.10, Seizure and Sale, and IRM 5.11, Notice of Levy. This section addresses legal complications that might arise through use of levy procedures.

5.17.3.2  (01-07-2011)
Authority

  1. IRC § 6331(a) authorizes the Secretary to levy upon or seize property to collect delinquent taxes. In this context, Secretary means the Secretary of the Treasury, or any officer, employee, or agency of the Treasury Department authorized to perform the function. See IRC § 7701(a)(11) & (12).

  2. The Secretary of the Treasury has delegated the authority to levy to the Area Director to whom the assessment is charged or, upon his request, to any other Area Director. Treas. Reg. § 301.6331-1(a)(1). Revenue officers, while acting in the course of their duties on behalf of the Area Director in levying upon property of the taxpayer, are delegates of the Secretary of the Treasury having power to levy. The revenue officer, however, must obtain the requisite supervisory approval when necessary. See, e.g., IRC § 6334(e).

    Note:

    Pursuant to IRC § 6331(g), the Service may not levy on a person’s property on the day that person (or that person’s officer or employee) is required to appear in response to a summons issued by the Service for the purpose of collecting any tax.

  3. IRC § 6331(b) describes levy as including the power of distraint and seizure by any means, thus authorizing the Secretary or his delegate to collect delinquent tax liabilities by distraint against and seizure of particular items of property or rights to property belonging to the person liable to pay the tax or on which there is a tax lien (as on property fraudulently transferred by the taxpayer after the date of an assessment).

  4. The revenue officer must take special care to comply with the Internal Revenue Code's levy requirements.

5.17.3.3  (01-07-2011)
Conditions Precedent

  1. The Code imposes a number of conditions that must be met before the IRS may levy. In addition, there are certain restrictions that limit the timing of a levy. These include:

    1. the investigation of the status of the property;

    2. notice and demand;

    3. notice of intent to levy;

    4. collection due process (CDP) rights; and

    5. additional restrictions set forth in IRC § 6331.

5.17.3.3.1  (01-07-2011)
Notice and Demand

  1. The Service must give the taxpayer a notice stating the amount of the tax liability and demanding payment of it as soon as practicable, but within 60 days after assessment of the tax. IRC § 6303(a).

  2. Notice and demand of the assessed tax is necessary prior to levy under IRC § 6331(a), and is also a prerequisite to the creation of the federal tax lien under IRC § 6321. However, pursuant to Treas. Reg. § 301.6303-1(a), the failure to give notice within 60 days does not invalidate the notice. Therefore, a late notice and demand given more than 60 days after assessment is a valid notice and demand for purposes of levy under IRC § 6331(a) and the creation of the federal tax lien under IRC § 6321.

  3. An immediate payment of the tax is normally not demanded unless delay would jeopardize collection. Bremson v. United States, 459 F. Supp. 128 (W.D. Mo. 1978). Notice and demand for immediate payment also should be made when the taxpayer's taxable period is terminated pursuant to IRC § 6851 before the expiration of the taxable period.

  4. Notice and demand need not personally be served upon the taxpayer to validate such notice. The notice and demand must be left at the dwelling or usual place of business of the taxpayer or mailed to his/her last known address. If doubt exists as to the dwelling, place of business or last known address, the notice should be delivered or mailed to all of the available addresses.

  5. Payment of only a portion of the tax after notice and demand represents neglect or refusal to pay. United States v. Wintner, 200 F. Supp. 157 (N.D. Ohio 1961), aff'd per curiam, 312 F.2d 749 (6th Cir. 1963), rev'd on other grounds, 375 U.S. 393 (1964). A levy made before the expiration of the 10-day period after notice and demand, as well as a levy made before notice and demand, is invalid. L.O.C. Indus. Inc. v. United States, 423 F. Supp. 265 (M.D. Tenn. 1976). A levy for a tax liability for which notice and demand was not made is invalid. Notification of a proposed assessment does not eliminate the need for notice and demand for payment of the tax once the assessment is made.

5.17.3.3.2  (01-07-2011)
Notice of Intent to Levy

  1. The Service must provide a taxpayer with a 30-day notice of intent to levy. IRC § 6331(d)(2). The notice must be given in person, left at the taxpayer's dwelling or usual place of business, or sent by certified or registered mail to the taxpayer's last known address. Only a single notice is required to be given with respect to a particular liability, regardless of the number of levies made to satisfy the liability. This notice, either L 1058 or LT 11, is usually combined in one notice with the Collection Due Process (CDP) notice required by IRC § 6330. Area Offices use L 1058, and the Automated Collection System (ACS) uses LT 11.

  2. A levy made before the expiration of the 30-day period after notice of intent to levy is invalid absent a jeopardy determination or waiver by the taxpayer of the waiting period and right to a hearing. See IRM 5.11.1.2.2.10, Waiver of Notice of Intent to Levy/Notice of Right to a Hearing.

5.17.3.3.3  (01-07-2011)
Pre-levy Notice and Collection Due Process (CDP)

  1. Prior to levy, the taxpayer is entitled to one (and only one) CDP hearing with respect to the tax and tax period. IRC § 6330; Treas. Reg. § 301.6330-1(b), Q & A-B4.

    Note:

    The taxpayer may receive more than one CDP hearing with respect to a tax period where the type of tax is different (e.g., income tax and employment tax), or the amount of the unpaid tax has changed as a result of an additional assessment of tax. See Treas. Reg. § 301.6330-1(d)(2), Q & A-D1 for examples.

  2. The pre-levy notice sets forth in simple and non-technical terms:

    1. the amount of the unpaid tax;

    2. notification of the right to request a hearing;

    3. a statement that the IRS intends to levy; and

    4. the taxpayer’s rights with respect to the levy action, including a brief statement that describes:
      (1) the statutory provisions relating to the levy and sale of property;
      (2) the procedures applicable to the levy and sale of property;
      (3) the administrative appeals available to the taxpayer with respect to the proposed levy and the procedures relating to those appeals;
      (4) the alternatives available to taxpayers that could prevent levy on the property (including installment agreements);
      (5) the statutory provisions relating to redemption of property and the release of liens on property; and
      (6) the procedures applicable to the redemption of property and the release of liens on property.

  3. The pre-levy notice must be given in person, left at the dwelling or usual place of business of the taxpayer, or sent by certified or registered mail, return receipt requested, to the taxpayer’s last known address.

  4. The notice under IRC § 6330 must be provided no less than 30 days prior to the date of the first levy with respect to the amount of the unpaid tax for the taxable period for which the levy may be made. Also, as noted in IRM 5.17.3.3.2(1), above, this notice is usually combined with the Notice of Intent to Levy required under IRC § 6331(d).

    Note:

    In some situations, the taxpayer may have incentive to waive the waiting period, and the right to a hearing, so the levy can be issued promptly. For example, a taxpayer may want the Service to issue a levy quickly when the taxpayer is expecting another creditor to attach the assets. For more information regarding such waivers, see IRM 5.11.1.2.2.10, Waiver of Notice of Intent to Levy/Notice of Right to a Hearing.

  5. The Service need not send the taxpayer a CDP notice prior to levy in three circumstances: (1) if the Service has levied on a state tax refund; (2) in a jeopardy levy situation; and (3) if the Service has made a "disqualified employment tax levy." A "disqualified employment tax levy" is a levy made with respect to an employment tax liability for a tax period beginning within 2 years after an employment tax period included in a previous request for a CDP hearing. However, the Service must provide the taxpayer with a notice containing substantially the same information as is contained in the pre-levy notice within a reasonable time after the levy (i.e., post-levy CDP notice). IRC § 6330(f); Treas. Reg. § 301.6330-1(a)(2). See IRM 5.1.9.3.15, Disqualified Employment Tax Levy, and IRM 5.11.1.4, Post-Levy Actions - Disqualified Employment Tax Levy, for more information regarding this exception.

  6. A taxpayer may request a CDP hearing by filing a written request within 30 days following delivery or mailing of the CDP notice. Treas. Reg. § 301.6330-1(b).

  7. A CDP hearing will be held by Appeals and, unless waived by the taxpayer, will be conducted by an employee or officer who has had no prior involvement with respect to the taxable period subject to the CDP hearing. IRC § 6330(b); Treas. Reg. § 301.6330-1(d).

  8. A taxpayer who fails to timely request a CDP hearing is not entitled to a CDP hearing. Such taxpayer may nevertheless request an administrative hearing with the Appeals Office. Such a hearing is referred to as an "equivalent hearing." The taxpayer must submit a written request for an equivalent hearing within the one-year period commencing the day after the date of the CDP notice issued under IRC § 6330. The equivalent hearing will be held by Appeals and will generally follow the procedures for a CDP hearing. See IRM 5.1.9.3.2.2, Equivalent Hearing and Timeliness of Equivalent Hearing Requests.

  9. When an equivalent hearing is held, Appeals will issue a Decision Letter rather than a Notice of Determination. In an equivalent hearing, Appeals will consider the same issues that it would have considered at a CDP hearing on the same matter. Because the equivalent hearing is not a CDP hearing, the taxpayer is not entitled to obtain judicial review.

  10. The statute of limitations on collection is suspended for the period of the CDP hearing (but not the equivalent hearing) and any judicial appeal. In no event will the period expire before the 90th day after the day on which there is a final determination in a hearing.

  11. Levies are generally prohibited during the administrative hearing and during any judicial review and appeals, except where the court has granted a motion to permit levy.

5.17.3.3.3.1  (01-07-2011)
Collection Appeals Program

  1. A taxpayer or third party may appeal a levy or seizure action that has been or will be taken under the Collection Appeals Program (CAP). See IRM 5.1.9.4, Collection Appeals Program. See also Publication 1660, Collection Appeal Rights. Except as it relates to installment agreements, CAP is not a program specifically required by statute, and there is no right to judicial review of the decision of Appeals in a CAP case.

  2. CAP also may be available to taxpayers or third parties where the CDP or Equivalent Hearing right is not available (due to lapse of time or exercising of the right).

  3. Once a seizure action is taken, the taxpayer has 10 business days to appeal under CAP from the date the Notice of Seizure is provided to the taxpayer, or left at his or her usual abode or place of business. Publication 1660, Collection Appeal Rights, must be included with the Notice of Seizure. See IRM 5.1.9.4(6).

