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IRS Levy and Seizure: Procedures, Rules, Remedies
outline for this chapter

The Collection Division's assignment: To collect the whole debt in the shortest time at the least possible cost to the government. This chapter discusses the rules that govern taking a taxpayer's property. Whether a reasonable alternative to losing property can be proposed is wholly dependent upon taxpayer's situation - all the financial and personal details of life are important factors. This chapter describes the prerequisites and processes that govern levies, exemptions, residential seizures, going concerns as "perishable assets" (liquidation at expedited forced sale) and other matters. A major issue can be whether a seizure inflicts a defined "economic hardship" or "economic harm" (for purposes of Taxpayer Advocate case criteria) on taxpayers, or whether seizures impair the conduct of business.

It is to be noted that seizure is not what the IRS wants. It is a time-consuming, cumbersome process. Forced sales never produce a benefit for a taxpayer and can be avoided. IRS' preference is for taxpayer's to undertake to sell assets because TP must do all the work, and the proceeds produced by the taxpayer's effort bear a likelihood of yielding a larger sum of cash available for payment of tax. Statutes demand that alternatives be explored before any assets are seized. The elements are discussed in this chapter. In addition, rules controlling the return of property (or the value thereof) that was taken by levy/seizure and those processes (administrative and judicial) are described and linked in this chapter.

In the case of wrongful levy/sale there are remedies and the resources related to those remedies are linked in the discussion.

________________________________________________________________________

I.  Overview of the processes

A. "Levy" is the name for the legal process.

It is thought of in connection with serving notice upon someone obligated to pay money to a tax debtor to deliver the payments to the IRS. A "seizure" is a levy-based process. "Seizure" is what happens when IRS takes physical control of tangible property with the intention of selling the property for cash to be applied against the debt.

1. A levy does not expire at the end of the 10-year period:

a. The law only requires that a levy be made within the 10-year collection period. IRC 6502.

b. A levy served within that period does not expire at the end of the 10-year period. Regs. 301.6343-1(b)(1)(ii). This same regulation also states, however, that the "continuous" levy applied against wage payments must be released at the end ot the 10-year statutory period. The right to receive wages is not "fixed" or "determinable" because additional performance is required before the right to payment accrues.

c. Thus, for example, where IRS serves a timely levy upon TP's fixed right to receive payments in the future (e.g., a retirement plan) the levy must be honored no matter how much time passes if the obligation has not been paid and the levy released.

2. IRC 6331 authorizes levy and distraint by any means.

3. Intangibles (cash, receivables, notes payable and etc.) are levied by service of levy notice.

4. Tangible, moveable property is levied by taking physical possession (a "seizure")

5. Tangible property that cannot be physically seized (realty, massive equipment, etc.) is levied by posting or tagging.

6. Property subject to levy: IRM 5.17.3.4 et seq.

  • (state law, federal law, extent of interests discussed in IRM)
  • Notice that all assets taken into account for purposes of determining TP's ability to pay (see IRM 5.15.1) will be the very same assets which the government believes may be levied if necessary.

B. Prerequisites to Levy {top}

1. Notices before levy

IRC 6330 requires Notice of the Right to a Collection Due Process Hearing at least 30 days before a levy. The significance of that CDP Right is discussed as "Due Process Rights."

IRC 6331 separately requires a 30-day advance warning of the Intent to Levy.

a. Letter 1058, Notice CP90 or CP297 fulfill the combined notice mandates of IRC 6330 and 6331. See "notices."

b. The combined 6330/6331 Notice is the source of TP's statutory right to a Collection Due Process (CDP) hearing before any levy process may take place.

2. Effect of Failure to provide Notices

Failure to meet the requirement supports a claim for return of property under IRC 6343(b) and (d).

3. The "Jeopardy" Exception:

Jeopardy Levy and levy on State Refunds require no advance advisement of a right to a CDP hearing. IRC 6330(f). Instead, the notice of a hearing-right must be served within a reasonable time after the levy. However, pre-levy notice of intent to levy (different from pre-levy notice of right to a hearing) must be given to levy upon state refunds because such notice is not excepted from IRC 6331. Notice CP 504 meets the  requirement to notify of intent to levy on state refunds.

a. No advance warning {top}

Jeopardy levy can occur without a prior 30-day notice under IRC 7429 if Counsel so approves. These levies can throw everything into a different condition with amazing speed. The guidelines governing Jeopardy Levy are at IRM 5.11.3. Counsel's required approval is discussed at IRM 5.11.3.3.

b. Legal Requirements

The regulations point back to Regs. 1.6851-1(a) governing the factors that support making a termination assessment under. A valid jeopardy levy is dependent upon the same factors. There is no sufficient cause unless:

1. it appears TP is about to flee the country or go into hiding,

2. it appears TP is about to place his property beyond government reach by removal, concealment, dissipation or transfer to other persons, or

3. TP's solvency is imperiled.

[Comment re ECONOMIC HARDSHIP: In the case of individual taxpayers, where "solvency is imperiled" it is predictable that a jeopardy levy would put the finishing touches on the disappearance of solvency. A jeopardy levy having the effect of driving individual taxpayers to that point is administratively reversible, and the case would also immediately meet the Taxpayer Advocate case criteria. IRS is not likely to make that kind of mistake. Under the law, no levy can be sustained where it causes or would cause economic hardship. Under the law NO LEVY IS PERMITTED TO CAUSE ECONOMIC HARDSHIP. Regs. 301.6343-1(b)(4)(1). See Vinatieri v. Comm., 136 T.C. No. 16 (Dec. 21, 2009). Also see the TAS Memo citing and relying on Vinatieri and IRM 5.19.4.4.10(4)(j) (this link opens to the IRS official web site and will likely not always work correctly when the government changes file names and URL's again)].

c. Counsel is already in control:

If Counsel approves a jeopardy levy you will not know it is coming. It will take place and within 5 days thereafter notice of a CDP right to a hearing will be served. IRC 7429(a)(1). On top of that, IRC 6330(f) provides that no advance notice of a jeopardy levy is required, but that the 6330-hearingn must be offered within a reasonable time thereafter. From the date of the notice under either 6330 or 7429 TP has 30 days to request administrative review of the levy is reasonable under the circumstances. IRC 7429(a)(2) and (3). A representative's job is to examine the sufficiency of the reason for levy without prior notice. TP must request and participate in the administrative review as a prerequisite to seeking judicial review. Judicial review of the levy is available in the District Courts and, when a petition is pending before the Tax Court for the same period(s) at issue, the Tax Court may hear the matter. IRC 7429(b)(1) and (b)(2). It works the same way as 6330. The hearing must be requested and pursued as a prerequisite to seeking judicial relief. The difference is that jurisdiction in 6330 cases lies exclusively with the Tax Court.

d. Where Jeopardy Levy causes Hardship or Harm

[Comment re ECONOMIC HARDSHIP: In the case of individual taxpayers, where "solvency is imperiled" it is predictable that a jeopardy levy would put the finishing touches on the disappearance of solvency. A jeopardy levy having the effect of driving individual taxpayers to that point is administratively reversible, and the case would also immediately meet the Taxpayer Advocate case criteria. See IRM 13.1.7. Under the law NO LEVY IS PERMITTED TO CAUSE ECONOMIC HARDSHIP. Regs. 301.6343-1(b)(4)(1). See Vinatieri v. Comm., 136 T.C. No. 16 (Dec. 21, 2009). Also see the TAS Memo citing and relying on Vinatieri and IRM 5.19.4.4.10(4)(j) (this link opens to the IRS official web site and will likely not always work correctly when the government changes file names and URL's again)]

e. Practically speaking, depending upon what was levied and the effects of the event, TP might consider requesting that CDP Hearing under 6330. It will tend to freeze other collection activity that might follow a jeopardy levy. Because CDP hearings usually take a very long time to be scheduled in Appeals the TP's information will be gathered, organized, analyzed and the best alternatives to further levy can be developed.

4. Pre-Seizure Considerations: {top}

IRM 5.10.1 et seq. describes several critically important pre-seizure considerations and tasks incumbent on IRS. For example,

a. Exemptions

5.10.1.2 describes exemptions under the statute

b. "Consider Alternatives" and "Economical sale" requirements

5.10.1.3 describes the mandates of 6331(j) requiring "economic sale" and "consideration of alternatives." See paragraph IV. C. for details.

c. NO seizures for "Will Pay" taxpayers

5.10.1.6 describes how "will pay" "won't pay" and "can't pay" factors must affect the decision about levies. This part of the manual provides "Seizures will not be conducted on taxpayers who 'will pay' or 'can't pay.' These categories include taxpayers who:

  • Do not agree with the assessment and are working with the Service to properly adjust their account
  • Will full pay their liability within a reasonable time frame
  • Require a reasonable period of time to sell an asset or secure a loan
  • Qualify for and submit an offer in compromise
  • Have no ability to make payments and have no distrainable assets (currently not collectible)
  • Request and qualify for an installment agreement."

