IRS Pre-Seizure and Sale Considerations
5.10.1
Pre-Seizure Considerations
5.10.1.1
(10-01-2004)
General
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The decision to seize a taxpayer's assets is
one of the most sensitive decisions that a
revenue officer will make. The case history must
be well documented with all actions that have
been taken in order to show the justification
for seizing a taxpayer's assets. The decision to
seize must be based on the individual facts and
circumstances of each case, and the revenue
officer must follow all legal and procedural
guidelines.
-
In order to ensure that enforcement action is
used as an appropriate case action, compliance
employees should be familiar with the following
policy statements (IRM 1.2.1, Policies of the
Internal Revenue Service) related to seizure
action:
-
P-5-1 Enforcement is a necessary
component of a voluntary assessment system
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P-5-28 Successive seizures — Timing
to avoid undue hardship
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P-5-34 Collection to be enforced
through seizure and sale of assets of a
taxpayer only after thorough consideration
of all factors and alternative collection
methods
-
P-5-35 Establishment of a minimum price
in distraint sales
-
P-5-38 Seizure of assets located on
private premises
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The revenue officer will make the seizure and
take all seizure actions up through inventorying
and securing the property. The revenue officer
and the PALS may work together to complete the
inventory after the seizure has been conducted.
As soon as possible after the inventory, custody
of the property will be transferred to the
Property Appraisal and Liquidation Specialist
(PALS), who will be responsible for all further
sale related actions. The revenue officer,
however, will still be responsible for the final
case resolution.
-
Section 1203(b) of the Restructuring and
Reform Act of 1998 provides for the mandatory
termination of IRS employees under various
instances of misconduct. Since several of the
provisions can apply to the seizure and sale
program, revenue officers and PALS should be
aware of these provisions and should follow all
procedures in this handbook without deviation.
Inadvertent actions are not subject to the
provisions of 1203(b).
5.10.1.2
(10-01-2004)
List of Prohibited Seizures
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The following types of seizures are
prohibited:
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Seizures that will result in no equity
— there must be sufficient net proceeds
from the sale to provide funds to apply to
the taxpayer's unpaid tax liabilities
-
Seizures when there is a pending
installment agreement plus 30 days after
rejection of the installment agreement and
during pendency of appeal filed within
that 30 day period
-
Seizures when an installment agreement
is in effect or if terminated plus 30 days
after termination and during pendency of
any appeal filed within that 30 day period
-
Seizures when there is a pending offer
in compromise plus 30 days after rejection
and during pendency of appeal filed within
that 30 day period
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Seizures conducted on the day the
taxpayer has to appear for a summons
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Seizures for employment tax or
employment tax-based trust fund recovery
penalty assessments that are also the
subject of refund suits by the person
whose property is to be seized unless
jeopardy exists or the taxpayer waives
suspension of collection in writing
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Seizures during which communications
with the taxpayer are initiated outside of
the hours of 8 A.M. to 9 P.M. unless there
is knowledge that such communications
would not be inconvenient to the taxpayer
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Seizures when the taxpayer is in
bankruptcy (BC Section 362)
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Seizures which allow the taxpayer less
then the exempt amounts to which they are
entitled
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Seizure of any real property used as a
residence by the taxpayer, or any real
property (other than real property that is
rented) used by any other individual as a
residence, if the liability is $5,000 or
less
5.10.1.3
(10-01-2004)
Actions Required Prior to Seizure
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IRC 6331(j) outlines specific actions that
must be completed before the seizure of a
taxpayer's assets can be recommended:
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The liability must be verified.
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Alternative collection methods must be
thoroughly considered.
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An analysis must be conducted to show
that the expenses expected to be incurred
with respect to the seizure do not exceed
the fair market value of the asset to be
seized.
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There must be a determination that the
equity is sufficient to yield net proceeds
from the sale to apply to the liability.
5.10.1.3.1
(10-01-2004)
Verifying the Liability
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In order to verify the liability, the
revenue officer should confirm during taxpayer
contact that the taxpayer understands the
assessment. If the taxpayer does not
understand the assessment, the revenue officer
should explain the assessment and address any
concerns the taxpayer has.
-
If the taxpayer claims the assessment is
incorrect or has additional information that
could impact the balance due, the case should
be thoroughly investigated and the issue
resolved prior to proceeding with enforcement
action. The case history should be documented
to reflect any concerns raised by the taxpayer
and the steps taken to address them. If the
liability is the result of an SFR assessment,
the revenue officer should allow the taxpayer
30 days to prepare corrected returns.