  4. By policy, collection action is suspended while the case is in Appeals for levy and seizure CAP appeals. The Collection function may continue enforcement action, however, if it believes withholding the action would put collection of the tax liability at risk or collection of the tax is in jeopardy. Refer to IRM 5.11.3. A taxpayer may have CAP appeal rights of a jeopardy levy under certain circumstances. See IRM 5.11.3.6, Appealing the Jeopardy Levy.

5.17.3.3.4  (01-07-2011)
Investigation of Property

  1. IRC § 6331(j) requires the Service to investigate the status of property before the levy or seizure of any property that will be sold under IRC § 6335.

  2. In the investigation of the status of the property, the Service must:

    1. verify the taxpayer's liability;

    2. analyze whether the amount of estimated sales-related expenses exceeds the fair market value of the property at the time of levy;

    3. determine that the equity in the property is sufficient to yield net proceeds from the sale of the property to apply to the taxpayer’s liability; and

    4. thoroughly consider alternative collection methods.

5.17.3.3.5  (01-07-2011)
Additional Requirements

  1. IRC § 6331(k) provides that no levy may be made during the time an offer in compromise is pending. If an offer is rejected, no levy may be made during the 30 days after rejection (and, if an appeal of the rejection is filed within the 30 days, while the appeal is pending).

  2. IRC § 6331(k) provides that no levy may be made during the time an installment agreement is pending. If the installment agreement is rejected by the Service, no levy may be made during the 30 days after rejection (and, if an appeal is filed within the 30 days, during the time the appeal is pending). In addition, no levy may be made during the time an installment agreement is in effect and, if an agreement is terminated by the Service, during the 30 days after termination (and, if an appeal is filed within the 30 days, during the time the appeal is pending). For criteria identifying "pending" installment agreements, see IRM 5.14.1.3, Identifying Pending, Approved and Rejected Installment Agreement Proposals on IDRS.

  3. The Code prohibits levy on property if the amount of estimated sale-related expenses exceeds the fair market value of the property at the time of levy. IRC § 6331(f). This is referred to as an "uneconomical levy."

  4. Except where there has been a determination that collection is in jeopardy, IRC § 6331(g) prohibits levying on any day on which the taxpayer is required to appear in response to a summons issued by the IRS to collect any underpayment of tax.

  5. IRC § 6331(i) prohibits a levy (but not an offset under IRC § 6402) if the taxpayer has filed a refund proceeding to recover a divisible tax, unless jeopardy exists or the taxpayer waives his rights under this subsection.

  6. IRC § 6015(e)(1)(B) prohibits levy or proceeding in court with respect to a spouse who has requested innocent spouse relief under IRC § 6015(b) or (c) or who has requested equitable relief under IRC § 6015(f) (if the liability is unpaid as of December 20, 2006, or does not arise until after December 20, 2006),

    1. until the taxpayer signs a waiver of the restrictions (Form 870-IS, Waiver of Collection Restrictions in Innocent Spouse Cases),

    2. the 90 day period for petitioning the Tax Court expires, or

    3. if a Tax Court petition is filed, until the Tax Court decision becomes final.

      Note:

      Levy against the non-requesting spouse during this period is not prohibited.

5.17.3.3.5.1  (01-01-2015)
Affordable Care Act Provisions

  1. Starting in 2014, the individual shared responsibility payment provision of IRC 5000A requires individuals to have qualifying health care coverage (known as minimum essential coverage or MEC) for each month of the year, qualify for a coverage exemption, or make a shared responsibility payment (SRP) when filing their Federal income tax returns.

  2. Per IRC 5000A(g)(2)(B)(ii) and Treas. Reg 1.5000A-5, if a taxpayer fails to pay the shared responsibility payment (SRP) imposed by this section and §§1.5000A-1 through 1.5000A-4, the Secretary will not levy on any property of the taxpayer for the failure.

5.17.3.3.6  (01-07-2011)
Jeopardy and Termination Cases

  1. If the Area Director determines that collection of the tax is in jeopardy, the Service is not required to wait 10 days after giving the taxpayer notice and demand, 30 days after giving notice of intent to levy, or 30 days after the IRC § 6330 pre-levy notice. See IRM 5.17.15.4, Jeopardy Collection, and IRM 5.11.3, Jeopardy Levy without a Jeopardy Assessment, for further discussion of jeopardy levies.

5.17.3.4  (01-07-2011)
Scope of Levy

  1. The following discussion presumes that all required notices have been provided to the taxpayer and that all conditions for a levy have been met. It addresses the reach of a levy.

5.17.3.4.1  (01-07-2011)
Property and Rights to Property

  1. All property and rights to property (except that which is exempt under IRC § 6334) belonging to the person liable to pay the tax, or on which there is a tax lien, may be levied upon for payment of such tax.

    Note:

    Only the taxpayer’s interest in property is subject to levy. The interest of a third party is not subject to levy. See, e.g., United States v. Rodgers, 461 U.S. 677 (1983) (in dictum).

  2. The property subject to levy may be real property or personal property. In addition, personal property susceptible to levy may be either tangible or intangible. The taxpayer need not have property in his/her possession before it may be levied upon. If it is discovered that property or rights to property are those of the taxpayer, such property is subject to levy no matter who is in possession.

  3. In determining a taxpayer’s property and rights to property, the Supreme Court has held that one must look initially to state law to determine what rights the taxpayer has in the property the government seeks to reach, then to federal law to determine whether the taxpayer's state delineated rights qualify as property or rights to property within the meaning of the federal tax lien statutes. Drye v. United States, 528 U.S. 49 (1999); Craft v. United States, 535 U.S. 274 (2002).

  4. At times an issue will arise regarding whether the taxpayer has a cognizable interest in the property. For example, when a taxpayer has obtained money through the commission of a crime, state law may provide that the taxpayer has no interest in or rights to such money. See, e.g., United States v. Ortiz, 140 F. Supp. 355 (S.D.N.Y. 1956) (illegally obtained money is not the taxpayer's property, therefore the money need not be surrendered by a police property custodian in response to a notice of levy).

  5. The tax lien attaches to after-acquired property. Glass City Bank v. United States, 326 U.S. 265 (1945). Therefore, use of a levy to collect taxes is not limited to property or rights to property of the taxpayer that exist when the assessment is made. If a federal tax lien has attached to the taxpayer’s property and the property is later transferred to a third party in a way that the lien would not be divested, the property remains subject to levy.

    Note:

    Although property acquired post-assessment is subject to the tax lien, a levy reaches only property and rights to property existing at the time of the levy, or property encumbered with the federal tax lien as of the time of the levy. The exception is for continuous levies, discussed in IRM 5.17.3.4.2, below.


    Example: If the tax lien arises on Date A, at which time taxpayer's bank account contains $100, and subsequently on Date B the taxpayer deposits an additional $100, the tax lien then attaches to the full $200 in the account. If the levy is served after Date A but before Date B, the levy only reaches the original $100 because the levy does not reach after-acquired property. A new levy must be served on or after Date B to reach the full $200 in the account.

  6. During the time custody of seized property is in the United States, certain benefits may arise that are attributable to the seized property, e.g., rent from a seized building. Although it may be argued that a seizure of the property results in a seizure of the benefits, particularly if the benefit represents a fixed right at the time of the levy and seizure, a notice of levy should be served to remove any doubt as to whether the United States seized the right to benefits. For example, if stocks have been levied upon and before their sale a dividend is declared, a notice of levy should be served on the corporation after the record date but before the dividend is paid out. If real property is seized that is producing rental income, a notice of levy should be immediately served upon the lessee.

5.17.3.4.2  (01-07-2011)
Effect of Levy

  1. IRC § 6331(b) provides that except for the continuing levy on salary or wages provided for in IRC § 6331(e) and a levy on certain government payments provided for in IRC § 6331(h), a levy shall extend only to property possessed or obligations existing at the time of the levy. Thus, service of a levy or notice of levy upon the taxpayer or a third person, respectively, results in a seizure of property or rights to property in possession of either party at the time of service of the levy. Should property come into possession of the taxpayer or third party later, another levy must be made to seize the property, regardless of the fact that the federal tax lien attaches automatically to after-acquired property. Rev. Rul. 55-210, 1955-1 C.B. 544. If, for example, a levy is made upon the bank account of a delinquent taxpayer and the bank surrenders the balance in the account at the time the levy is made, this levy has no effect upon subsequent deposits made in the bank by the taxpayer. Subsequent deposits may be reached only by subsequent levies. IRC § 6331(c) provides for successive levies upon property of the taxpayer until the amount due, together with all expenses, is fully paid.

  2. Similarly, a levy only reaches obligations that exist when the levy is made. Obligations are in existence when the liability of the obligor is fixed and determinable, even though the right to receive payment is deferred to a later date. Treas. Reg. § 301.6331-1(a)(1). This would include, for example, a right to receive future payments under a trust or contract, provided the right to receive such payments was not contingent upon the performance of future services. Rev. Rul. 55-210, supra. In other words, the right to future income, if it is a fixed or present right to property, is subject to levy, even though the taxpayer cannot receive the property until some future date. In re Orr, 180 F. 3d 656 (5th Cir. 1999).

  3. IRC § 6331(e) provides, however, that the effect of a levy on salary or wages payable to or received by a taxpayer is continuous from the date the levy is first made until the levy is released under IRC § 6343.

    Note:

    Treas. Reg. § 301.6343-1(b)(1)(ii) provides that a continuing levy on salary or wages made under IRC § 6331(e) must be released at the end of the period of limitations in IRC § 6502.

  4. IRC § 6331(h) provides for a continuous levy on certain federal payments, including Social Security benefits. The levy attaches up to 15% of the payment (and up to 100% in the case of vendors of goods or services sold or leased to the federal government). The power to make an IRC § 6331(h) levy has not been delegated to field personnel. The IRS makes an IRC § 6331(h) levy by sending an electronic transmission to Financial Management Service, another agency within Treasury. These provisions are exceptions to the rule that the levy only reaches obligations that are in existence at the time the levy is made.