REPEAT OFFENDERS are never classified as "will-pay" taxpayers. They are classified as "Won't-Pay" taxpayers. IRM 5.10.1.6(2). IRM 5.7.4.8.1(2). However, the classification changes when a taxpayer has ceased to accrue liabilities and has become compliant. IRM 5.7.4.8.1(3).

d. Pre-seizure notifications in IRM 

5.10.1.7 describes the mandatory pre-seizure notifications, and etc.

e. When levies are barred

While an installment agreement or an OIC is a "pending" (see below, this subparagraph) proposal or being performed following acceptance of taxpayer's proposal, NO LEVY will occur. IRM 5.14.1.5 provides the following:

No levy may be made on taxpayer accounts:
A. while requests for installment agreements are pending;
B. while installment agreements are in effect;
C. for 30 days after requests for agreements are rejected;
D. for 30 days after agreements are terminated; and
E. while an appeal of a default, termination or rejection is pending or unresolved.

This meets the prohibition against levy in these circumstances provided at IRC 6331(k).

THE "PENDING" REQUIREMENT: Not every proposal submitted by a taxpayer will be considered as "pending." Unless a proposed installment agreement or Offer in Compromise is characterized as "pending" there is NO PROHIBITION under the statute against proceeding with enforcement activity. The statute does not define "pending" but the manuals express guidance. See IRM 5.14.1.3 at (4). Proposals "made to delay collection" are not characterized as "pending" as discussed in this part of the manuals. With regard to OIC's where it is determined the submission is made to delay collection the offer will be returned to the TP without consideration. IRM 5.8.3.1. It will not be characterized as "pending." Personnel who receive OIC's for processing are provided criteria to be applied in determining whether a submission is made for purposes of delay. The specific guidance is expressed at IRM 5.8.4.18.

C. IRS will play above-board - additional warning of planned enforcement actions {top}

If L-1058 (Right to CDP Hearing and Intent to Levy) was issued more than 180 days ago and no levy or seizure has occurred within that 180-day period the RO is required to provide a new warning, but a new L-1058 will not be used because that could open a new CDP-request period. IRM 5.10.1.7.1. While no new L-1058 will be issued, IRS plays above-board and in plain view by requiring that before a levy the TP be contacted. According to IRM 5.10.1.7.2 the taxpayer is to be contacted and the following provided before a levy:

  • Advise the taxpayer that seizure is the next planned action
  • Give the taxpayer an opportunity to resolve the tax liability voluntarily; if the liability is the result of an SFR assessment the taxpayer should be given an opportunity to file corrected returns (if not previously provided)
  • Provide and discuss the provisions of Publication 1, Your Rights as a Taxpayer, and Publication 594, Understanding the Collection Process (if not previously provided)
  • Advise the taxpayer about the Taxpayer Advocate, provide Form 911, Application for Taxpayer Assistance Order, and explain its provisions; if the taxpayer indicates the seizure would create a hardship, the revenue officer will assist the taxpayer with the preparation of Form 911 and should forward the form to the local Taxpayer Advocate if the revenue officer cannot or will not provide the requested relief . . . [See Vinatieri v. Comm., 136 T.C. No. 16 (Dec. 21, 2009). Also see the TAS Memo citing and relying on Vinatieri and IRM 5.19.4.4.10(4)(j) (this link opens to the IRS official web site and will likely not always work correctly when the government changes file names and URL's again)]
  • Provide the taxpayer with the name and location of the immediate supervisor if the taxpayer requests to have the case reviewed by a supervisory official . . .

D. No lien is required to be filed before any levy is served. However, as a matter of prudent policy, the IRS directs agents to file the lien notice ("NFTL") before any levy action. IRM 5.10.1.3.3(6).

E. Conducting the Sale:

IRC 6335 - see details at IRM 5.10.5

1. Before a sale is conducted several mandatory processes described below will have been completed. Once those processes have been completed, the sale will be conducted.

2. Notice of seizure and intended sale must be served upon TP and published in a paper of general circulation.

3. Co-ownership does not block sale. The whole may be sold, but the government must account to the other party. As discussed below, the innocent co-owner will have opportunities to avoid loss through sale under 6343 (administrative) and 7426 (judicial opportunity to enjoin).

4. Public auction or sealed bids - both are permissible. See the index to topics at the beginning of IRM 5.10.5.

5. Adjournment procedures are discussed at IRM 5.10.5.4 and at 5.17.3.6.1.3.

a. Adjournment does not extend the statutory period within which the same must be conducted following publication of notice. Failure to comply can support a suit commenced by TP to set aside the sale and quiet title.

b. Where TP files bankruptcy after notice of the sale is published, the sale is cancelled.

6. Remedies for defective seizures and sales: See item VI, below.

II.  Prohibited seizures listed at IRM 5.10.1.2 and "Restrictions on Levy" at IRM 5.11.1.3. {top}

Other seizures including residential seizure; going concerns; perishable goods

A. Wage/income exempt amount for individuals:

IRM 5.10.1 omits to discuss the exemption for wages, salary and other income under IRC 6334(d)(1). Computation of the amount of income available to pay taxes is detailed at IRM 5.15.1, Financial Analysis Handbook. Also, see topic "determining available income." See "Restrictions on Levy" at IRM 5.11.1.3 and 5.11.5.4 for the discussion of the IRC 6334 statutory exemptions. The "exempt amount" of wages is increased by the amount of court-ordered child-support payments. However, when the support-amount is allowed, then the "dependency exemption" is not to be applied in computing the wage-exemption. See 5.11.5.4. Under IRC 6331(e) a levy on wages is made "continuous" as a statutory exception to facilitate collection. Ordinarily a levy is ineffective for rights to payment not yet fixed and determinable. IRM 5.11.2.2.1.2 correctly requires that the continuous wage-levy be released upon expiration of the 10-year statute. That is because wages unlike, for example, bank accounts do not constitute payments owed the taxpayer which are "fixed and determinable." Taxpayer has no "fixed" right to wages until the required services are performed. Thus, when the 10-year "make-levy" period expires the IRS cannot levy on any right to receive payments that accrue for the first time after that date. "Fixed and determinable" is a requirement mentioned at various places in the manuals. E.g., IRM 5.11.5.3.

See also the additional wage-related discussion below.

B. Principal Residence seizures:

Also omitted from 5.10.1.2 is a discussion of the prerequisite court-order that must authorize seizure of any principal residence under IRC 6334(e).

1. In all events, the principal residence cannot be seized where the liability is less than $5,000.00

2. The elements involved in seizure of the principal residence:

a. IRM 5.17.4.9 should be consulted together with IRM 5.10.2.18. These describe the evidence to be assembled for applying to the court for an order authorizing seizure of a residence. A detail-laden evidentiary burden is imposed on the IRS when such an order is sought, and the resources that itemize the elements of that burden are discussed below.

1. Approvals required: Only Counsel can approve the proposed seizure and Counsel will refer the case to the Department of Justice for filing the action. Before the case ever arrives at Counsel the matter will have been scrutinized by every single layer of the chain between the recommending RO and Counsel. See IRM 5.10.2.18 and scroll down the linked page to items #10 and #11.

2. The most detailed resource that can be consulted on sale of a residence is IRM 5.10.2.18. It is especially important to know the content of this section when there is going to be a show-cause hearing on the IRS application. It is a guide to the things the IRS must address in order to obtain the order. Therefore, it informs representatives of the places where the IRS may have made errors. For example, where the IRS' valuation method and/or conclusions are demonstrably erroneous, the court will not approve the sale.

3. Proof at show-cause hearing: A very detailed and lengthy chart is provided at IRM 5.10.2.18 and scroll down the linked page to item #7. Consult that chart for a summary of fundamental elements that the IRS must have thoroughly addressed. Among other important things, RO's are directed to assure the documentation proves:

a. All required notices were issued.

b. A prerequisite to ALL seizures is the requirement that consideration be given to alternative collection methods. IRC 6331(j). To fulfill that prerequisite the IRS will have gathered all details about TP's income, cash sources, the FMV and inherent equity in property interests, whether TP can full-pay the debt within 120 days, whether full payment could be achieved through extraction of cash from deposits and by TP's sale of assets, whether another alternative is better (installment, PPIA, OIC).

c. Evidence must include details relating to the person of the taxpayer and persons involved (this is designed to assure that the potential for a genuine economic hardship, health issues, OIC based on public policy considerations and other matters have been thoroughly and meticulously dissected).

d. Evidence must prove that the sale will be "economical" (i.e., to assure there is persuasive proof of correctness of property valuation, forced sale valuation and etc.) and other important elements.

b. Summary of the elements from the courts:

1. Reported case law is dominated by the U.S. District Courts. And there are many pro se taxpayer-respondents in these show-cause proceedings. These are losing situations for taxpayers and it is most likely because (1) there is an undeniable debt owed to the government, (2) TP refused to explore installments, PPIA's or OIC's, and (3) all other avenues have been exhausted by the IRS.