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Some of the actions that can be taken to
verify the liability include reviewing:
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If the issues raised by the taxpayer have
been addressed under some other administrative
or judicial proceeding (e.g., Collection
Appeals Program (CAP), Taxpayer Advocate
Services (TAS), audit reconsideration) prior
to seizure action, further verification is not
required and the taxpayer should be advised
that the issue has previously been addressed.
This should be documented in the history.
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If the taxpayer does not respond to the
attempted contacts, the revenue officer should
review IDRS and any prior correspondence from
the taxpayer but is not required to take any
further actions to verify the liability.
5.10.1.3.2
(10-01-2004)
Alternative Methods of Collection
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The service is required to consider
alternative methods of collection prior to
seizure. Alternative methods of collection
include, but are not limited to:
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The determination to seize should be based
on the facts of the particular case and the
risk to the government of pursuing these
alternatives. The possible alternatives should
be discussed with the taxpayer. If the
taxpayer requests an alternative that is not
acceptable to the Service, the reason the
request is not acceptable must be explained to
the taxpayer. If the taxpayer has requested an
installment agreement and that request is
being rejected, see IRM 5.14 for the proper
appeals procedures to follow. No enforcement
action (except jeopardy action) may be taken
while the taxpayer is undergoing an appeal.
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To assist in the consideration of
alternative collection methods, a risk
analysis must be conducted. If the alternative
method of collection would put the government
at greater risk of recovery of the liability,
it may not be acceptable. The following issues
should be considered as part of the risk
analysis:
-
Past compliance history — is there
a history of non-compliance?
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Current compliance — is the
taxpayer current and has the cause of
past non-compliance been corrected?
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Current financial condition — can
the taxpayer meet current obligations,
including FTD's?
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Future financial condition — can
financial adjustments help the taxpayer
experience future profits?
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Collection statute — does the
alternative provide for payment within
the allowable statute?
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Interest in Asset — is the
government's interest in the asset
protected and will the taxpayer's
interest in the asset increase?
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Impact — what impact will the
seizure have on third parties or on
non-compliant taxpayer groups?
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Yield — will an alternative
collection method potentially yield more
than the seizure and sale?
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The case history should be documented
regarding the fact that alternative methods
have been considered, why the alternatives
were not acceptable, and the results of the
risk analysis.
5.10.1.3.3
(10-01-2004)
Equity Determination
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To determine if there will be net proceeds
available to apply to the liability, the
revenue officer must complete an equity
determination and prepare a draft minimum bid
(IRM 5.10.1.3.3.1(12)) prior to recommending
the case for seizure.
Note:
There is no minimum amount that is
required to be applied to the liability. In
situations where there is a minimal amount
of expected net proceeds, it is extremely
important for the revenue officer and PALS
to discuss the fair market value as well as
logistical issues related to moving and
storage of the property and the timing of
the seizure so that expenses can be
controlled in order to ensure that proceeds
can be applied to the liability.
-
The revenue officer must document how the
fair market value of the asset was determined.
The fair market value should reflect the
condition of the property at the time the
seizure is being considered. Information about
the condition of the asset should be
documented in the case history. If the
taxpayer is uncooperative in providing
information about the assets, the revenue
officer will need to research many internal
and external sources in order to determine an
accurate value for the property. Some of the
sources, in addition to information provided
by the taxpayer, that can be used to determine
the fair market value are:
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Used vehicle guides
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Assessment office
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Property appraisals
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Comparable sales
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Financing statements
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Tax returns
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Contact with businesses or dealers
that are familiar with the particular
type of asset
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Personal observation
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Area realtors
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Collection information statement
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Daily stock quotations
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Valuation Engineers
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Property Appraisal and Liquidation
Specialist (PALS)
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If the property under consideration for
seizure consists of assets where an accurate
fair market value (FMV) is not easily
determinable or when moving and storage issues
are involved, it is highly recommended that
the revenue officer contact the PALS to
discuss the valuation of the property or to
request that the PALS provide an appraisal for
the property and to discuss the logistical
issues for the seizure. The PALS may wish to
view the assets with the revenue officer
before providing guidance as to the FMV, the
estimated equity in the assets, and the
estimated expenses. The PALS should be
consulted to accurately determine the FMV and
the expected net proceeds (IRM 5.10.3.1(2)).
Note:
Any differences between the FMV on Form
2433, Notice of Seizure, prepared by the
revenue officer, and the FMV on Form 4585,
Minimum Bid Worksheet, prepared by the PALS,
must be documented in the history. When
possible, the PALS and the revenue officer
should discuss and agree on the FMV prior to
the seizure.