  5. For purposes of determining the nine-month period under IRC § 6343(b) for the return of property, the "date of such levy" for continuous levies under IRC § 6331(e) and (h) is the date the notice of levy is served. See IRM 5.17.3.5.6, Release of Levy and Return of Property, and IRM 5.17.3.5.6.3, Wrongful Levy, below, for additional information regarding IRC § 6343.

5.17.3.4.3  (01-07-2011)
Statute of Limitations on Levy

  1. In general, any tax may be collected by levy if such levy is made within 10 years after the assessment of the tax, or any extensions of the 10-year period. IRC § 6502(a). If the levy is served within the period of limitations, a suit to enforce the levy may be instituted after the 10-year period. This is true regardless of any state statutes of limitation. See United States v. Summerlin, 310 U.S. 414 (1940). IRC § 6502(a) permits levy after a judgment is secured for the life of the judgment. Therefore, a judgment based on a tax claim can be administratively collected by levy after the 10-year period would have otherwise expired. A judgment does not curtail the use of a levy to collect a liability. See IRM 5.17.4.6.2, Effect of Judgment on Collection Statute of Limitations.

  2. For personal property that will be sold, IRC § 6502(b) provides that a levy occurs on the date on which the notice of seizure provided in IRC § 6335(a) is given to the owner of the property and not the date the levy is made. In contrast, when the IRS levies on a bank account that will not be administratively sold, the levy occurs when the bank receives the notice of levy. United States v. Donahue Industries, 905 F.2d 1325 (9th Cir. 1990). Thus, it is important that if property is to be seized and sold, the notice of seizure must be given without delay if the statute of limitations on collection is imminent.

  3. Prior to the enactment of the Internal Revenue Service Restructuring and Reform Act of 1998 (“RRA 98”), the collection period could be extended by the execution of a written waiver. This authority was curtailed by RRA 98. Currently, the taxpayer and the Service can only enter into an agreement to extend the collection statute in two situations:

    1. if the extension is secured in connection with an installment agreement, or

    2. if a levy was served prior to the expiration of the collection statute and the levy is subsequently released.

  4. Additionally, pursuant to a special transitional rule, extensions that were executed on or before December 31, 1999, may expire earlier than their original terms. An extension requested on or before December 31, 1999, expires on the latest of -

    1. the last day of the original 10-year period,

    2. December 31, 2002, or

    3. in the case of an extension in connection with an installment agreement, the 90th day after the extension. RRA 98 § 3461(c)(2).

  5. IRC § 6502(a)(2)(A) provides that the statutory period for collection may be extended in connection with granting installment agreements. However, it is the Service's policy that CSED extensions are permitted only in conjunction with Partial Payment Installment Agreements and only in certain situations. See IRM 5.14.2, Partial Payment Installment Agreements and the Collection Statute Expiration Date (CSED).

  6. Although an agreement extending the period for collection must normally be executed before the statute of limitations expires, an agreement may be entered into after the 10-year statutory period if the consideration extended by the government is the issuance of a certificate of release of levy. However, the levy itself, for which the certificate of release is issued, must have been made within the statute of limitations and the waiver must have been executed prior to the release. IRC § 6502(a)(2)(B); Treas. Reg. § 301.6502-1(a)(2)(ii).

5.17.3.4.3.1  (01-07-2011)
Suspension of Statute of Limitations on Levy

  1. A number of conditions/events will suspend the collection statute of limitations. See IRM 5.1.19.3, Case Actions That Can Suspend And/Or Extend A CSED.

  2. Under the general rule, the statute of limitations on collection after assessment is suspended during the period in which collection by levy is prohibited. See IRC § 6503(a)(1). For example, collection by levy is prohibited during the period in which an offer in compromise is pending, for 30 days immediately following the rejection of the offer, and for any period in which a timely filed appeal from the rejection is being considered by Appeals. See IRC § 6331(k)(1); Treas. Reg. § 301.7122-1(g)(1). See also IRM 5.8.10.7, Effect of Previous Offers on Collection Statute.

  3. Other examples of when collection by levy is prohibited include the following:

    • While a CDP hearing, and any appeals thereof, are pending. IRC § 6330(e)(1). See also IRM 5.1.9.3.6, Collection Appeal Rights, Suspension of Collection Statute of Limitations.

    • When a taxpayer seeks innocent spouse relief. IRC § 6015(e)(1)(B). See also IRM 25.15.1.8, Relief from Joint and Several Liability, Statute of Limitations on Collection.

    • With respect to penalties under IRC §§ 6700, 6701, or 6702, when a taxpayer pays not less than 15 percent of the penalty and files a claim for refund. IRC § 6703(c). See also IRM 5.20.8.7, Appealing IRC 6700 and IRC 6701 Penalty Assessments.

  4. IRC § 6503 also suspends the collection period of limitations in a number of different situations, including the following:

    • While all or substantially all of the taxpayer's assets are in control or custody of any court in any proceeding and for six months thereafter. IRC § 6503(b). See also Treas. Reg. § 301.6503(b)-1. The rationale of the suspension is that during this time the assets are not subject to administrative collection procedures. The suspension applies to the outstanding amount due on the assessment. Treas. Reg. § 301.6503(b)-1. For more information regarding property in the control of the court, see IRM 5.17.3.4.4, Custodia Legis, below.

    • While the taxpayer is outside the United States if the absence is for a continuous period of at least six months. IRC § 6503(c). To make certain that the government has an opportunity to collect the tax after the taxpayer returns, the period does not expire (if the taxpayer has been out of the country for six months or more) until six months after the taxpayer's return to the country. For more information, see IRM 5.1.19.3.7, Taxpayer Living Outside the U.S.

    • When there is a wrongful levy. IRC § 6503(f)(1). The collection statute is suspended from the date that the property (including money) of a third person was wrongfully seized or received, to the date that the property is administratively returned pursuant to IRC § 6343(b), or to the date on which a wrongful levy judgment with respect to such property becomes final, and for 30 days thereafter. If the period of limitations is suspended under this provision, it is suspended only for the amount of money or value of specific property that initially has been wrongfully taken from a third party and subsequently has been returned. This amount or value is determined as of the date the property was returned.

    • When there is a wrongful lien. IRC § 6503(f)(2). The collection statute is suspended from the date any person becomes entitled to a certificate of discharge of lien under IRC § 6325(b)(4) until the earlier of the earliest date on which the Service no longer holds any amount as a deposit or bond under IRC § 6325(b)(4) or the date on which a judgment under IRC § 7426(b)(5), concerning the amount deposited or used as bond, becomes final. If the period of limitations is suspended under this provision, it is suspended only for the value of the interest of the United States in the property plus interest, penalties, additions to tax, and additional amounts attributable thereto.

    • When a taxpayer files for protection under the Bankruptcy Code. IRC § 6503(h). The collection statute is suspended for the period during which the automatic stay (11 USC § 362) prohibits the IRS from taking any collection action and for six months thereafter. For more information, see IRM 5.9.4.2(3), Collection Statute Expiration Date (CSED) Suspension Timeframes.

5.17.3.4.4  (01-07-2011)
Custodia Legis

  1. Generally, a levy should not be used to enforce collection of taxes if assets of the taxpayer are in custodia legis (control of the court). However, assets may be seized if a levy would not interfere with the work of the court or the court grants permission to levy. Treas. Reg. 301.6331-1(a)(3). Therefore, upon the filing of a petition in bankruptcy, the death of a taxpayer and the probating of the estate, an assignment for the benefit of creditors, an adjudication of incompetency and appointment of a committee of one's property, and many other types of proceedings or situations if the court has control or custody of the property (actual or constructive) subject to such proceedings, a levy to enforce collection should not be made without prior consideration by Area Counsel.

  2. Property is not in custodia legis between the date of the filing of a petition in a state court for the appointment of a receiver and the date of the appointment; therefore, a levy made between those dates is valid. United States v. Allen, 328 F.2d 377 (5th Cir. 1964); Youngstown Sheet & Tube Co. v. Patterson-Emerson-Comstock of Ind., 227 F. Supp. 208 (N.D. Ind. 1963).

  3. For a more extended discussion of the effect of bankruptcy, receivership, other insolvencies and decedent estates on levy action, see IRM 5.17.3.5.2.2, Effect of Insolvency, and IRM 5.17.3.5.2.3, Effect of Bankruptcy, below. See also IRM 5.17.8, General Provisions of Bankruptcy; IRM 5.17.9, Chapter 7 Bankruptcy; IRM 5.17.10, Chapter 11 Bankruptcy; IRM 5.17.11, Chapter 13 Bankruptcy, and IRM 5.17.13, Insolvencies and Decedents' Estates.

  4. Merely because an officer of a court has possession of a taxpayer’s property, the property is not necessarily in custodia legis. If a United States Marshal is holding money of a taxpayer for safekeeping as a result of an arrest, to be returned upon posting a bond or acquittal, service of a notice of levy upon the United States Marshal is valid and must be honored, because the property is not in custody of the court. Simpson v. Thomas, 271 F.2d 450 (4th Cir. 1959); United States v. Bourbonnais, 602 F. Supp. 664 (E.D. Va 1985). If the property in possession of the United States Marshal is attached as a result of court process, it is generally in custodia legis and not subject to levy. Averill v. Smith, 84 U.S. (17 Wall) 82, 21 L.Ed. 613 (1872). Property seized in violation of the Fourth Amendment of the Constitution (unlawful search and seizure), although suppressed as evidence in a criminal proceeding, may be levied upon. Field v. United States, 263 F.2d 758 (5th Cir. 1959), cert. denied, 360 U.S. 918 (1959). Although property may be in custodia legis, the federal tax lien attaches to such property, even though the property may not be levied upon. Welsh v. United States, 220 F.2d 200 (D.C. Cir. 1955).

  5. Alimony payments made through a clerk of the court under a court order are not in custodia legis and may be levied upon. Property in the hands of an assignee for the benefit of creditors not under court supervision is subject to levy to the extent federal tax liens attached to the property before the assignment date. Notice of levy served upon a bank is ineffective to reach funds of a taxpayer the day following appointment by a court of a receiver of the taxpayer's assets. United States v. Peoples Sav. Bk. & Trust Co. of Wilmington, N.C., 55-2 USTC 55,683 (E.D.N.C. 1955).