2. The cases express the elements the U.S. must prove:

a. there is an unpaid debt owed to the government-petitioner,

b. IRS fulfilled all administrative procedures relevant to the levy

c. there is no other reasonable collection alternative

d. See, for example, In re Blake, 103 AFTR2d 2009-380 (E.D. Michigan - 2008)

3. There is an enormous amount of detailed evidence the government must prove to establish that the administrative mandates prescribed by the statutes - IRC 6331 (f) and (j) in particular - are met. The details of this burdensome task are described below.

4. OIC based on "economic hardship" is likely to succeed in protecting TP from losing the residence where there is nothing left to take. If sale of the principal residence bears likelihood of imposing an economic hardship IRS is obligated to explore alternatives to levy such as OIC's. Actions that create economic hardship are forbidden. The law forbids every levy that causes any level of economic hardship. See Vinatieri v. Comm., 136 T.C. No. 16 (Dec. 21, 2009). Also see the TAS Memo citing and relying on Vinatieri and IRM 5.19.4.4.10(4)(j) (this link opens to the IRS official web site and will likely not always work correctly when the government changes file names and URL's again).

a. "Economic hardship" is defined at Regs. 301.6343-1(b)(4)(i) – unable to meet “reasonable” basic living expenses. The way the IRS determines "reasonable" retainable amounts to cover living costs is discussed at "IRS' Financial Analysis."

b. “Hardship factors” – the basic, non-exclusive list is at IRM 5.8.11.2.1.

c. Illustrations of “economic hardship standard” are provided at IRM 5.8.11.2.1 at item #7.

d. Focus of attention in hardship situations: IRM 5.8.11.2.1 at item #9 – the “qualifying hardship” would be caused by the collection activity.

e. IRS still wants to know if any amount should be paid in “hardship” cases: IRM 5.8.11.4.3

c. In general, IRM 5.10.2 expresses guidance in all the kinds of situations where seizure approvals must be obtained (e.g., mobile homes, firearms, historic structures, various sensitive items of personal property).

C. "Going concerns" and the concept of "perishable goods" {top}

1. Expedited, unadvertised sales:

IRS has power to seize and quickly sell "perishable goods" under IRC 6336. E.g., a delinquent TP's warehouse full of vegetables qualifies because the asset is likely to perish, lose great value, or cannot be moved and stored without great expense. No minimum bid process is involved. The "perishables" are to be valued by an IRS appraiser. TP will be provided notice of the proposed sale and will be given the opportunity to either pay the determined value or to provide a bond. IRM 5.10.4.15.1. The "bond notice" given on the valuation notice is not very instructive. Bond and security requirements are imposed by statute. See discussion at paragraph VII below.The elements and requirements must be met, and the printed valuation notice does not forewarn of the requirements. Pre-sale Procedures governing the sale of perishable goods are discussed at IRM 5.10.4.15.

2. Not a favored procedure

This is a cumbersome procedure for IRS. If IRS is resorting to selling under the 6336-processes, that means there's no cash in bank accounts that the IRS can locate. It sometimes means TP is uncooperative and is forcing the issue. Before 6336 will ever be explored the IRS will have raised installment sales, PPIA's and OIC's to the TP. And where TP has absolutely refused to allow the income-stream to be applied to service the debt in installments, the IRS could have already elected to snap up the receivables. IRM 5.15.1.28. At times it makes more sense in many of these situations for the IRS to seek appointment of a receiver. IRM 5.17.4.10. The sale of a business will be an exceptionally rare selection. In common situations IRS will likely focus on the fact that an ongoing income stream (that could be ruined by such a sale) may provide a greater payment to the government that would such an interruptive sale.

a. Before perishable assets are seized there is a very cumbersome process that must be followed. See IRM 5.10.1.5.

b. Practical effect: because the process requires such a thorough analysis of value, problems unique to the asset, immediate access to a PALS to complete appraisals, planning difficulties associated with advertising and sale difficulties and other elements that must be completed before the seizure will be approved, the process of planning the seizure will have been largely completed LONG before the owner is given the bad news. Whether the asset is a warehouse full of vegetables or a day spa, all of the things the business provides or sells will predictably be intact if operations continue throughout the collection case. Where there is a likely future income stream, and where taxpayer intends to apply that income stream to the debt, "perishable sales" can often be obviated through an installment agreement or a Partial Payment Installment Agreement. It all depends upon which approach will maximize the collection for the government.

3. Quick decisions demanded of TP:

a. At this point the required 6330/6331 notices will have already been served. If TP requested a CDP hearing, the IRS will not be actively pursuing levy on anything because all activity is frozen pending the CDP outcome. Thus, when IRS is about to levy on business assets that means the "stay" has become dissolved and IRS may proceed. If the IRS levies while a stay is in effect, the act constitutes a wrongful levy in violation of required processes. See below at "wrongful levy" for discussion of administrative remedies. There is a "required application" that must be submitted to request relief for a wrongful levy.

b. Once the plan is in place and the required approvals have been obtained, the RO will contact the TP and advise them a sale is going to occur within a couple of days.

c. TP's choices are extremely limited under the perishable-goods statute:  pay up or post a bond as provided under IRC 6336. The government's list of Approved Sureties is published annually in Circular 570.

d. TP is eligible to use the expedited CAP Program to appeal the proposed action. Eligibility would be supported if the plan to conduct the 6336-sale was not previously announced and was not made part of any prior CDP request. IRM 5.1.9.4. To pursue a CAP-appeal TP is required to discuss the matter with the RO's manager under IRM 5.1.9.4.1. This section discusses the request for a CAP appeal.) TP is going to be informed that the IRS is not going away, and that the "stall" won't be available twice. It might be noted that it appears that CAP-requests do not constitute a "frivolous submission" for purposes of the $5,000-penalty provisions of IRC 6702. Meanwhile, to conduct business, TP will have been turning over inventory (or continuing to operate the "day spa") and the value of the "corpus" will likely remain intact for the IRS to seize at any future date.

e. The anti-injunction statute IRC 7421 blocks TP from attempting to enjoin the threat.

4. IRM's - Criteria re "Perishable."

Going concerns can fall within the definition of "perishable goods." IRM 5.10.1.4 dissects the criteria and also illustrates how going concerns constitute "perishable goods" when there is a threat that a prolonged sale period could result in loss of valuable elements (customers, employees, etc.).

5. Leased Premises: Issues relating to "perishable" sales:

a. The examples in IRM 5.10.1.4 do not correctly discuss the issues associated with leased business premises. The sections mentioned above speak in terms of whether the "corporation" - meaning the TP - has the right to occupy the premises as against the property owner. There is a clear failure to apprise IRS employees that while a corporation's assets can be sold to a single purchaser, what the IRS cannot usually sell and deliver is the right to occupy the leased premises. Unless potential purchasers can be located within the miniscule time before the "perishable goods" sale, and unless those potential purchasers can work out a right to occupy the same premises in order to continue operating the business, the IRS is likely spinning its wheels. No "minimum bid" will be made and the property will be returned to TP.

b. The only way to maintain a corporate-TP's right to occupy the premises is to not strip away its right to occupy. That means, as a practical matter, that the only way to retain contractual rights is to sell the stock. But since the corporation does not own the stock, and the corporation is the TP, that approach is not available to the IRS.

c. If the business is owned by an individual TP and the premises are leased to that individual, the IRS can attempt to sell that TP's business to include the leasehold rights. Again, the problem is that IRS is likely unable to deliver the right of possession of the premises to the purchaser. The lease will likely terminate upon unauthorized assignment or transfer or even upon subletting. Furthermore, without carrying the matter to the courts to obtain an order directing TP to assign an assignable lease, TP cannot be administratively compelled to do so.

D. Avoiding business demise:

1. Avoid lock-downs and business sales by aggressively engaging the collection process at the earliest stages.

2. Whole tax payable over time: Propose a realistic installment plan based on the evidence. Be sure to make use of the "will-pay" taxpayer-classification benefits. There will be no levy in those situations that meet the definition of a "will-pay" taxpayer.

3. Can not pay whole bill: Where the debt is not going to be payable from income before expiration of the limitation statute, and TP wants to continue instead of liquidating, there are alternatives.

a. Bankruptcy

b. Where there are no significant assets that can be sold without killing the business, project the continuing income stream and the cash available for payment of ALL taxes. A "Partial Payment Installment Agreement" may fit the situation.

c. Where the financial condition is dismal, the choice to be made is frequently between an Offer in Compromise and bankruptcy to obtain a chance to survive and restructure. Sometimes survival is dependent upon shedding dischargeable debts in bankruptcy in order to be able to pay non-dischargeable tax debts. Consult bankruptcy counsel to scrutinize the options.