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In addition to determining the fair market
value of the asset(s), a complete public
records search must be conducted to verify
ownership and to identify all recorded
encumbrances against and interests in the
property including, but not limited to:
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Joint owners
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Senior lienholders
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Junior lienholders
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Nominees
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Transferees
Note:
On July 1, 2001 revised Article 9 of the
Uniform Commercial Code became effective in
most states. When making an equity
determination, the employee must be alert to
complications arising with respect to a
security interest perfected on or after this
date. For multi-state corporations, filings
with the locally designated recorder may not
give a complete picture of competing claims.
The state in which the business is located
is the key.
-
At local management option, commercial
firms may be contracted to provide title
search and encumbrance information reports.
The delegation authority to approve the use of
commercial title searches is contained in
SB/SE delegation order 5.6. The cost of these
reports may be charged to the balance due
account as an expense and should be input as a
TC 360. If public records cannot be checked
prior to seizure because of a jeopardy
situation, they will be checked at the
earliest possible date after the seizure is
made and documented in the history. The case
history must be documented with the facts that
led to the determination that a jeopardy
situation existed. See IRM 5.11.3 for
information on jeopardy situations.
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A Notice of Federal Tax Lien (NFTL) should
be filed on all open periods prior to seizing
property. This is not a statutory requirement;
however, to maintain priority against other
parties to whom the taxpayer might convey an
interest in the property, it is the Service's
policy to file the NFTL before property is
seized.
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If the NFTL is mailed, ensure that it is
recorded with the local registrar before
proceeding with the seizure. Taxpayers must be
notified in writing that the NFTL has been
filed within five business days of such
filing, and they are entitled to the Due
Process Appeal provisions to ensure that the
lien action is warranted. See IRM 5.1.9.3 for
the information on the Due Process appeal
procedures that must be followed.
-
The priority of the NFTL must be determined
in relation to other creditors. See IRM
5.17.2.5 and IRM 5.12.1 for information on the
priority of the tax lien.
-
If the taxpayer has a loan through the
Small Business Administration (SBA), see IRM
5.1.7.1 for the procedures to follow when
enforcement action is being considered.
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The revenue officer should contact all
senior and intervening lienholders in order to
determine the balance remaining on each
encumbrance. Letter 1029, or a similar letter,
may be used for this purpose. The requirements
for third party contacts should be followed
for these types of requests.
Note:
When calculating the expected net
proceeds, make sure the relationship between
the NFTL and any intervening lienholders is
accurately analyzed to determine the
expected net proceeds, particularly if the
intervening liens are of significant value
compared to the senior NFTL.
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For the Tenth Circuit states of Kansas,
Oklahoma, Wyoming, Utah, Colorado, and New
Mexico, pursuant to Neece v. I.R.S., 922 F.2d
573 (10th Cir. 1990), a summons must be used
instead of Letter 1029 when any of the
following situations exist:
-
The financial institution is located
in the Tenth Circuit
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The taxpayer resides in the Tenth
Circuit
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The Internal Revenue Service office
is located in the Tenth Circuit
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Document on Form 2434–B, Notice of
Encumbrances Against or Interests in Property
Offered for Sale (Exhibit 5.10.1–1), all
encumbrances and interests of record,
including federal tax liens. If no recorded
interests other than the NFTL are found, Form
2434–B will be documented to reflect this
condition.
Note:
The complete name and address of all
encumbrances and interests of record must be
shown on Form 2434–B.
-
The records check must be updated no more
than 30 days prior to submitting the seizure
for approval.
5.10.1.3.3.1
(10-01-2004)
Equity Determination — Expenses of Sale
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After the fair market value and
encumbrances have been verified and
documented, the revenue officer should
determine the estimated expenses of sale.
Most seizures will require the expenditure
of funds. The revenue officer and the PALS
should coordinate to manage these costs in
order to preserve the equity in the asset
while still securing the maximum proceeds
from the sale. Any travel related expenses
of the revenue officer or the PALS should
not be included as an expense of the
seizure. Expenses that should be considered
include, but are not limited to:
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In most cases the PALS will have
responsibility for custody of the property
immediately after the seizure is made, and
the expenses that occur after the initial
seizure will be controlled by the PALS.