  6. Where the taxpayer’s debtor is in bankruptcy and the taxpayer has filed a claim in the proceeding, there is no prohibition upon serving the bankruptcy trustee to reach the distribution the taxpayer is entitled to in the proceeding. In re Quakertown Shopping Center, Inc., 366 F.2d 95 (3d Cir. 1966); United States v. Ruff, 99 F.3d 1559 (11th Cir. 1996); Laughlin v. United States, 912 F.2d 197 (8th Cir. 1990), cert. denied, 498 U.S. 1120 (1991). However, Area Counsel should be consulted before serving such a levy.

5.17.3.4.5  (01-07-2011)
Seizure of a Residence/Principal Residence

  1. IRC § 6334(a)(13)(A) exempts from levy any real property of the taxpayer used as a residence by any individual (except for real property that is rented), if the levy amount does not exceed $5,000.

  2. In addition, IRC § 6334(e)(1) requires a court order before administrative seizure of certain principal residences owned by the taxpayer when seizure is otherwise permissible. These include the principal residence of:

    • the taxpayer

    • the taxpayer’s spouse

    • the taxpayer’s former spouse

    • the taxpayer’s minor child

  3. Although not legally required, written approval by the Area Director is required administratively before seizure of any property used by any person as a principal residence.

  4. After the required approval is obtained, a suit recommendation package should be prepared for Area Counsel. The procedures for preparing a seizure recommendation package for Area Director approval and for preparing the suit recommendation package are set forth in IRM 5.10.2.18.

  5. IRC § 6334(e)(1) provides that there will be no levy on a principal residence unless approved by a judge or magistrate (in writing). At this hearing, the Service will be required to demonstrate that (1) the requirements of any applicable law or administrative procedures relevant to the levy have been met, (2) the liability is owed, and (3) no reasonable alternative for the collection of the taxpayer's debt exists.

5.17.3.4.6  (01-07-2011)
Seizure of Business Assets

  1. IRC § 6334(a)(13)(B)(ii) and IRC § 6334(e)(2) require the written approval of the Area Director or Assistant Area Director before seizure of certain business assets. "Business assets" is defined as any tangible personal property or real property (except for rental property) used in the trade or business of an individual taxpayer.

  2. This approval is not required if there has been a jeopardy determination.

  3. Approval may only be given after determining that the taxpayer’s other assets subject to collection are insufficient to pay the amount due, together with the expenses of the proceeding.

  4. With respect to the seizure of state permits for the harvest of fish or wildlife in the trade or business of an individual taxpayer, the term "other assets" includes future income that may be derived by the taxpayer from the commercial sale of fish or wildlife under the permit.

  5. This approval requirement is only for assets used in the trade or business of an individual taxpayer. Thus, this approval is not required before seizure of the business assets of a corporation or partnership.

  6. This approval requirement is only for tangible business assets. Tangible property is, in general, property that is physically seized for the purpose of being sold, such as inventory and vehicles. In general, intangible property represents property rights with no separate physical existence that are reached by levy, such as certificates of stock or copyrights. Any questions as to whether a certain business asset is tangible property and therefore, whether Area Director approval is required prior to seizure, should be referred to Area Counsel.

5.17.3.4.7  (01-07-2011)
Property Exempt from Levy

  1. IRC § 6334(a) exempts certain property from levy. In addition to residences/principal residences and certain business assets which may be exempt as discussed above, the following property is exempt from levy:

    • wearing apparel and school books necessary for the taxpayer or members of his family

    • fuel, provisions, furniture, and personal effects in the taxpayer’s household, up to a specified, inflation-adjusted amount

    • books and tools of the trade, necessary for the trade, business or profession of the taxpayer, up to a specified, inflation-adjusted amount

    • unemployment benefits

      Note:

      The unemployment benefit exemption has been strictly construed and does not encompass retirement and survivors benefits or disability insurance payments under the Social Security Act. Kane v. Burlington Savings Bank, 320 F.2d 545 (2d Cir), cert. denied, 375 U.S. 912 (1963).

    • undelivered mail

    • certain annuity or pension payments: payments under the Railroad Retirement Act, benefits under the Railroad Unemployment Insurance Act, special pension payments received by Army, Navy, Air Force, and Coast Guard Medal of Honor recipients, and annuities based on retired or retainer pay under chapter 73 of Title 10 of the United States Code

      Note:

      Although as a matter of policy, the Service has placed some administrative restrictions on levying on retirement income and retirement assets, those listed in IRC § 6334(a) are the only ones exempt from levy as a matter of law.

    • workmen’s compensation (including amounts payable with respect to dependents)

    • so much of the salary, wages, or other income as is necessary to comply with a judgment of a court requiring the taxpayer to contribute to the support of his/her minor children, but only if the judgment was entered before the date of the levy

    • an amount determined under IRC § 6334(d) as a minimum exempt amount of wages, salary, or other income

    • certain service-connected disability payments

    • certain public assistance payments

    • any amount payable under the Job Training Partnership Act

    Note:

    With the exception of undelivered mail, unemployment benefits, workmen’s compensation, public assistance payments, Job Training Partnership Act payments, specified annuity and pension payments, exempted categories are limited in terms of value, necessity or both.

5.17.3.4.7.1  (01-07-2011)
Effect of State Law on Levy Exemptions

  1. Just as state law (including state-defined exemptions) cannot prevent the attachment of the federal tax lien, no state law provision can exempt property or rights to property from levy for the collection of any federal tax. Treas. Reg. 301.6334-1(c).

5.17.3.5  (01-07-2011)
General Procedures -- Levy and Seizure

  1. For step-by-step actions to be taken by a revenue officer in levying upon and seizing property, see IRM 5.10, Seizure and Sale, and IRM 5.11, Notice of Levy. This section addresses legal complications that might arise through use of levy procedures.

5.17.3.5.1  (01-07-2011)
Constitutional Considerations

  1. If a levy is not honored or if the taxpayer or a third party interferes with the levy or seizure, it is imperative that constitutional guarantees and individual rights not be violated. Property should not be forcibly removed from the person of a taxpayer. Such conduct may expose a revenue officer to an action in trespass, assault and battery, conversion, etc. Larson v. Domestic and Foreign Commerce Corp., 337 U.S. 682, rehearing denied, 337 U.S. 682 (1949); Maule Industries v. Tomlinson, 244 F.2d 897, (5th Cir. 1957). If there is reason to suspect an interference with a levy, the matter should be referred for proper legal action against the offending party. See IRM 5.17.3.5.4, Interference With Levy, below.

  2. The Supreme Court in G.M. Leasing Corp. v. United States, 429 U.S. 338 (1977) held that an entry without a warrant by the Service onto private property of a person in which that person has a reasonable expectation of privacy for the purpose of seizing property to satisfy a tax liability is a violation of that person's rights under the Fourth Amendment to the Constitution. Before levies or seizures of property located on such property may be made, permission of the occupant of the premises on which the seizure is to take place must be obtained. If the occupant refuses to permit entry, the matter should be referred to Area Counsel to obtain a court order authorizing entry.

  3. The Fourth Amendment to the Constitution, forbidding unreasonable searches and seizures, does not guarantee that illegally seized property, although suppressed as evidence in a criminal proceeding, must be returned to the owner. Accordingly, such property may be levied upon. A similar result occurs if property is illegally seized by state or local authorities for purposes of criminal prosecution and is suppressed as evidence.

5.17.3.5.2  (01-07-2011)
Effecting a Levy or Seizure

  1. A levy requires that the property levied upon be brought into legal custody through seizure. There must be actual or constructive physical appropriation of the property levied upon. Mere intent to reduce to possession and control is insufficient. Freeman v. Mayer, 152 F. Supp. 383 (D.N.J. 1957), aff’d, 253 F.2d 295 (3d Cir. 1958). If actual physical appropriation is not possible, i.e., as with a taxpayer's storefront, constructive seizure is effected through posting, tagging, and inventorying the property and by dispossessing the taxpayer of the property (e.g., by padlocking the doors). Physical dispossession might not be necessary depending on the type of property (e.g., a taxpayer's personal residence). Refer the case to Area Counsel if physical dispossession becomes an issue.

5.17.3.5.2.1  (01-07-2011)
Administrative Discretion

  1. Whether to levy or take another course of action is within the discretion of the Area Director and his/her collection personnel, subject to the limitations on levy and satisfaction of the requirements for levy. See IRM 5.17.3.3, et seq.

5.17.3.5.2.2  (01-07-2011)
Effect of Insolvency

  1. The statute of limitations on collection is suspended during the period in which substantially all of the taxpayer's assets are in control or custody of any court in any proceeding and for six months thereafter. IRC § 6503(b).

  2. Although substantially all of the taxpayer's assets may be in custodia legis, property not in custodia legis, because exempt by law, may be levied upon or a suit may be instituted to foreclose a federal tax lien. The suspension provisions of IRC § 6503(b) are applicable with respect to the entire assessment and the taxes can be collected from all the taxpayer's property or rights to property which is not at the time of collection within the jurisdiction of the court.

  3. The period of suspension is terminated six months after the date on which the assets are no longer in custodia legis. Generally, in a judicial proceeding, when the court by some act of its own relinquishes its jurisdiction over the property, the property may no longer be considered in custodia legis, notwithstanding the necessity of others to perform certain functions with respect to the property in question.

  4. See IRM 5.17.13, Insolvencies and Decedents' Estates, for more information regarding insolvencies.

5.17.3.5.2.3  (01-07-2011)
Effect of Bankruptcy

  1. Under the Bankruptcy Code, the statute of limitations on collection is suspended for the period during which the Secretary is prohibited by reason of the bankruptcy case from collecting the liability, plus six months thereafter. IRC § 6503(h). The Service may be prevented from collecting the liability for any one of several reasons, including the automatic stay imposed by section 362 of the Bankruptcy Code (11 USC), because it is bound by the terms of a repayment plan pursuant to Chapter 11, 12 or 13 of the Bankruptcy Code or because the court has issued an order prohibiting the Service from exercising its collection powers. Area Counsel’s opinion should be obtained in the event of a defaulted Chapter 11 plan to determine what remedies are available to the Service.