E. Retirement Plans: Administrative Restrictions on Levy {top}

1. IRM 5.11.6.2 mandates the application of additional analyses before any retirement or pension plan (including IRA's) can be levied. IRM 5.11.6.1(3) explains the attachment and effect of levy on the right to receive future payments this way: "As long as the taxpayer has a fixed and determinable right to property, a levy attaches that right. Therefore, a levy on retirement income can reach payments in the future whether the taxpayer has begun receiving payments when the levy is served or not. This often means that a levy on retirement income reaches future payments. Because this type of levy may begin attaching payments long after the levy is served, follow-up when the taxpayer is expected to become eligible to receive payments. This may require a mandatory follow-up for Bal Due accounts reported currently not collectible."

Social Security Payments are subject to levy: In its current version (2010) IRM 5.11.6.1.1(2) excludes SSI from levy as a matter of policy, but IRS does in fact levy RSDI (not exempt from levy by any provision) and SSI. Title 42 USC section 407 looks like it would exempt RSDI/OASDI (old-age, survivor, disability) payments received from Social Security, but it doesn’t. Section 407 is superseded by Title 26 section 6334(c). In addition, SSI (Supplemental Security Income) payments appear to be granted an immutable exemption from levy by 26 USC 6334(a)(11), but that appearance is dissolved to the extent of power to levy up to 15% SSI under the provisions of 6331(h)(1) and 6334(f). Furthermore, though IRS policy published at IRM 5.11.6.1.1 announces that IRS won’t levy on SSI payments, such payments are being levied to the allowable 15% these days.

42 USC 407(a) provides: “The right of any person to any future payment under this subchapter shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.”

42 USC 407(b) provides: “No other provision of law, enacted before, on, or after April 20, 1983, may be construed to limit, supersede, or otherwise modify the provisions of this section except to the extent that it does so by express reference to this section.”

Courts have agreed that 26 USC 6334(c) supersedes 42 USC 407 by providing: “Notwithstanding any other law of the United States (including section 207 of the Social Security Act), no property or rights to property shall be exempt from levy other than the property specifically made exempt by subsection (a).” Section 207 of the Social Security Act is at 42 USC 407.

26 USC 6334(a)(11) seems to, but does not, provide an immutable protection for Supplemental Security Income (SSI) by exempting: “Any amount payable to an individual as a recipient of public assistance under (A) title IV or title XVI (relating to supplemental security income for the aged, blind, and disabled) of the Social Security Act(see below at *) . . .” Instead, 26 USC 6334(f) [see below at **] and 6331(h) operate together to allow a levy on SSI payments despite the appearance of 6334(a)(11). 26 USC 6331(h) “overrides” 6334(a)(11), by providing: “(1) In general: If the Secretary approves a levy under this subsection, the effect of such levy on specified payments to or received by a taxpayer shall be continuous from the date such levy is first made until such levy is released. Notwithstanding section 6334, such continuous levy shall attach to up to 15 percent of any specified payment due to the taxpayer. (2) Specified payment** (see below at **): For the purposes of paragraph (1), the term “specified payment” means (A) any Federal payment other than a payment for which eligibility is based on the income or assets (or both) of a payee, (B) any payment described in paragraph (4), (7), (9), or (11) of section 6334(a), and (C) any annuity or pension payment under the Railroad Retirement Act or benefit under the Railroad Unemployment Insurance Act.”

The Internal Revenue Manual at 5.11.6.1.1 confirms that IRS concludes SSI is not exempt from levy. IRS views 6331(h) as authorizing a levy on SSI up to 15% of the payments. The IRM states that the it is the policy of the IRS not to levy on SSI. However, many practitioners across the country report that IRS does in fact levy SSI payments to the extent of 15%. It seems odd that the IRM would express a policy against levy on SSI payments while the practice is to exact such a levy. Has a different policy been determined? Is that policy-change published in any announcement? I do not know. IRS levies on SSI payments remain an apparent departure from the published policy of IRM 5.11.6.1.1.

* As referred to in 6334(a)(11), title IV of the Social Security Act is located at Subchapter IV of 42 USC (generally, sections 601 et seq, Temporary Assistance for Needy Families, Child Welfare). Title XVI of the Act is located at Subchapter XVI of 42 USC (generally, sections 1381 et seq, Supplemental Security Income for Aged, Blind and Disabled).

** Concerning 6331(h)(2)(B) above, the apparent exemption was in part stripped by the Taxpayer Relief Act of 1997 which added 6334(f) to the IRC. Section 6334(f) expressly excludes SSI described in 633(h)(2)(B) from exemption if the Secretary approves a levy on SSI under 6331(h) – permitting a levy up to 15%. At paragraph 5124 of the Committee Reports congress reasoned that such payments are in essence wage-replacement payments. Since wages are subject to levy Congress determined wage-replacement payments should also be subject to levy.

2. No 10% penalty where IRS levies retirement: When the law was amended to eliminate the 10% early-withdrawal penalty when IRS levies on a retirement plan, the IRS quickly added instructions to RO's to not levy on such accounts when requested to do so by tax debtors. See IRM 5.11.6.2(3) at "Note." Before retirements plans will be levied under any circumstance the manuals mandate a further analysis of the situation.

3. Analyzing whether to levy retirement plans: There are three steps RO's must apply to determine whether to levy on retirement plans. Those steps are expressed at paragraphs #4 through #6 of 5.11.6.2. First, RO's are required to consider levy on other assets and to especially consider installment arrangements before pursuing retirement plans. Second, RO's are specifically instructed to never levy retirement plans where taxpayer has not engaged in "flagrant conduct." This is discussed in greater detail below. Finally, at IRM 5.11.6.2 at item #7, before a levy on a retirement account can be made the RO must complete a financial analysis to determine whether taxpayer will be dependent upon retirement payments (taking into account all other assets) to pay basic living necessities, following exactly the same analysis prescribed in IRM 5.15.1. For discussion of other pertinent resources see "Determining Available Income."

4. Whether "flagrant conduct" is exhibited: It is by providing examples that the manual guides RO's through the determination of whether taxpayer has exhibited such conduct. IRM 5.11.6.2 at item #7. But even where there is an appearance of "flagrant conduct" the RO is required to consider all the circumstances in the taxpayer's situation that would mitigate apparent flagrant conduct. These are a few illustrations of flagrant conduct expressed in the manual:

a. Taxpayers who continue to make voluntary contributions to retirement accounts while asserting an inability to pay an amount that is owed.

b. Taxpayers who contributed to retirement accounts during the time period the taxpayer knew unpaid taxes were accruing.

c. Taxpayers who have demonstrated a pattern of uncooperative or unresponsive behavior, e.g., failing to meet established deadlines, failing to attend scheduled appointments, failing to respond to revenue officer attempts to contact. In such cases, determining alternatives and the taxpayer's dependence on the money in the retirement accounts (final step) may not be possible, so a levy may need to be served without making those determinations.

III. IRC 6331: Levy Sequence {top}

A. Prerequisites:

Before levies begin these events will have already occurred:

1. Form 433 will have been secured from TP.

2. A summons will have been served on uncooperative TP and on any third parties possessing relevant books and records. The US Attorney Manual on Summons Enforcement provides a detailed description of the enforcement process.

3. IRS will have conducted its own search for assets and information about TP's resources.

4. A determination of the fair market value of assets will have been completed, and senior interests will have been identified.

5. IRS will have a view about whether TP can immediately full-pay the debt from cash, whether TP could liquidate sufficient assets to full-pay the debt given a reasonable opportunity market assets, or whether it appears that the tax should be collected under an alternative method (installment, OIC).

6. If TP does not respond to IRS' request for TP's cash resources and progress on the case has bogged down, IRS will issue the Notice of Intent to Levy and Notice of Right to Collection Due Process Hearing to clear the way for immediate levy on cash resources.

Special note: "Premature" 6330/6331 Notices: Representatives across the country report that some offices are using the tactic of almost immediately serving the Notice of Intent to Levy even before the financial analysis has been completed or any alternatives discussed. It is thought that the tactic is intended to manipulate taxpayers by application of the extreme pressure brought on by too-fast issuance of the notice. Many practitioners report that collection employees seem confused or exasperated when taxpayers receive the 6330-notice and then request a CDP-hearing before the RO or ACS employee has even completed the financial analysis or explored alternatives. Practitioners report that when the CDP-request is filed the reaction they sometimes receive from collection-employees is something like "You filed that CDP-request prematurely. I haven't even finished the analysis or considered an installment agreement." Where a 6330-notice issues before IRS has finished a complete financial analysis, before anybody proposes installments, or explores any of the alternatives to levy as required by law, taxpayers' very best interests are usually served by requesting the CDP-hearing. Where the 6330-notice is served before the prerequisites to levy have been fulfilled it carries the aroma that the IRS employee is already predisposed to levies - whether or not that is true issuance of the notice prematurely warrants interposing Appeals in the situation. Where the notice of intent to levy/right to CDP-hearing is served before the prerequisites are fulfilled, taxpayers have little choice except to carry the situation to Appeals, pointing out that the notice was served before ANY alternatives were analyzed as required by statute.