Coordination with the PALS during the
planning stage is extremely important and
must be made in order to discuss the
potential expenses that may be incurred. In
some cases, the PALS may be more familiar
with moving and storage facilities and may
be able to secure a service for less than
the revenue officer can on his/her own. In
other cases, the revenue officer may be more
familiar with local vendors and may be able
to secure a lower cost for the service. The
PALS will be aware of how long it will take
before a sale can be scheduled, so timing of
the seizure to reduce the number of storage
days should be discussed. Custody of the
property should be transferred to the PALS
as soon as possible after the seizure so
that expenses can be reduced, especially
when storage costs are involved.
-
During the planning stage, the revenue
officer should anticipate any problems which
may arise in connection with the storage and
protection of property during the period of
a seizure. Special actions requested to
protect seized property will be noted in the
case history.
-
Movable property, in the public area of a
business premise, can best be protected at
another location. Whenever possible,
government storage facilities in the area
should be used; otherwise property should be
stored in a warehouse operated by a
responsible party. If storage, towing,
transportation, or other similar charges are
required, the revenue officer, with input
provided by the PALS, should determine what
the expected costs will be prior to the
seizure. The PALS should determine whether
to move the property themselves or if they
should retain the services of a commercial
shipper or mover based on the particular
circumstances of the case:
-
Nature of the property — value,
location, size, weight, ease of
transport
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Amount of property involved
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Cost of moving the property
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Time and availability of the PALS
and assisting employees
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The use of an armed escort (IRM
5.10.2.16.4) or bonded courier should be
considered if the property is of significant
value, such as jewelry or gold/silver, and a
commercial shipper is not being used to
transport the property.
Caution:
Vehicles may not be driven to the
storage location. Based on the type of
assets involved, the PALS manager may be
consulted regarding transportation and
security of the seized assets. The PALS
manager must approve the use of an armed
escort or bonded courier, as well as the
personal transportation of seized assets.
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Property, such as expensive jewelry, is
best stored in an IRS office. It should be
protected in accordance with the nature and
value of the property, as described in IRM
1.16.15, Minimum Protection Standards.
Normally, storing such items in a safe in a
local office will afford it sufficient
protection.
-
When the property to be seized is located
in rented premises and consists of machinery
or other property not easily transported, or
is comprised of a considerable quantity of
business assets, arrangements should be made
with the landlord for storage of the
property on the premises. Unless the real
estate housing the seized assets is also
being seized, neither padlocking nor placing
warning tags on the premises is appropriate.
Arrangements should be made with the
taxpayer or owner/landlord in order for the
premises to be padlocked or the locks
changed so that the Service has sole
possession of the premises. Contact area
counsel to determine who has the authority
to authorize padlocking of the premises,
particularly if the taxpayer is current on
the rent. If arrangements cannot be made,
include these costs in the estimated
expenses and arrange for moving and storage
of the assets.
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If the taxpayer has not made rent or
lease payments in sufficient amount to cover
the period through the proposed date of
sale, a reasonable charge for storage should
be arranged. This charge should be based
only on the number of days of actual
occupancy under the seizure. In certain
situations, the Government may be required
to pay rent due to the nature of state law
and/or the terms of the taxpayer/landlord
rental agreement. See IRM 5.17.3.3.7.6.1.
Technical Services should be consulted when
there is doubt as to whether the Government
is obligated to pay rent in such cases. IRM
Exhibit 5.10.1–2 contains an example of a
landlord agreement. A landlord agreement may
be signed by the territory manager, area
director, or manager of the PALS.
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Padlocking and changing locks is not
applicable in the seizure of personal
residences and rental real property where
the tenant is not the taxpayer, as
possession of the real property remains with
the owner or tenant occupant until sale or
redemption occurs.
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If there are indications that the
taxpayer or third parties may resist the
sale of seized property, additional security
may be necessary to protect seized property
from vandalism. If private security guards
or local police services are needed to
protect the seized property, the revenue
officer should determine these costs as
well.
-
Generally, there is no authority for the
United States to purchase insurance coverage
for seized property during the period
between the date it is seized and the date
it passes to a purchaser or is returned to
the taxpayer. However, if the circumstances
are unique, insurance coverage may possibly
be acquired. A request stating all of the
pertinent information should be sent to the
area director, who has the authority and
responsibility for any subsequent purchase,
when seizure is first contemplated.
Insurance coverage is to be acquired only by
an authorized contracting officer through
the Facilities Management function.
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Prepare a draft minimum bid in order to
determine if there will be net sale proceeds
to apply to the liability. IRM 5.10.4.6
contains the procedures for preparing a
minimum bid. The draft minimum bid should be
prepared based on the input received from
the PALS for both the FMV and the estimated
expenses of sale. If no net proceeds are
expected based on the minimum bid
calculation, the revenue officer cannot
recommend the case for seizure.