  2. The Service is automatically stayed from taking any act to perfect or enforce a lien against property of the estate or to collect a claim against the debtor upon the filing of a bankruptcy petition. 11 USC § 362(a).

  3. If levied-upon property has not been sold or credited to the taxpayer's account before the taxpayer files for bankruptcy, the trustee can obtain an order directing the Service to turn over property to the trustee if it provides adequate protection for the Service's interest in the seized property. Whiting Pools v. United States, 462 U.S. 198 (1983). The revenue officer should work with Area Counsel to determine whether the government will seek relief from the automatic stay or negotiate for an adequate protection agreement before returning the property. In these cases, time is of the essence because inaction might subject the government to monetary sanctions for violating the automatic stay.

  4. For a more complete discussion of the effect of bankruptcy, see IRM 5.17.8, General Provisions of Bankruptcy; IRM 5.17.9, Chapter 7 Bankruptcy; IRM 5.17.10, Chapter 11 Bankruptcy; and IRM 5.17.11, Chapter 13 Bankruptcy.

5.17.3.5.3  (01-07-2011)
Notice of Levy

  1. The Code does not set forth the manner in which levy is to be made. IRC § 6331(b) merely defines the term "levy" as including the power of distraint and seizure by any means. Treas. Reg. § 301.6331-1(a)(1) states that levy may be made by serving a notice of levy on any person in possession of, or obligated with respect to, property or rights to property subject to levy.

  2. The notices of levy used by the Service when levying on cash or cash-like property are the Notice of Levy (Form 668-A(c)(DO)) and the Notice of Levy on Wages, Salary, and Other Income (Form 668-W(c)(DO)). In addition, when a notice of levy is served upon a third party and there is no response or a refusal to comply, it is followed by, though not required by statute or regulation, a Final Demand (Form 668-C).

5.17.3.5.3.1  (01-07-2011)
Seizure

  1. The Service must seize tangible property to effect a levy upon the property. That is, the taxpayer’s property must be reduced to possession and control (actual or constructive). Freeman v. Mayer, 152 F. Supp. 383 (D.N.J. 1957), aff’d, 253 F.2d 295 (3d Cir. 1958). The Service must take sufficient steps to evidence constructive possession of seized property whose size, bulk or quantity reasonably prevent its removal upon seizure. Property capable of removal, such as an automobile should be removed.

  2. Force should never be used in seizing property of a taxpayer. Local or other law enforcement authorities may be contacted to assist the revenue officer in performing his/her duties. Also, the Service may seek a court order to restrain the taxpayer or third party from interfering with such removal or sale.

  3. In seizing property to be sold, the Service uses the Levy (Form 668-B) and, post-seizure, the Notice of Seizure (Form 2433).

5.17.3.5.3.2  (01-07-2011)
Tangibles-Intangibles

  1. The IRS may levy upon and seize tangible personal property. Such property is generally capable of being viewed and physically seized and, if necessary, removed for safe keeping pending sale. (Real property is, of course, not susceptible of removal. Thus, posting of a notice of levy along with notification to the owner, tenant or occupant amounts to control.)

  2. When the IRS levies upon intangible property, such as accounts receivable, contract rights, promissory notes, stock, and debts, problems may arise. The best approach to a levy and seizure of intangibles is to do everything possible to constructively reduce the intangible to possession. Thus, for example, seizure of everything in taxpayer’s place of business—padlocking the premises and posting notices of distraint for taxes–did not constitute a levy upon certain accounts receivable of the taxpayer, since no steps were taken to establish possessory dominion over any sums owed the taxpayer. Freeman v. Mayer, supra, (service of notice of levy upon the taxpayer's debtors would have been sufficient in this case).

  3. If intangible property is represented by a negotiable document, actual seizure of the document must be made. Service of notice of levy upon the maker of the note, the corporation or the bank is ineffective to reduce the property right to possession. Money on deposit in a bank represented by a nonnegotiable certificate of deposit in the hands of a delinquent taxpayer is subject to the levy. Rev. Rul. 73-12, 1973-1 C.B. 601. The holding in Rev. Rul. 73-12 is not applicable to negotiable certificates. Rev. Rul. 75-355, 1975-2 C.B. 478. A levy by the government on funds represented by a negotiable certificate of deposit must be made by presentation of the negotiable certificate and surrender of such certificate to the maker.

  4. There are three essentials to bear in mind when contemplating levying upon intangibles. First, the revenue officer must investigate and determine the taxpayer’s property or rights to property. Second, the revenue officer must determine the steps necessary to seize the intangible and reduce it to constructive possession. Third, the revenue officer must resolve whether one levy is adequate, or whether successive levies must be made.

5.17.3.5.3.3  (01-07-2011)
Suits Against Third Party

  1. Where a taxpayer has instituted suit against a third party for damages in tort or contract, the right of the taxpayer to satisfaction of any judgment obtained may be levied upon. Service of notice of levy upon the defendant in most cases will amount to constructive seizure of the taxpayer’s property rights. However, it is advisable to serve a notice of levy at both the commencement and conclusion of the litigation upon the defendant’s attorney and the taxpayer-plaintiff’s attorney and upon any insurance company, whether named a party defendant or not, or other party who may be contractually obligated to satisfy, in whole or in part, any judgment obtained in the court proceedings.

5.17.3.5.3.4  (01-07-2011)
Offset

  1. A problem frequently encountered when serving a Notice of Levy upon a third party debtor of the taxpayer is the third party's claim that he has a right of setoff against the taxpayer. The claim of setoff is most frequently asserted by banks and, to a lesser degree, by the taxpayer's employer. Generally, if the tax lien arises before a third party acquires the right of setoff, or a levy is made before a setoff is made, a notice of levy reaches all the taxpayer's property in the hands of the third party undiminished by any setoff. Bank of Nevada v. United States, 251 F.2d 820 (9th Cir. 1957), cert. denied, 356 U.S. 936 (1958); United States v. Sterling National Bank & Trust Co. of New York, 494 F.2d 919 (2d Cir. 1974); and United States v. First National Bank of Arizona, 348 F. Supp. 388 (D. Ariz. 1970), aff'd per curiam, 458 F.2d 513 (9th Cir. 1972).

  2. If the federal tax lien attaches to a taxpayer’s property prior to setoff, then a bank takes funds encumbered with a federal tax lien. The government may levy on the bank to obtain the encumbered funds. United States v. Donahue Industries, Inc., 905 F.2d 1325 (9th Cir. 1990); Rev. Rul. 2006-42. See also IRM 5.17.3.9.4, Bank Accounts, below.

  3. If the taxpayer assigns future wages to his employer to secure a debt owed to the employer, a notice of levy will reach only accrued wages due the taxpayer in excess of the amount to be setoff at the time of service of the levy. See Rev. Rul. 73-365, 1973-2 C.B. 407.

5.17.3.5.3.5  (01-07-2011)
Defenses

  1. IRC § 6332(a) states that except as otherwise provided in subsection (b), (which contains a special rule for life insurance and endowment contracts) and subsection (c) (which contains a special rule for banks requiring a 21-day delay before payment for the levy is sent, with interest), a person in possession of property or rights to property upon which levy has been made must, upon demand, surrender such property.

  2. The Supreme Court held in United States v. National Bank of Commerce, 472 U.S. 713 (1985), that there were only two defenses to a levy: (1) the levied-upon person is not in possession of nor obligated with respect to property or rights to property of the taxpayer, or (2) the property or rights to property are subject to prior judicial attachment or execution.

  3. It is important to ensure that the party having actual possession of the taxpayer’s property is served with a notice of levy, particularly when dealing with entities rather than individuals. For example, a notice of levy addressed to the Chairman, Board of Supervisors, of a particular county was held to not be a levy on the county because, under state law, only the county treasurer had possession and control of county money. United States v. Brechtel, 90 F.2d 516 (8th Cir. 1937).

  4. Courts have rebuffed a number of defenses to levy offered by levy sources. For example, there is no statute of limitations on bringing a suit to enforce a levy. United States v. Weintraub, 613 F.2d 612 (6th Cir. 1979), cert. denied, 447 U.S. 905.

  5. Lien foreclosure may be an appropriate alternative to administrative collection where potential defenses would present litigation hazards for the government.

5.17.3.5.3.6  (01-07-2011)
Saved Harmless

  1. A person levied upon who honors a levy (or who pays after being held personally liable under IRC § 6332(d)(1) for failure to honor a levy) is discharged from any obligation or liability to the taxpayer and any other person with respect to the property surrendered (or amount paid). IRC § 6332(e). However, any person who mistakenly surrenders property or rights to property in which the delinquent taxpayer has no apparent interest is not relieved of liability to a third party who has an interest in the property. Treas. Reg. § 301.6332-1(c)(2).

  2. In addition to any claims against the levy source, the owners of mistakenly surrendered property may also obtain administrative relief for wrongful levy under IRC § 6343(b) or may bring suit to recover their property under IRC § 7426.

5.17.3.5.4  (01-07-2011)
Interference with Levy

  1. A revenue officer attempting to levy on property of the taxpayer may experience interference by the taxpayer or a third party. Such interference may take the form of acts committed directly against the revenue officer, attempts to place property beyond the reach of levy through removal or secreting of the property, the institution of judicial proceedings to restrain the collection of a tax, or attempts to rescue or recover the property after its seizure.

5.17.3.5.4.1  (01-07-2011)
Criminal Acts

  1. It is a criminal offense to forcibly assault, resist, oppose, impede, intimidate or interfere with any employee or officer of the United States in the performance of his/her official duties. 18 USC § 111. Commission of the act itself is a crime even though the doer of the act had no knowledge that the person assaulted, resisted, etc. was an officer of the Service. Bennett v. United States, 285 F.2d 567 (5th Cir. 1960), cert. denied, 366 U.S. 911 (1961), see also United States v. Alvarez, 755 F.2d 830 (11th Cir.), cert. denied, 474 U.S. 905 (1985) (federal officers generally).