7. IRS will NOT likely have undertaken to complete the cumbersome processes associated with seizing and selling property. Bank and wage levies are a very effective way to seize TP's attention. Such activity tends to bring TP to a more cooperative frame of mind.

8. Filing the NFTL is not a prerequisite to levy/seizure, but the IRS directs agents to file the lien notice ("NFTL") before any levy action. IRM 5.10.1.3.3(6). And whereas failure to file the NFTL before levy might constitute some sort of administrative breach for purposes of the discussion of "deemed" wrongful levy above at paragraph VI the fact is that the oversight often simple to cure. Under Regs. 301.6343-3 the failure to follow the administrative requirements prior to taking property by levy or seizure can result in the return of that property under 6343(b). (Practical effect: Even if property is returned for failure to follow administrative requirements the failure to file the NFTL before levy is often easy to cure, and another levy may promptly follow.)

B. Cash and wage-levies first:

IRS wants the cash. Wage and bank levies are simple processes for the IRS. Forced sales are not. If a seizure and sale is going to be required to collect the tax, cumbersome processes described below must be followed.

1. Levy on intangibles, bank accounts and etc. is accomplished by merely serving the written notice. Regs. 301.6331-1(a)(1).

2. Bank levy – it "freezes" only the amount on deposit on the date of the levy. It does not reach ANY amounts deposited after date levy served. See IRC 6331(b) and IRM 5.11.4.3. Interest accruing on the amount possessed on the date the levy is served is also subject to the reach of the levy, but no subsequent deposits are reached. TP can recover the cash under the following circumstances:

a. Understand the stage of the case. TP will most likely have received the prerequisite notice of intent to levy and right to a CDP hearing. If IRS is serving bank-levies that means the 30-day CDP-request period has likely passed. But it not, then IRS has violated both the statute and the administrative mandates to freeze collection activity. TP can recover the property per Regs. 301.6343-3.

b. "Hardship" - call TAS. When bank levy or any other kind of levy will cause a qualifying "hardship" immediately get the Taxpayer Advocate involved to explore the hardship claim and undertake to release the levy. See "Special Circumstances." Concerning TAS See "Plain Language Information" at "Economic Harm."The law forbids every levy that causes any level of economic hardship. See Vinatieri v. Comm., 136 T.C. No. 16 (Dec. 21, 2009). Also see the TAS Memo citing and relying on Vinatieri and IRM 5.19.4.4.10(4)(j) (this link opens to the IRS official web site and will likely not always work correctly when the government changes file names and URL's again).

c. Alternative under CAP: Consider whether there is evidence sufficient to compel an alternative to levy and attempt to make use of the CAP Program. See "TP's Due Process Rights."

3. Only property possessed on the date the levy is served is to be surrendered to the IRS. Nothing that accrues or comes to the possession of the party after the levy is served is subject to the levy and is not to be surrendered to the IRS.See IRC 6331(b) and Regs. 301.6331-1(a)(1).

4. Wage and salary levies are “continuous” by statute. IRC 6331(e). They are a statutory exception to the "fixed and determinable requirement." That means IRS does not have to wait until the right to receive wages has become "fixed" before the levy is effective. Remember, levies are ordinarily effective to reach whatever amounts a taxpayer has a "fixed" right to receive on the date the levy is served, and whatever accrues thereafter is not subject to the levy. The statute eliminates the necessity of repeatedly waiting for the right to payment to mature and thereupon serve multiple levies. The procedure followed to establish a levy on wages and the amount the employer is required to pay IRS from wages is described at IRM 5.11.5.4.1. IRS ordinarily also delivers PUB 1494 (2010 version, IRS' web site) to the employer as the reference guide for computing the exempt amount that TP is entitled to receive. The balance above that exemption is to be paid to IRS by the employer. It is unlawful for employers to fire employees because of the levy. IRM 5.11.5.2. IF WAGE LEVIES ARE GOING TO BE USED IT IS USUALLY TO THE TAXPAYER'S ADVANTAGE TO MAKE AN INSTALLMENT ARRANGEMENT COMPUTED BY APPLICATION OF THE "NECESSARY EXPENSE" GUIDELINES. It provides the opportunity to fully examine any appropriate increases in the "allowances" due to TP's specific situation while a mechanical wage-levy affords no such opportunity.

5. Excessive wage levy: TP has remedies when IRS' computation of disposable income for payment of tax is unreasonably high. The conflict will arise over proving that upward adjustment to the "allowances" should be made. For individuals, this is going to require proving monthly expenses for "necessary" items. See "IRS' Financial Analysis." Bear in mind that the CDP-notice will have already been served before a wage levy is applied. These are the issues:

a. If a levy occurs after the CDP-notice is served, that probably means there is no pending request for a CDP hearing because collection is suspended upon filing a CDP-request. However, if IRS has breached the freeze, TP can recover the property per Regs. 301.6343-3.

b. "Equivalent CDP" request: If no CDP request was filed within the allowed 30-day period, consider filing an "Equivalent CDP" request to present the evidence showing the amount of the wage levy is excessive. See "Equivalent CDP Hearing."

c. Try to make use of the more expedited CAP Program. See topic "TP's Due Process Rights."

C. Forced sale: because nothing else produced cash {top}

1. The statutory and administrative mandates governing the seizure and sale are significant barriers for the IRS. Seizure is NOT what IRS will pursue except as a last resort. The strongest motivating technique IRS uses is taking cash in all accounts that can be located. Execution of just a single levy in appropriate circumstances tends to bring TP and the government into direct discussions. Faster resolutions tend to occur that way and often promote an appropriate plan as far as the IRS is concerned.

2. Stage of the case:

a. IRS will likely have completed all of the preliminary processes. Assets identified and valued; ability to pay computed; identified whether immediate full-pay is achievable or whether installments or an OIC are appropriate and etc. - these will have been completed. Failure to complete those steps may provide TP a way to block any seizure by invoking the Taxpayer Advocate (failure to follow processes; TP facing imminent harm). It also opens the door to return of property to TP per Regs. 301.6343-3. It is unlikely IRS committed any breach of the mandated processes.

b. CDP-period expired: If IRS is now moving toward seizure it means that the required 30-day notices were given; and if IRS is still moving forward it means that no CDP-request was filed. A CDP-request freezes collection activity. The RO simply stops working the case pending the CDP outcome. Consider requesting "Equivalent CDP Hearing." Also consider the more expedited "CAP" procedure. Consult IRM 5.1.9.4 and all of its subparagraphs. Also see IRM 8.24.1.2.

c. Alternatives already discussed? It will be noted that the discussion below describes the duty to consider alternatives before seizures occur. Because the process of valuation, physically seizing property, conducting the actual sale and etc. are so very cumbersome, it is not unusual for the RO to attempt to avoid the difficulties by discussing the alternatives with TP long before launching into those time-consuming processes. HOWEVER, REPRESENTATIVES ARE REPORTING that in some offices RO's seem to be issuing the 6330-notices BEFORE all the processes have been completed. It is thought that the tactic is intended to manipulate taxpayers by application of the extreme pressure brought on by too-fast issuance of the notice. See item 3 below.

1. Required to Consider Alternatives:  IRC 6331(j)(2)(D) instructs the IRS to consider alternatives to levy, seizure and sale to conserve IRS personnel resources. Those “alternatives” to levy and seizure are the various forms of installments, PPIA's, OIC's and perhaps classifying the account as "currently not collectable." A bond is a specific alternative mentioned at IRM 5.10.1.3.2. But bonds are not simply posted without require performance elements imposed, consider attempting to seize some amount of control of the situation by following the "Collateral Agreement" processes outlined below at paragraph VII.

2. The required “consideration” is described at IRM 5.10.1.3.2. Notice how the guidance focuses on assessing the risk to collection of the debt if an alternative to seizure of assets is selected. The statute’s admonition to “consider” alternatives does NOT command priority be given to any other method. Collection of the debt in the shortest time at the least expense to the government remains the main objective. But the cumbersome processes of seizing and selling assets will likely motivate the RO to initiate movement toward installments, inducing TP to liquidate assets, or explore PPIA's and even an OIC because such tends to minimize the work of seizures. "Considerations" are useless where TP is not agreeable to alternatives.