-
After approval of the seizure has been
secured, follow the procedures in IRM
5.10.2.18 in order to formally contract for
all of these services.
5.10.1.3.3.2
(10-01-2004)
Expenses of Sale — Disclosure Issues
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Disclosure issues can arise during the
pre-seizure process, particularly when
contacting vendors for services. Disclosure
for investigative purposes is permissible
under IRC 6103(k)(6) and 6103(n). These
contacts would be still be subject to third
party reporting requirements.
-
IRC 6103(k)(6) allows the revenue officer
to "disclose return information to the
extent that disclosure is necessary to
obtain information which is not otherwise
reasonably available with respect to the
correct determination of tax, liability for
tax, or the amount to be collected...
." Examples of this type of disclosure
include contacts with:
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IRC 6103(n) allows the revenue officer to
"disclose return information.... to the
extent necessary in connection with the. .
.procurement of equipment, and the providing
of services, for purposes of tax
administration. " Examples of this type
of disclosure include contacts with:
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Vendors to determine availability
and costs for locksmiths, towing,
storage, etc.
-
Landlords to determine lease
information, storage of assets
5.10.1.3.3.3
(10-01-2004)
Equity Determination — Exempt Assets
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If seizure of an individual taxpayer's
assets is being considered, revenue officers
must be aware of the property that is exempt
from levy. These exemptions do not apply to
partnerships or corporations. Revenue
officers must document the case history as
to how the exempt property value was
determined.
-
The following exemptions, which will be
indexed annually for inflation, apply to
individual taxpayers for calendar year 2004:
-
Any wearing apparel and school
books that are necessary for the
taxpayer or members of his or her
family
-
Fuel, provisions, furniture,
personal effects in the taxpayer's
household, arms for personal use,
livestock, and poultry up to $7,040 in
value
-
Books and tools necessary for the
trade, business or profession of the
taxpayer up to $3,520 in value
Note:
Vehicles are not considered exempt
property either as personal effects or as
tools of the trade
-
For seizures of the assets, including
vehicles, of an individual taxpayer used in
the trade or course of business the revenue
officer must document that the taxpayer's
other assets are insufficient to satisfy the
amount due plus expenses. Other assets must
also include the future income that may be
derived from the commercial sale of fish or
wildlife harvested under a state fish or
wildlife permit. These types of seizures
require approval by the area director.
-
Undelivered mail is exempt from seizure.
5.10.1.3.3.4
(10-01-2004)
Equity Determination — Documented Vessels
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In order to determine the equity in a
documented vessel, an abstract may be
required. An abstract provides:
-
The history of the vessel
-
Bills of sale
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Information about mortgages,
maritime liens, and assignments
-
The abstract can be obtained through the
United States Coast Guard by contacting the
National Vessel Documentation Center (NVDC).
Provide the NVDC with the official vessel
number and as much information as possible
about the vessel, e.g., the owner's name,
hull number, and the name of the vessel.
-
The letter must be accompanied by a $25
money order made out to the National Vessel
Documentation Center. The expense should be
debited to the taxpayer's account through
the input of a TC 360. The abstract request
should be sent to:
National Vessel Documentation Center
2039 Stonewall Jackson Drive
Falling Waters, West Virginia
25419–9502.
5.10.1.3.3.5
(10-01-2004)
Equity Determination — Computer Equipment
-
When determining the equity for computer
equipment that will be seized, revenue
officers and PALS need to be aware of the
procedures that must be followed to remove
taxpayer data from the hard drive and the
impact the removal may have on the fair
market value of the equipment.
-
Before selling computer equipment that
contains taxpayer information, the contents
of the hard drive, including the file
allocation tables (FAT), must be removed. If
the taxpayer has software that can be resold
according to the software licensing
agreement, it can be reloaded onto the
computer prior to sale. Area counsel should
be consulted in order to determine which
software may be reloaded.
-
Prior to the Service removing the FAT,
the taxpayer will be given the opportunity
to download all of the information from the
hard drive. The procedures to be followed
are contained in IRM 5.10.3.6.4.
-
In order to accurately determine the FMV
of the computer equipment, the value of the
computer must be determined based on the
contents of the hard drive that will be
available to the purchaser at the time of
sale.