  2. Specifically, the Internal Revenue Code provides that it is a criminal offense to endeavor to intimidate or impede, by force or threats of force, any officer or employee of the United States acting in an official capacity under the Code. IRC § 7212.

  3. Any person who removes, deposits, or conceals any property subject to levy or who abets in the removal, deposit, or concealment of such property, with intent to defeat the collection of any tax, is guilty of a felony. IRC § 7206(4). For example, the government may consider prosecution where an employer purposely pays a taxpayer in advance to preclude the government from levying upon the accrued salary of the employee. However, under IRC § 7206(4), the burden is upon the government to prove intent, a necessary element of the offense, and a very difficult burden to sustain.

  4. Once property has been levied upon and seized, the owner or a third-party may attempt to regain possession improperly. Any person convicted of forcibly rescuing, or causing such rescue of seized property, or attempting or endeavoring to do so, shall be fined not more than $500.00, or not more than double the value of the property rescued, whichever is greater, or be imprisoned not more than two years. IRC § 7212(b). Also, a person may be subject to a fine or imprisonment or both if convicted of forcibly rescuing, dispossessing, or attempting to rescue or dispossess any property taken, detained or seized under the authority of any federal revenue law. 18 USC § 2233. The offense of rescuing property consists of the forcible retaking of the property out of the hands of an officer who has it in legal custody. It is not necessary that violence be committed against the person of the officer (conduct and language may be sufficient). Leaving property in possession of an individual after levy does not justify him/her in taking and disposing of it.

5.17.3.5.4.2  (01-07-2011)
Injunction

  1. Taxpayers may also attempt to interfere with levy and seizure of property or rights to property by commencing a court action to enjoin or restrain the collection of a tax. IRC § 7421 prohibits a suit to restrain the collection of any tax except where levy is sought to be made:

    1. during the period a taxpayer may petition the Tax Court; and before the Tax Court’s decision becomes final, if a Tax Court petition is filed;

    2. during the pendency of a CDP hearing and any judicial review/appeals unless the court has granted a motion to permit levy;

    3. before the final resolution of a suit for: refund of a divisible tax (but only if a bond is filed); tax return preparer penalties; abusive tax shelter promoter penalties; aiding and abetting understatement penalties and frivolous return penalties;

    4. if a party has brought a wrongful levy action or a suit to review a jeopardy assessment;

    5. during the pendency of notice pursuant to IRC § 6672(b) of proposed liability for the trust fund recovery penalty, and during the pendency of an administrative protest to the asserted liability;

    6. when a deficiency attributable to a partnership item is prematurely assessed, and during the pendency of the Tax Court proceeding (IRC § 6225(b)), after a notice of partnership adjustment is sent and during the pendency of the judicial proceeding resolving the dispute over the proposed partnership adjustment; or

    7. during the pendency of a proceeding for determination of employment status.

  2. The courts have further narrowed the parameters of the prohibition against enjoining the collection of the federal tax. For example, the prohibition has been construed not to apply if suit is brought against a purchaser in possession to set aside the government’s sale of seized property if conditions precedent to a levy sale have not been substantially complied with. Margiotta v. District Director of Internal Revenue, 214 F.2d 518 (2d Cir. 1954), National Bank & Trust Co. v. United States, 78-1 USTC 9196 (N.D. lnd. 1977), aff’d, 589 F.2d 1298 (7th Cir 1978). Further, where there are special and extraordinary circumstances combined with the illegality of the tax (failure to give notice of the tax and demand for payment), the collection of which is sought to be restrained, the courts, in the exercise of their equitable powers, will restrain collection of such tax by levy, notwithstanding IRC § 7421. L.O.C. Indus. Inc. v. United States, 423 F. Supp. 265 (M.D.Tenn, 1976). The illegality, however, must be clearly apparent and convincingly established. Bob Jones University v. Simon, 416 U.S. 725 (1974); Commissioner v. Americans United, Inc., 416 U.S. 752 (1974); Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, reh’g denied, 370 U.S. 965 (1962).

5.17.3.5.5  (01-07-2011)
Redemption

  1. The person whose property has been seized may redeem both real and personal property at any time before its sale by paying the taxes due and any expense incurred in connection with the seizure and contemplated sale. IRC § 6337(a). The amount of the tax due must be paid and not merely an amount equal to the value of the property seized or the value of the government’s interest in the property.

  2. Once personal property is sold, the taxpayer no longer has any right to redeem the property. Real property, however, may be redeemed within 180 days from the date of sale by the taxpayer, his/her heirs, executors, or administrators, or any person having an interest in or a lien on the property, or any person on their behalf. IRC § 6337(b).

  3. When a certificate of sale is tendered after the expiration of the redemption period, the deed should be issued even if there is a contention that a qualified party has offered to redeem and been refused, since that party’s remedy is to seek judicial enforcement of the right to redeem.

  4. A tenant in common or a wife with an inchoate right of dower has sufficient interest to redeem. See, e.g., Babb v. Frank, 947 F. Supp. 405 (W.D. Wis. 1996), United States v. Lowe, 268 F. Supp. 190 (N.D. Ga. 1966), aff’d sub nom., Lowe v. Monk, 379 F.2d 555 (5th Cir. 1967), cert. denied, 389 U.S. 1039 (1968); Samet v. United States, 242 F. Supp. 214 (M.D.N.C. 1965). Similarly, the husband’s right of curtesy entitles him to redeem.

  5. The amount to be paid to the purchaser to redeem is the purchase price, together with interest at the rate of twenty percent (20%) per annum. IRC § 6337(b)(2).

    Note:

    IRC § 6622 requires daily compounding interest. See Rosen v. Norton, 970 F.2d 1079 (2d Cir. 1992), cert. denied, 507 U.S. 918 (1993). See also IRM 5.10.6.8(3) and (4) regarding the calculation of interest.

  6. If the purchaser cannot be found in the county in which the property to be redeemed is located, payment is to be made to the Secretary or his delegate for use of the purchaser, his/her heirs or assigns. IRC § 6337(b). Redemption cannot be made through a suit attacking the validity of the tax and the sale itself for which the property was seized to satisfy the purported invalid tax. If the terms of the redemption statute are not complied with, there can be no redemption. Babb v. Frank, 947 F. Supp. 405 (W.D. Wis. 1996). If there is an assignment by the purchaser of property purchased at a sale, one entitled to redeem may, as a means of protection, deposit the amount to redeem in court and tender said sum to either the defendant-purchaser or his/her assignee, whoever is entitled to such.

  7. On occasion, real and personal property, or a number of tracts of real property may be purchased in the aggregate. Under such circumstances, the purchase price of the realty for purposes of redemption shall be the ratio, as of the time of sale, of the value of the realty to the total value of all property purchased. The minimum price or the highest bid price, whichever is higher, offered for the property separately or in groups shall be treated as the value. Treas. Reg. § 301.6337-1(b)(2).

  8. Questions concerning who is entitled to rents, profits and possession of real property during the statutory period of redemption should be referred to Area Counsel.

5.17.3.5.6  (01-07-2011)
Release of Levy and Return of Property

  1. The IRS is required to release a levy upon all or part of the property or rights to property levied upon under certain conditions. IRC § 6343(a).

  2. The Area Director is authorized to return any property which has been wrongfully levied upon to its rightful owner. In addition to this administrative procedure in IRC § 6343(b) to return wrongfully levied property, a person other than the taxpayer may file suit against the government to recover the property or obtain a judgment. IRC § 7426.

  3. In addition, IRC § 6343(d) authorizes the IRS to return levied upon property in certain situations other than wrongful levies:

    • if the levy was premature or otherwise not in accordance with administrative procedures (e.g., the levy was made before the taxpayer was given CDP rights under IRC § 6630),

    • the taxpayer has entered into an installment agreement under IRC § 6159 to satisfy the tax liability (unless the agreement provides otherwise),

    • the return of the property will facilitate the collection of the tax liability, or,

    • with the consent of the taxpayer or the National Taxpayer Advocate, the return of the property would be in the best interests of the taxpayer (as determined by the National Taxpayer Advocate) and the United States.

    Note:

    The provisions of IRC § 6343(b) (as discussed below) apply to IRC § 6343(d) in the same manner as if the property had been wrongfully levied, except that the interest in wrongful levy cases provided under IRC § 6343(c) is not allowed.

5.17.3.5.6.1  (01-07-2011)
Requirements for Release of Levy

  1. IRC § 6343(a) requires a release of levy for all or part of the seized property if:

    1. the liability is satisfied or is unenforceable because the statutory period for collection had expired;

    2. release will facilitate collection;

    3. the taxpayer has entered into an installment agreement, unless the agreement provides otherwise;

    4. the Secretary determines that the levy is creating an economic hardship within the meaning of IRC § 6343(a)(1)(B); or

    5. the fair market value of the levied property is more than the amount owed and part of the levied property can be released without hindering collection.

  2. In addition, the IRS must, as soon as practicable, release a wage levy upon agreement with the taxpayer that the tax is not collectible. IRC § 6343(e).

5.17.3.5.6.2  (01-07-2011)
Effect of Release

  1. Even if a levy is released, IRC § 6343(a) specifically permits a subsequent levy upon the same property. However, the right to levy again is limited by the statute of limitations on collection or any extensions of it. To prevent possible future litigation over the claims of the exempted categories listed in IRC § 6323(a), a release of levy should not be issued unless or until a notice of tax lien is filed to establish the validity of the federal tax lien against such parties.

5.17.3.5.6.3  (01-07-2011)
Wrongful Levy

  1. The wrongful levy procedures in IRC § 6343(b) provide for the return of property or sales proceeds to third parties. If the Secretary or his delegate determines that property has been wrongfully levied upon, the Secretary or his delegate pursuant to IRC § 6343(b) may return:

    1. the specific property levied upon;

    2. an amount of money equal to the amount of money levied upon (including interest); or

    3. an amount of money equal to the amount received by the government from the sale of the property.

  2. With respect to an amount levied upon or an amount of money equal to the amount received by the government from the sale of such property, interest is allowed and paid at the rate established under IRC § 6621 for the periods described in IRC § 6343(c).