3. REACTIONS from COLLECTION OFFICERS to FILING CDP REQUEST: Many practitioners report that collection employees seem confused or exasperated when taxpayers receive the 6330-notice and then request a CDP-hearing before the RO or ACS employee has even completed the financial analysis or explored alternatives. Practitioners report that when the CDP-request is filed the reaction they sometimes receive from collection-employees is something like "You filed that CDP-request prematurely. I haven't even finished the analysis or considered an installment agreement." Where a 6330-notice issues before IRS has finished a complete financial analysis, before anybody proposes installments, or explores any of the alternatives to levy as required by law, taxpayers' very best interests are usually served by requesting the CDP-hearing. Where the 6330-notice is served before the prerequisites to levy have been fulfilled it carries the aroma that the IRS employee is already predisposed to levies - whether or not that is true issuance of the notice prematurely warrants interposing Appeals in the situation. Where the notice of intent to levy/right to CDP-hearing is served before the prerequisites are fulfilled, taxpayers have little choice except to carry the situation to Appeals, pointing out that the notice was served before ANY alternatives were analyzed as required by statute.

d. Therefore, if IRS is undertaking to complete all the cumbersome steps to conduct a forced sale, that means

1. All located cash will be levied and applied to the debt

2. All income sources will be levied and applied to the debt

3. If those levies do not induce TP to cooperate in the application of remaining assets to the debt, IRS will focus upon those specific assets that can be most easily seized and sold to produce the highest possible magnitude of net-sale-proceeds.

IV. Forced-sale valuation processes: {top}

A. The Equity Determination

IRS must complete and document the mandatory "equity determination." Guidance is provided at IRM 5.10.1.3.3 and the other provisions referred to in that section. The entire process is dependent upon first correctly determining full FMV.

BIssues involving FMV: (fair market value) 

1. Watch the FMV determination closely: A determination of FMV as well as potential equity in assets is part of two separate processes. From the very beginning of the case, monitor and appropriately challenge IRS' determinations of the FMV of property.

a. First, FMV (and the equity in property)  is one of the factors that is considered in determining TP's "ability to pay" as the financial analysis is being conducted. If IRS attaches a clearly excessive value to assets at the beginning of the case, all subsequent determinations in the case will involve an incorrectly inflated "ability to pay."

b. Second, FMV is the starting point for determining Forced-sale value for purposes of the minimum bid at forced sale.

2. Resources and guides available for determining values are listed at IRM 5.10.1.3.3. This is an extensive compilation of the resources and services the IRS will use for purposes of moving forward with valuations.

3. RO’s are NOT valuation experts – IRM 5.10.1.3.3 at “Note” end of section. Valuation expertise is provided by the PALS.

4. Where equities are minimal in relation to the amount of work the RO and PALS are facing it is probably in each party’s best interest to establish a payment plan that will not involve seizure and sale.

5. No buyer? ALSO, paying very close attention to the valuation processes at the beginning when FMV is being determined can have significant beneficial effects for TP when the minimum forced-sale-value is being computed. The higher the minimum bid requirements the greater the chance there may be no bidder at that price. If there is no bidder the property might be returned to TP under IRM 5.10.5.10.1.

C. "Economic sale" requirement: 6331(j)(2)(B) and 6331(f) {top}

1. 60% of FMV: The value to be determined for purposes of any seizure sale is not full fair market value. Rather, there is a much lower value to be determined.

a. IRM 5.15.1.16(2) and IRM 5.10.4.8(6). The 80% of 75% rule: This is the anticipated reduced forced-sale value that IRS can apply to assets in determining whether seizure/sale meets the “investigation” requirements. It equals 60% of FMV.

1. IRS sells the property in whatever condition it is found. It is sold subject to outstanding superior interests. However, the existence of those  liens might have a significant negative effect on the forced sale value the RO is required to determine. IRM 5.10.5.6.

2. Condition of title: IRS does not publish information about the existing superior interests in the property. It must be requested, and at that point the IRS will deliver the information. IRM 5.10.5.6(2)

b. As a general rule don't let IRS sell property at 60% and then retain the costs and expenses of the sale if avoidable. If IRS has come to the point of seizing/selling property, it is not in TP's best interest to watch IRS sell assets at 60% if near 100% of the full FMV could be derived by marketing the asset in the usual place where such assets are sold.

2. Appraisals required for purposes of a forced sale are constructed by the PALS or perhaps an IRS “valuation engineer.” Closely scrutinize the valuation determination (both FMV and forced-sale-value) because demonstrably incorrect values will thoroughly skew perceptions of "economical sale" as well as the strength of the pressure that can be applied when threatening to seize assets.

a. IRS valuation experts have attended various valuation courses. Many are taught and sponsored by the major appraiser-accrediting organizations - MAI, ASA, ASFMRA.

b. Those specialists have usually earned recognized certifications.

c. Consider engaging your own expert where complex valuations will become critically important.

3. "Economical" requirement: ALL sales must be “economical” under 6331(j)(2)(B) and 6331(f). Establishing predictable sale costs and net proceeds can contain clear error. And if the initial determination of full FMV was erroneous, then the "economical" computations may also be incorrect. Corrections of errors sometimes place assets beyond the government’s reach, and can tend to promote alternatives to forced sales. Correctable errors provide fact-based opportunities to achieve outcomes in TP's best interests.

4. Expenses that must be considered include also the items listed at IRM 5.10.1.3.3.1

5. Minimum bid process must be completed to compute the minimum bid to be accepted on any asset

a. IRC 6335(e)(1) provides the statutory framework. The government may elect to become the purchaser at the minimum bid price if the item is not otherwise disposed of.

b. IRM 5.10.1.3.3.1 at item #12 provides a broad and non-detailed summary re the RO's obligations to compare the “minimum bid” as follows:

"The estimate should be prepared based on the input received from the PALS for both the FMV and the estimated expenses of sale. If the reduced forced sale value less senior encumbrances and estimated expenses is positive, then there are estimated net sale proceeds to apply to the liability. If the reduced forced sale value less senior encumbrances and estimated expenses is zero or negative and no net proceeds are expected, the revenue officer cannot recommend the case for seizure."

THIS IS A REASON TO CLOSELY MONITOR THE VALUES APPLIED TO ASSETS. Where the values applied are excessive then the entire process of determining whether seizure is appropriate is skewed.

c. Minimum bid process detailed: IRM 5.10.4.8 – KNOW these provisions. This section discusses the measure of “forced sale value,” reduced forced sale value, factors that must be considered in setting the price, and etc. Broadly generalized, the steps in determining the required minimum bid before application of anticipated costs and expenses associated with the seizure and sale are:

1. Start with full FMV.

2. Discounts applied: Next, determine "forced sale value" by applying up to 25% discount from FMV. IRM 5.10.4.8(5).

3. Finally, up to an additional 20% discount from "forced sale value" may be applied to determine the "reduced forced sale value" based upon consideration of special factors that will affect the price. IRM 5.10.4.8(6)

d. Form 4585, Minimum Bid Worksheet, summarizes the elements and the percentage reductions to fair market value. This little worksheet is a helpful snapshot of the minimum-bid processes.

e. Policy Statement 5-35: the amount of the minimum bid is to be set at a price that the GOVERNMENT could readily realize at a subsequent in the event the government is declared the purchaser. IRM 1.2.14.1.9

V. Seizing possession {top}

A. Levy on cash, receivables, notes payable, life insurance and etc.:

1. Levy on intangibles, bank accounts and etc. is accomplished by merely serving the written notice. Regs. 301.6331-1(a)(1). But remember that before the levy stage has arrived the government will have scoured every possible way to muster cash and will have insisted upon resort to those resources in its "liquidation" plan. For example, borrowing opportunities will be identified and required. Using the full balance of credit available on credit cards; unsecured loans based on earning capacity; borrowing against cash-value insurance amounts; pledging various kinds assets to obtain cash; INSISTING THAT THE TAXPAYER not pay other obligations in order to pay the government - all of these will be raised by the government.

2. Surrender on Demand: Persons requested to deliver property must surrender upon demand. IRC 6332(d) imposes personal liability upon the person refusing to surrender upon demand and further applies a penalty of 50% of the value of the property they refused to surrender. Defenses to failure to surrender and governing case citations are at IRM 5.17.3.5.3.5.

3. Life insurance exception: 6332(b) – life insurance company gets 90 days.

4. Bank exception: 6332(c) – banks get another 21 days before surrender.

5. Sums payable to TP are subject to lien and levy only when such amounts are "fixed and determinable." Where the right to receive payments has not yet become fixed under a fixed obligation to pay sums to taxpayer, the levy is ineffective. See IRM 5.17.3.4.2 and the authorities cited therein. The same principle is discussed in connection with levy on retirement accounts at IRM 5.11.6.1. So long as levy is made within the statutory period, where the right to payment levied is fixed and determinable the government's right to receive payments never expires until the debt has been paid.

6. No liability for surrender: IRC 6332(e) insulates persons who surrender from all claims against them by other persons for the surrender.

B. Seizing property: IRS Policy; required approvals

1. Policy Statement 5-34 expressly declares the official policy is to seize and sell assets only after all factors and all alternatives have been thoroughly considered. IRM 1.2.14.1.8.

2. Obtaining approval to seize: All mandates provided in IRC 6331(j) must have been completed and documented. IRM 5.10.1.3. Requirements governing verification of the liability are discussed at 5.10.1.3.1. The required consideration of alternative methods of collection is discussed at 5.10.1.3.2. The required "equity determination" is discussed at 5.10.1.3.3. (See al of the subsections of 5.10.1.3.3 discussing "equity determination" with regard to various kinds and classes of assets.) That means IRS will have already completed all the following steps:

a. Assets will already have been located and analyzed. "Ability to pay" will already have been computed. Income will have already been determined and the various allowances applied. Cash resources will be known and will usually be exhausted before other property is seized. Equity in assets will have been explored.

b. It will already be known TP either cannot or will not pay the full debt in 120 days. IRS will have already considered alternatives to seizure, or at least attempted to do so with TP. Before going to seizure and sale the RO will have raised installments, PPIA's and OIC's.

c. The combined 6330/6331 notice will already have been served to clear the way for levy.

d. "Economical" proof in file: All of the work of determining the sale would be "economical" as required by 6331(f) will have been completed. An "economical sale" is one that will yield net proceeds available for payment of TP's debt. Thus, the RO will have already determined FMV, forced sale value, reduced forced sale value, expenses, outstanding superior lien interests and the like. The entire file reflecting completion of all prerequisites will be submitted to obtain required approval to seize and sell. IRM 5.10.2.17.

3. The kinds and level of approval vary according to the kind of asset, the owner of the asset and etc. The list is detailed at the beginning of IRM 5.10.2.

4. When the approval is provided the RO may proceed to physically seize in accordance with the mandatory procedures.

C. Physically seizing property: the processes {top}

1. Consult IRM 5.10.3 where the RO's guide to physically seizing property is provided.

2. Taking physical control: Consult IRM 5.17.3 and especially 5.17.3.5 concerning taking literal physical control of property. To seize the IRS must control the property or tag it according to the administrative requirements designed to meet the statutory empowerment to "distrain."

3. Public v. Private premises:

a. RO's have all right, power and authority to be on public premises as does any other citizen. If on public premises the RO will display credentials, declare that the RO is there to seize TP's property, and explain to the TP their appeal rights.

b. Writ of Entry: Private premises; private portion of premises: RO's cannot seize anything situated in a private area unless the RO has first obtained either a consent from the rightful occupant (Form 10404) or a Writ of Entry. The process for obtaining a Writ of Entry from the District Court is at IRM 5.10.3.4. The requirements are expressed in the US Attorney Manual on Writs.

4. Events at Seizures:

Things that occur during the actual seizure on the premises are listed at IRM 5.10.3.5. These are some of those matters:

a. Copies of the Writ of Entry are to be delivered.

b. Ask customers and employees to leave the premises, secure the premises, and proceed to physically take control of property being seized.

c. Some events can bring a halt to the seizure then in progress:

1. TP pays the WHOLE bill or makes satisfactory alternative arrangements.

2. TP claims a bankruptcy was filed. TP should never construct a lie to delay the collection. There are serious ramifications.

3. "Hardship" stops seizures:

a. Crying "hardship" activates the provisions of IRM 5.10.3.5.1(5). The law forbids every levy that causes any level of economic hardship. See Vinatieri v. Comm., 136 T.C. No. 16 (Dec. 21, 2009). Also see the TAS Memo citing and relying on Vinatieri and IRM 5.19.4.4.10(4)(j) (this link opens to the IRS official web site and will likely not always work correctly when the government changes file names and URL's again).

b. The RO's manager will make a determination about whether seized business property will preclude the ability of the business to operate.

c. The practical effect is to force the RO to either grant "hardship relief" or to help TP fill out Form 911 and send the case to the TAS. All collection activity, including the seizure, is thereupon blocked. IRM 5.10.3.5.1(6).

4. Assault upon the RO can result in the RO returning with an armed escort and criminal complaints.

5. Controlled or dangerous assets: At the very first page of IRM 5.10.3 there is a list of specific kinds of assets subject to seizure that will require specific handling. Consult the list.

D. Interfering with levy, tampering with seized property: Criminal provisions are discussed at IRM 5.17.3.5.4.1.

VI. Recover Assets: TP and Third Parties {top}

A. Collection Appeal Program ("CAP"):

An emergency administrative tool

1. Available even to third parties where impending seizure or sale threatens rights to property.

2. CAP is described in detail at IRM 5.1.9.4 and is discussed at menu topic "TP's Due Process Rights."

B. Release Levy: 6343

1. Proper levy:

Where the property was taken under a proper levy, it may still be returned.

a. Administrative process:

Under IRC 6343(a)(1) and Regs. 301.6343-1 if one of the stated conditions exists the regulations provide "A district director, service center director, or compliance center director (director) must promptly release a levy upon all, or part of, property or rights to property levied upon and must promptly notify the person upon whom the levy was made of such a release, if the director determines that any of the conditions in paragraph (b) of this section (conditions requiring release) exist." The conditions expressed at said paragraph (b) include these five:

1. The debt has been paid or the collection statute has expired.

a. A levy does not expire at the end of the 10-year period:

b. The law only requires that a levy be made within the 10-year collection period. IRC 6502.

c. A levy served within that period does not expire at the end of the 10-year period. Regs. 301.6343-1(b)(ii).

d. Thus, for example, where IRS serves a timely levy upon TP's fixed right to receive payments in the future (e.g., a retirement plan) the levy must be honored no matter how much time passes if the obligation has not been paid and the levy released.

2. Release will facilitate collection (e.g., to permit sale of the property by TP).

3. TP has entered an IRC 6159 installment agreement unless the agreement otherwise provides. BEWARE provisions in installment agreement that preclude return of property. Regs. 301.6343-3(c)(2).

4. Hardship

The levy will cause "economic hardship" (defined at Regs. 301.6343-1(b)(4)(i) – unable to meet “reasonable” basic living expenses). [Comment: It does not matter how uncooperative or unresponsive a taxpayer has been throughout the collection process. "Economic hardship" is not a permissible result under any circumstances. The law forbids every levy that causes any level of economic hardship. See Vinatieri v. Comm., 136 T.C. No. 16 (Dec. 21, 2009). Also see the TAS Memo citing and relying on Vinatieri and IRM 5.19.4.4.10(4)(j) (this link opens to the IRS official web site and will likely not always work correctly when the government changes file names and URL's again). But unless IRS has been given the full picture of a taxpayer's economic and financial condition, there is a likelihood that the IRS has no facts from which to determine whether a levy will result in producing that defined condition. Unless IRS is provided data from which to form fact-based conclusions it is sometimes impossible to compute the appropriate measure of "necessary expenses" or to detect special circumstances that could warrant a departure from the standardized tables. Thus, where levy occurs at a time when IRS has no evidence upon which to otherwise proceed, if a levy inflicts an economic hardship then taxpayers can often be found to have caused their own unnecessary difficulties. It will then be up to the taxpayer to involve the TAS, pursue a "CAP" appeal, or seek release of sufficient levied assets to allow for "necessary expenses" through the administrtative avenue mentioned below at paragraph VI.

5. FMV of property exceeds debt and the release will not hinder collection.

b. Request for administrative release:

A request must brought to the attention of the director of the area where the property is located. The notice must arrive not less than 5 days prior to the scheduled sale, and it must contain the required information. Regs. 301.6343-1(c)(1) and (2). One of the problems in urgent situations is that the regulations provide the Director's decision is due in thirty days under Regs. 301.6343-1(c)(3)(ii).

c. Hindering business operations:

Under IRC 6343(a)(2) release of the levy can be obtained if seizure of tangible personal property prevents TP from conducting business. How to submit request: The submission of the request, the required information and the facts supporting the claim are expressed at Regs. 301.6343-1(d)(1) and (2).

2. Wrongful levy: Administrative remedy: {top}

Under IRC 6343(b) if property was obtained through wrongful levy (for third party protection in cases where the property has not yet been sold see IRM 5.10.4.4) the following may be returned (also see IRM 5.17.3.5.6.3):

a. the property,

b. an amount of money equal to the money obtained by levy, or

c. if levied property was already sold, an amount of money equal to the money received upon the sale.