  3. If the sale of the property in question has occurred and the property has been declared purchased by the United States, the minimum bid price is to be treated as the amount received from the sale.

  4. The United States may return the property at any time it still has possession of it.

    Note:

    If the property is money specifically identifiable, such as a valuable coin collection worth more than its face value, this money is treated as specific property and, where possible, returned.

  5. If money is levied upon or received at the sale of property, an amount of money equal to the amount levied upon or received at sale may be returned before expiration of nine months after the date of the levy. When a request for return of property is filed before the expiration of the 9 month period, the funds may be returned after the 9 month period expires if necessary for the investigation and processing of the request.

    Note:

    For purposes of determining the nine-month period under IRC § 6343(b), the "date of such levy" for continuous levies under IRC § 6331(e) and (h) is the date the notice of levy is served.

  6. While filing a formal claim for return of property is not a prerequisite of a suit under IRC § 7426, any written request for the return of property under IRC § 6343 must comply with the conditions set forth in Treas. Reg. § 301.6343-2(b). Inadequacies in the request must be noted in writing by the Area Director and mailed within 30 days after receipt of the request or the request is deemed adequate. Treas. Reg. § 301.6343-2(c).

    Note:

    The request must be sent to the office listed in Publication 4528, Making an Administrative Wrongful Levy Claim Under Internal Revenue Code (IRC) Section 6343(b), to be effective. See Treas. Reg. § 301.6343-2(b).

  7. A third party challenging a levy by the Service may only seek a remedy in a wrongful levy suit under IRC § 7426. The statute of limitations for bringing a wrongful levy suit is nine months from the date of the levy. However, if an administrative claim has been made for the return of property, the 9 month period is extended by 12 months from the date of the request or 6 months from the date the Service denies the request, whichever is shorter. IRC § 6532(c).

  8. The third party cannot bring a quiet title action under 28 USC § 2410 (which has a longer limitations period) because IRC § 7426 is the exclusive remedy for third persons claiming a senior interest in property seized by the Service. Miller v. Tony and Susan Alamo Foundation, 134 F.3d 910 (8th Cir. 1998); Winebrenner v. United States, 924 F.2d 851 (9th Cir. 1991); and United Sand and Gravel Contractors, Inc. v. United States, 624 F.2d 733 (5th Cir. 1980). Similarly, the third party cannot seek redress through a refund claim filed under 28 USC § 1346(a)(1). EC Term of Years Trust v. United States, 550 U.S. 429 (2007).

5.17.3.6  (01-07-2011)
Sale -- Authority

  1. Under IRC § 6331(b), the Area Director is authorized to sell the taxpayer’s property or rights to property or property encumbered with a federal tax lien.

  2. In addition to the authority under IRC § 6331(b) to sell seized property, the Service is authorized to sell personal property acquired by the United States in payment of or for security for federal tax liabilities. IRC § 7505(a). Property is sold under procedures set forth in Treas. Reg. § 301.7505-1(a).

  3. The Service is also authorized to sell, at public sale after at least 20 days’ notice, real property that has become property of the United States. There are various ways that real property can become property of the United States, including, but not limited to, a judgment of forfeiture under the tax laws, assignment to the United States, or redemption by the United States. IRC § 7506.

  4. Sale procedures are set forth in Treas. Reg. § 301.7506-1(b).

5.17.3.6.1  (01-07-2011)
Sale -- Role of Revenue Officer

  1. Sales of seized property are conducted by Property Appraisal and Liquidation Specialists (PALS). Revenue officers are generally barred from participating in the actual sale under IRC § 6335.

    Note:

    This prohibition does not bar revenue officers from conducting sales of perishable goods under IRC § 6336.

  2. Prohibited acts by revenue officers include:

    • Grouping property prior to sale after the Form 2433 has been completed

    • Registering bidders

    • Tabulating bids

    • Assisting in collecting sales proceeds

    • Issuing certificates of sale

    • Answering sale-related questions

    • Any other sale-related activity involving interaction with anyone attending or conducting the sale

  3. Revenue officers have an extremely limited role in post-seizure matters. However, there are limited ministerial acts that the revenue officer may undertake. In addition to the limited use of revenue officers to deliver notices of sale, the revenue officer may, if necessary, record the sealed bid information required on Form 4425, although this is not the preferred practice.

  4. Post-seizure the revenue officer continues to be responsible for the collection of the outstanding tax liability and remains in communication with the PALS as necessary. For example, the revenue officer would contact the PALS if the liability were satisfied before the sale or if the taxpayer filed bankruptcy before the sale. In addition, given the continued collection responsibility, the revenue officer may be present at the sale (or otherwise available) to address alternative methods of collection with the taxpayer.

  5. As described in IRM 5.10, revenue officers do participate in post–sale procedures. For example, the revenue officer:

    • inputs the transaction code to remove a module from inventory;

    • works with the PALS to ensure that all expenses of seizure and sale are properly debited;

    • maintains the ICS case file; and

    • ensures that documents are forwarded to Advisory for inclusion in the seizure file and the permanent record.

5.17.3.6.1.1  (01-07-2011)
Notice of Seizure

  1. As soon as practicable after seizure, the revenue officer must give written notice to the owner of the property (or the possessor of personal property) which specifies the amount owed and contains an account of the personal property seized and a reasonably certain description of the real property seized.

  2. The notice must be left at the usual place of abode or business of the person to be notified if within the area where the seizure is made, or mailed to his/her last known address if he/she has no abode or business in the area or cannot be readily located. IRC § 6335(a).

  3. If the IRS does not comply with the notice requirements, the IRS can still argue that notice was effective because it "substantially complied" with the statute. Grable & Sons Metal Products, Inc. v. Darue, 377 F.3d 592 (6th Cir. 2004), aff'd on other grounds, 545 U.S. 308 (2005).

5.17.3.6.1.2  (01-07-2011)
Notice of Sale

  1. Preparation for the sale of seized property should be commenced as soon as practicable after seizure.

  2. In the same manner as a notice of seizure, and as soon as practicable after the seizure, notice of sale must be given to the owner. A notice specifying the property to be sold and the time, place, manner and conditions of sale must be published in a newspaper published or generally circulated within the county in which the seizure was made. IRC § 6335(b). If a newspaper of general circulation in a county will reach more potential bidders for property to be sold than a newspaper published within the county, or if there is a newspaper of general circulation within the county but not published within the county, the government may publish notice of sale in the newspaper of general circulation. If no newspaper is published or generally circulated in the county, notice of sale shall be posted at the post office nearest the place of seizure and in not less than two other places.

  3. The government, by regular mail, also sends a copy of the notice of sale to all interests of record (joint owners, senior and junior lien-holders, nominees, transferees, judgment creditors regardless of whether they have perfected a lien interest, etc.). See IRM 5.10.4.13, Delivery of Notice of Sale. See also Verba v. Ohio Cas. Ins., 851 F.2d 811 (6th Cir. 1988) (constructive notice provided by publication and posting pursuant to IRC § 6335(b) held to be constitutionally inadequate). Interests of record are pulled from Form 2434-B which lists all encumbrances/interests of record.

  4. A description of real property in a notice of sale is sufficient if the land can be identified, provided that the portion of the description which is left out would add nothing to the certainty of the description. In describing personal property to be sold, it is not necessary that each item be listed and be completely detailed. A general description is sufficient.

  5. If notice of sale is posted at public places, the premises of the taxpayer does not constitute a public place, even though the real property was seized for delinquent taxes and the sale was conducted on the premises.

5.17.3.6.1.3  (01-07-2011)
Time of Sale and Adjournment

  1. The sale must be held not less than 10 days, nor more than 40 days from the date public notice of sale is given, unless it is adjourned for a period not to exceed one month. Pursuant to Anderson v. United States, 44 F.3d 795 (9th Cir. 1995), a sale may be adjourned but not postponed. (Postponed refers to an action taken to delay the sale prior to the commencement of sale; adjourned refers to an action taken to delay the completion of the sale after the bidding has started). The sale may not be delayed beyond the statutory periods provided in IRC § 6335(d).

    Note:

    The Service is subject to another potential time constraint: Under IRC § 6335(f), the owner of any seized property may request that the property be sold within 60 days of the request. The Service must comply unless it determines (and notifies the owner within the 60-day period) that compliance would not be in the best interest of the United States. Failure to do so may have adverse consequences. For example, in Zaparra v. Commissioner, 124 T.C. 223 (2005), reconsideration denied, 126 T.C. 215 (2006), the Tax Court held that where the taxpayers requested that the Service sell the seized property and apply proceeds to their outstanding tax liabilities, but the Service did not sell the property or determine that the sale would not be in the best interests of United States, the taxpayers were entitled to credit for the value of the property as of the date by which it should have been sold under IRC § 6335(f).

  2. After the commencement of the sale, it may be adjourned if the interests of either the United States or the taxpayer will best be served by the adjournment. Notice of the adjourned sale should be given to the taxpayer in the same manner as the original notice of sale. It is important that the sale of seized property take place within the time period designated in the Code and regulations because failure to do so will affect the validity of the sale. Powelson v. United States, 963 F.2d 1156 (9th Cir. 1992); Reece v. Scoggins, 506 F.2d 967 (5th Cir. 1975).

  3. A sale may be adjourned at any time after the bidding has started but before the property is declared sold or the preestablished minimum bid price has been reached. Adjournments may not be made, however, for the express purpose of adjusting the minimum bid price downward to avoid purchase of the property by the United States. See IRM 5.10.5.4, Adjournment Procedures.

5.17.3.6.1.4  (01-07-2011)
Jeopardy

  1. If the Area Director believes that collection of an unassessed liability is in jeopardy, he/she may make an immediate assessment and pursue collection without need to follow normal assessment and collection procedures. As soon as a jeopardy or termination assessment is made, the tax, penalties, and interest become due and payable, and the Area Director issues a notice and demand for payment in full. If payment is not made, the IRS may immediately proceed to collect by levy without waiting for the usual 10-day period after notice and demand to expire. Collection may be stayed by filing a surety bond.

  2. Whenever levy is made without regard to the 10-day period required by IRC § 6331(a)(4), public notice of sale of the property seized will not be made within the 10-day period unless IRC § 6336 (relating to the sale of perishable goods) applies. See IRM 5.17.15, Termination and Jeopardy Assessments and Jeopardy Collection, for further discussion.

5.17.3.6.2  (01-07-2011)
Manner of Sale

  1. Sales of seized property must strictly adhere to the sale mechanics provided to avoid a charge of impropriety.

  2. Seized property may be sold either by public auction or by public sale under sealed bids. The PALS should select the method that will bring the highest price.

  3. Prospective bidders should be allowed a reasonable time to inspect the property to be sold insofar as possible. The terms and conditions of the sale, the announcement of a minimum bid price if applicable (announcement of the minimum bid price may be made before the sale begins if advantageous or it may be deferred until after the receipt of the highest bid, and if that bid is greater than the minimum bid price, no announcement will be made), the type of auction sale to be held, the manner of bidding, the conditions under which property is to be offered for sale, etc., should be clearly announced, except as indicated, before entertaining bids.

5.17.3.6.2.1  (01-07-2011)
Minimum Bid Price

  1. The IRS cannot sell seized property for less than the minimum bid price. IRC § 6335(e). Such a sale would be an unauthorized collection action, which may lead to an action for civil damages pursuant to IRC § 7433.

  2. Before the sale the PALS must establish a minimum bid price below which the property may not be sold. Under the Service’s procedures, the minimum bid price is generally computed at 80 percent or more of the forced sale value of the property, less encumbrances having priority over the federal tax lien. The taxpayer is given 10 days to contest the determination of the minimum bid price and may hire an outside appraiser or request a valuation by an IRS Valuation Engineer. The minimum bid price cannot exceed the government's lien interest in the property.

  3. IRC § 6335 requires that before sale of seized property the Service must determine if purchase of the property at the minimum bid price is in the best interest of the government. If it is and the minimum bid is not offered at the sale, the IRS must buy the property. IRC § 6335(e)(1)(C). Otherwise, the property must be released back to the owner. IRC § 6335(e)(1)(D). After release, the property would still be subject to the lien and could be reseized. Any expenses of levy and sale are added to the amount of taxes due. If the property is "bid in" by the government at the minimum bid price, it becomes "acquired property" and may subsequently be sold under IRC § 7506.

  4. If the property is listed securities, the minimum bid is fixed at no less than 95 percent of the preceding day’s closing market price. IRM 5.10.4.8(10) and Policy Statement P-5-35 at IRM 1.2.14.1.9.

  5. The PALS may or may not announce the minimum bid at the sale.

  6. If the minimum bid price is not offered during the course of a sale, the PALS may do whichever of the following best promotes the interest of the government and the taxpayer:

    1. adjourn the sale for the purpose of re-evaluating the minimum bid price, IRM 5.10.5.4(7);

    2. declare the property purchased by the United States for the minimum bid price; or

    3. release property to the taxpayer pursuant to IRC § 6335(e).

  7. The property must be declared sold to the highest bidder if the bids exceed the minimum bid price.

  8. No minimum bid price is necessary in a sale of goods determined to be "perishable" under IRC § 6336. The term "perishable goods" means any tangible personal property which is determined to be liable to perish or become greatly reduced in price or value by retaining, or cannot be kept without great expense.

5.17.3.6.2.2  (01-07-2011)
Grouping of Property

  1. The property will be sold under the method expected to produce the highest total proceeds. Seized property may be sold as separate items, in lots or as groups of items, or in the aggregate, or all three methods may be employed. If real and personal property are offered for sale, the real property must be offered first as separate items and the personal property as a group, groups, or separate items, before being offered in the aggregate. If several tracts of real estate are to be sold, the costs and expenses of levy and sale should be apportioned to each parcel for purposes of determining the amount to be paid for redemption of any one parcel. Failure to prorate costs and expenses incident to preparation of the sale, or failure to assign a value to each parcel of real property when sold in the aggregate may be held to prejudice the right of redemption before sale or after sale. McAndrews v. Belknap, 141 F.2d 111 (6th Cir. 1944), cert. denied, 323 U.S. 721 (1944).

  2. It may be apparent that seized property, if sold, would return an amount far in excess of the tax and expenses of levy and sale. Under such circumstances, if the seized property is divisible and a sale of a part thereof would realize an amount sufficient to pay the entire tax and expenses, only so much of the divisible property should be sold as is necessary to satisfy the liability, including expenses. Johnson v. Gartlan, 470 F.2d 1104 (4th Cir. 1973), cert. denied, 414 U.S. 852 (1973).

5.17.3.6.2.3  (01-07-2011)
Acceptance of Bid--Payment

  1. If a purchaser at a cash sale defaults, the IRS must resell the property pursuant to IRC § 6335(e). However, in a deferred payment sale the Service may either sue for the balance or void the sale and resell the property, retaining, as forfeited, any payments made. Treas. Reg. § 301.6335(c)(8). Because the forfeiture provisions of IRC § 6335(e)(3) apply only to deferred payment sales, the PALS should consult Area Counsel regarding whether under state law the United States may sue for damages and retain the deposit. The government must observe all Code provisions governing the sale of seized property even though no time limitations per se are imposed on the resale of property where a purchaser has defaulted.

  2. The partial payment of the bid price by the purchaser at a deferred payment sale is forfeited when the Area Director elects to declare the sale null and void. The amount forfeited is not applied to the liability of the taxpayer, but is paid into the Treasury as in the case of other forfeitures. IRC § 7406. The new purchaser will receive the property free of all claims of the defaulting purchaser.

5.17.3.6.2.4  (01-07-2011)
Invalid Sale

  1. The Code provisions relating to the sale of seized property are meant to protect the taxpayer. A sale is not void because of noncompliance with the provisions of IRC § 6335, but it is voidable by the owner of the property. Aqua Bar & Lounge, Inc. v. United States, 438 F. Supp. 655 (E.D. Pa. 1977), remanded from 539 F.2d 935 (3rd Cir. 1976). The government cannot of its own accord resell property because it failed to comply with the sale provisions of the Code. Koby v. United States, 47 Fed. Cl. 99 (2000); United States v. Conry, 74-1 USTC 9187 (N.D. Cal. 1973). The government has no statutory authority under section 6335 or under any other section of the Internal Revenue Code to administratively rescind a procedurally defective sale.

  2. A taxpayer may institute suit against a purchaser to set aside a sale because the government failed to comply with the pre-sale requirements of the Code. The taxpayer may be able to restrain a sale if she can show the IRS failed to comply with the statutory sale requirements, coupled with a showing of special and extraordinary circumstances (irreparable harm and injury). Transport Mfr. & Equip. Co. of Delaware v. Trainor, 382 F.2d 793 (8th Cir. 1967); Aqua Bar & Lounge, Inc. v. United States, supra; Whalen v. Department of Treasury, 80-2 USTC 13375 (N.D. Ohio 1980). Such a suit does not contravene IRC § 7421, which prohibits suits to restrain the collection of a tax. Powelson v. United States, 963 F.2d 1156 (9th Cir. 1992); Kulawy v. United States, 917 F.2d 729 (2d Cir. 1990); Margiotta v. District Director of Internal Revenue, 214 F.2d 518 (2nd Cir. 1954); Reece v. Scoggins, 506 F.2d 967 (5th Cir. 1975).

  3. However, the court may deny the taxpayer equitable relief if the taxpayer waits too long to attack a sale. McAndrews v. Belknap, 141 F.2d 111 (6th Cir. 1944), cert. denied, 323 U.S. 721 (1944); Howard v. Adle, 538 F. Supp. 504 (D. Mich. 1982); Van Skiver v. United States , 751 F. Supp. 1522 (D. Kan.1990), aff’d, 952 F.2d 1241 (10th Cir.), cert. denied, 506 U.S. 828 (1992).

  4. Even if the sale is not deemed void, it is imperative to remember that failure to comply with the Code requirements may be deemed unauthorized collection actions subject to damages, if any, pursuant to IRC § 7433.

5.17.3.6.3  (01-07-2011)
Warranties

  1. It is important that the PALS emphasize that no warranties are made as to the validity of the title to the property to be sold. The property should be offered for sale "as is" and "where is" and without recourse against the United States.

  2. The taxpayer’s property and rights to property are sold subject to any prior mortgages, encumbrances or liens in favor of third parties senior to the federal tax lien. Treas. Reg. § 301.6335-1(c)(5)(iii). It is the responsibility of the prospective bidders to investigate title to and encumbrances on the seized property. However, on request the government will provide prospective bidders information it has learned about encumbrances which have priority over the federal tax lien listed on Form 2434-B, Notice of Encumbrances Against Property Offered for Sale.

    Note:

    The number of liens and the uncertainty of their respective priority may depress the sale price. In such cases, rather than administratively seizing and selling the property, the revenue officer (or the PALS if the property has already been seized) should consider recommending suit to foreclose the federal tax lien, provided sufficient money is involved to justify suit.

5.17.3.6.4  (01-07-2011)
Certificate of Sale -- Deed of Property

  1. A certificate of sale is given to the purchaser of either personal or real property upon payment of the purchase price. A deed to real property is given to the purchaser or his/her assignees upon surrender of the certificate of sale after the redemption period expires. (If the purchaser cannot produce the certificate of sale, the purchaser must execute an affidavit of lost certificate, drafted by Area Counsel). The certificate of sale of personal property transfers to the purchaser all the delinquent taxpayer’s right, title and interest in the property sold, and the certificate is prima facie evidence of the right of the Service to make the sale and is conclusive evidence of the regularity of the sale proceedings. IRC § 6339.

  2. The certificate of sale constitutes authority for the transfer of corporate stock and title to motor vehicles. It also constitutes a receipt if the property sold is securities or other evidence of debt. Treas. Reg. § 301.6339-1.

  3. A deed to real property is prima facie evidence of the facts stated therein and operates as a conveyance of all the taxpayer’s right, title and interest in the premises sold at the time the tax lien attached to the realty, provided the sale has been substantially in compliance with the provisions of the Code and regulations.

  4. Some purchasers record the certificate of sale to preclude transfer by the taxpayer to a bona fide purchaser for value.


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