See Regs. 301.6343-2T in conjunction with Regs. 301.6343-2. A "wrongful levy" would include, for example, a levy or seizure that deprives a taxpayer of the ability to meet basic living necessities. See the the ninth "bulleted" item at 5.10.1.2(1). See "Restrictions on Levy" at IRM 5.11.1.3. Also, a levy that arises without first meeting the 30-day notice requirements of IRC 6330 and IRC 6331 (see "Due Process") would constitute a wrongful levy. The administrative request for return of wrongfully levied property must be submitted in accordance with the requirements of Regs. 301.6343-2T(b).

d. Defective sale - third party judicial remedy:

IRS cannot vitiate a defective sale. Only the TP, the rightful owner or the purchaser can take steps to correct the matter. Where there has been a defective sale the person wrongfully deprived of the property through seizure should use the procedure at IRM 5.10.6.15 to exhaust administrative remedies. Thereafter, that harmed person may bring an action under IRC 7246 (except TP) and where appropriate may recover actual damages and not merely the proceeds of the sale.

3. Submitting request for return:

Regs. 301.6343-2T requires that a written request for return of property must be submitted to the specific official, office and address specified in Publication 4528.

4. Other bases for recovery of property:

Regs. 301.6343-3 provides an administrative means for recovering property under the circumstances in items "a" through "d" below. It is noted that the regulations at 301.6343-3(c)(5), example 1, suggest that the first basis (i.e., "defective levy") does not refer to a levy that violates some statutory requirement. Rather, the example supports the view that the defect addressed is one that does not match non-statutory, administratively-imposed requirements. "Wrongful levies" made in violation of statutes are addressed through IRC 6343(b) and Regs. 301.6343-2T in conjunction with Regs. 301.6343-2.

a. Defective levy:

- the levy was premature or not in accordance with administrative procedures of the IRS,

b. Installment agreement made

- an installment agreement has been entered and does not bar return of the property (BEWARE provisions in installment agreement that preclude return of property. Regs. 301.6343-3(c)(2)),

c. return will facilitate collection, or

d. "best interests" of both parties

- with the consent of the Taxpayer Advocate, return or property would be in the best interests of both the TP and the United States.

1. Regs. 301.6343-3(c)(4): If TP has not made a request of the TAS then the Commissioner may determine that return is in best interest of the TP.

2. However, the Commissioner is not allowed to make the determination that return would NOT be in the taxpayer's best interest. Only the Taxpayer Advocate has that authority. 

C. Recover seized property - third party administrative process: {top}

1. IRM 5.10.4.4:

This IRM is an essential reference for third parties (e.g., co-owners, senior lien holders and etc.) that will be harmed.

a. Focus:

- whether the sale of seized property will destroy or irreparably injure the third party's senior interests.

b. Process:

The complaining party must provide the claim and the information as described at IRM 5.10.4.4.

2. Demonstrate the harm

It is especially important to demonstrate how sale will harm the third party's interests.

a. Land interests held in undivided interests:

Though undivided interests are recognized to have a value determined by application of downward adjustments to account for the nature of the estate, the sale of the TP's respective undivided interest may impose some unjust economic deprivation upon the innocent co-owner.

b. Senior lien holders:

Where property constitutes security for repayment, there may be situations where an IRS sale could have a negative effect upon that party's best opportunity to recover upon foreclosure. For example, where the property is tangible personal property of some sort and the successful bidder would be entitled to possess the moveable item following the sale. See IRM 5.10.5.7 where a senior interest may announce intention to foreclose following the IRS sale. The announcement may not be sufficient to protect the senior interest, and it might instead be appropriate to use the procedure in 5.10.4.4 to obtain a release of the levy.

D. Judicial Remedies for TP: IRM 5.17.3.6.2.4. {top}

1. Though IRC 7421 precludes enjoining seizure and sale, there are other avenues.

2. Voidable defective sale: A sale that failed to comply with the IRC 6335 is voidable by TP. See the authorities cited at IRM 5.17.3.6.2.4(1). An action can be filed to set aside a voidable sale. The action cannot challenge the validity of the underlying tax. It is a Declaratory Action brought to quiet title to an asset sold in violation of the law.

3. Failure to comply with pre-sale statutory requirements will support an action to set the sale aside.

4. The IRM's indicate it is possible for TP to restrain the conduct of a sale where statutory requirements were not fulfilled and TP can establish irreparable harm. See IRM 5.17.3.6.2.4(2) and the authorities cited therein. 

a. The discussion in the IRM's does not alert the reader to the fact that the anti-injunction provisions of IRC 7421 cannot be avoided unless something much more significant than procedural failures and harm can be shown.

b. Avoiding 7421's prohibitions requires a showing that the government cannot prevail under any view of the facts. See Enochs v. Williams Packing, 370 U.S. 1 (1962).

c. The US Attorney Manual relating to the anti-injunction statute provides brief information.

5. Defective sale - IRS reckless disregard: IRC 7433 provides TP may recover actual, direct economic damages sustained as a result of IRS' reckless or negligent disregard of the applicable statutes and regulations. Exhaustion of administrative remedies is a prerequisite to an action brought under this statute.

E. Judicial remedies for third party: IRC 7426

1. Exclusive judicial remedy:

Suit may be filed to recover on the grounds listed below. It is the exclusive judicial remedy available to a third party. Rev. Rul. 2005-49. The statute specifically authorizes recovery as follows:

a. Wrongful levy or sale: The court may order return of the property or the value thereof if sold.

b. Previously escrowed proceeds to obtain discharge certificate: Where the lien-related provisions of 6325(b)(3) were used to establish a fund holding sale proceeds, the District Court may enter judgment in favor of the claimant for all or any part of the fund. Thus, if IRS is dragging its feet, third parties can file suit to recover under 7426.

c. Previously substituted cash/bond to obtain lien discharge: Where a discharge of lien was obtained under 6325(b)(4) and it is determined that the value of the IRS' valuation of its interest in the subject property was excessive, third parties may bring suit to recover the excess amount deposited or release the posted bond. This action must be commenced within 60 days to contest the lien that burdened the property.

2. Exhaust administrative remedies:

It is not a prerequisite that a request be submitted administratively under 6343. HOWEVER, if the circumstance may involve a claim for costs in connection with bringing the 7426-action, the provisions of IRC 7433(d) are specifically made applicable by 7426(h)(2). Consider filing the administrative request under 6343.

3. Injunction for 3rd party:

Under 7426 the District Court can enjoin the sale.

4. Damages:

Where the action is shown to have been necessary due to the IRS' negligence or reckless disregard the court may award actual economic damages and costs. IRC 7426(h).

VII. Collateral Agreements, providing security to control the agenda {top}

A. IRS will apply its authority to require TP to perform various acts at specified times under specified requirements to defer enforced collection activity (levies and seizures). Situations may arise where it becomes necessary and desirable for TP to advance TP's own proposed agenda for attending to the payment of the debt. For example, a bond is a specific collection alternative mentioned at IRM 5.10.1.3.2. Representatives may need to obtain that kind of control over the timing and sequence of things when an RO has issued mandates for performance that are not in TP's best interest. Consider proposing a specified agenda in a "collateral agreement" secured by appropriate "collateral security."

B. Surety Requirement: Regs. 301.7101-1(b)(1) and (2) state the bond requirements.

1. Approved sureties: A bond written by a surety holding a government certificate of approval will be accepted. It avoids delay and uncertainty to use approved sureties. The annually updated list of approved sureties is in Circular 570.

2. Other surety companies: The regulations state that the Area Director has discretion to accept or reject a bond issued by a a non-approved surety. The required additional submissions, including complete financial statements of the company, are described at 301.7101-1(b) and at IRM 5.12.3.2.3.

3. Other kinds of security: The other acceptable kinds of security that may be appropriate depending upon the circumstances are described at 301.7101-1(b)(2) and discussed at IRM 5.6.1.2.1(6).

C. Collateral Agreement Procedure: IRM 5.6.1.1 states the mandatory components governing collateral agreements. TP must prepare and submit the proposed agreement. The objective is to secure the government in its position while permitting TP to proceed to pay the account balance without the burdens of the NFTL or levies. The requirements are quoted in the following from subparts (4) through (6) of the IRM:

1. Collateral agreements must be prepared in triplicate by the taxpayer or the taxpayer's representative, and must include the following information:

a. Identification of the parties (taxpayer; IRS and third party, if applicable)

b. Aggregate tax liability

c. Method by which taxpayer proposes to pay the tax liability

d. Specific dates outlining when required actions will be taken

2. Taxpayer or the authorized representative must be advised that failure to keep the terms of the collateral agreement will result in the IRS taking the necessary action to secure the collateral.

3. In addition to the conditions mentioned above, the following are additional requirements for a valid collateral agreement:

a. Proposal for Taxpayer's payment supported by a properly executed power of attorney or by endorsement of the securities.

b. Provisions for the disposition of any coupons maturing while the security is in the possession of the Government.

c. A condition that the IRS intends to offset any refunds to the delinquent account covered by the agreement until accounts are paid in full or otherwise satisfied.

d. Provision that the taxpayer must remain current on filing and must not incur any further delinquencies during the term of the collateral agreement.

e. A term that the Service has a unilateral right to redeem the collateral. {top}