5.10.1.4
(10-01-2004)
"Will Pay" , "Can't Pay" ,
and "Won't Pay" Factors
-
Seizures will not be conducted on assets of
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
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Have no ability to make payments and
have no distrainable assets (currently not
collectible)
-
Request and qualify for an installment
agreement
-
Seizure should be considered for taxpayers
who "won't pay" . This category
includes:
-
Taxpayers who have the ability to
remain current and/or resolve their
delinquent taxes through an alternative
collection method but will not do so
-
Taxpayers who do not have the ability
to remain current and/or resolve their
liability, but who have assets in excess
of exempt amounts that will yield net
proceeds to apply to the liability and are
unwilling or unable to borrow on or
liquidate these assets
-
Taxpayers who are pyramiding
liabilities
-
Taxpayers who use unsupported tax
arguments and continue to resist the
requirements to file and pay
-
Taxpayers who will not cooperate with
the Service, e.g., taxpayers that evade
contact, will not provide financial
information, etc.
-
Taxpayers who will not comply with the
results of the Service's financial
analysis or will not enter into an
installment agreement or OIC
-
Wage earners who have not paid their
tax liability and will not adjust their
withholding to prevent future
delinquencies
-
Self-employed taxpayers who have not
paid their tax liability and will not make
estimated payments to prevent future
delinquencies
-
Taxpayers who do not meet their
commitments (without a valid reason) as
set forth by an installment agreement, OIC,
or extension of time to pay
-
The decision to seize will not be automatic
on any account. The taxpayer's current situation
should be the determining factor in the seizure
decision. During the life of a collection
account, a taxpayer will sometimes move from one
category to another and the decision to seize
must be based on their financial situation and
actions at the time the seizure decision is
being made.
-
Exhibits 5.10.1–3 and 5.10.1–4 contain
scenarios that illustrate how case decisions can
be made based on these factors.
5.10.1.5
(10-01-2004)
Pre-Seizure Taxpayer Notifications
-
Letter 1058 (L–1058), Notice of Intent to
Levy and Notice of Your Right to a Hearing, or
ACS LT 11 must have been provided to the
taxpayer at least 30 days before the seizure for
each tax period that will be identified on the
Form 668–B.
Caution:
The CP 504 issued when a case enters status
58 does not include the required due process
notification.
-
The following information must be included
with the L–1058:
-
Publication 594 (Understanding the
Collection Process)
-
Publication 1660 (Collection Appeal
Rights)
-
Form 12153 (Request for a Collection
Due Process Hearing)
-
Copy of the letter
-
Envelope
-
Taxpayers should receive only one pre-levy
notice regarding their rights to a collection
due process hearing for each tax assessment. If
the required notice for a module has already
been sent and additional tax is assessed, a new
notice offering a due process hearing must be
sent before the additional assessment may be
included on Form 668–B. See IRM 5.10.1.5.1 for
information on the timeliness of this notice.
Note:
An additional notice offering a due process
hearing only needs to be issued in instances
where the tax involved is a different type of
tax or where the same type of tax for the same
tax period is involved, but the amount of tax
has changed as a result of an additional
assessment of tax for that period or an
additional accuracy-related or filing
delinquency penalty has been assessed. The
taxpayer is not entitled to an additional
notice offering a due process hearing if the
additional assessment represents accruals of
interest, accruals of penalties, or both.
-
In jeopardy situations L–1058 is not
required to be sent 30 days before the
enforcement action; however, the taxpayer must
receive a notification of a right to a hearing
immediately after the enforcement action.
Counsel approval of a jeopardy situation is
required in addition to all other required
approvals. Consult with Technical Services and
area counsel when considering a jeopardy
seizure. See IRM 5.11.3 and 5.10.1.7 for
jeopardy information.
-
See IRM 5.11.1 for additional information on
proper delivery, joint return considerations,
required transaction codes, and documentation
required for delivery of the L–1058.
-
If the taxpayer is deceased, the CDP notice
should be sent to the executor of the estate.
Consult local Counsel if there are questions as
to who should receive the CDP notice on behalf
of the estate.
5.10.1.5.1
(10-01-2004)
Supplemental Pre-Seizure Taxpayer
Notifications
-
If the L–1058 was sent more than 180 days
prior to the seizure date, it is still legally
valid to seize. However, it has been
administratively determined that the taxpayer
will get a new warning of enforcement before
enforcement action is taken.
-
The warning must be documented in the case
file, and it can be either:
-
Given in person or by phone that
there is a deadline (not necessarily 30
days) after which there will be seizure
action or
-
Given in writing if the taxpayer
cannot be contacted (see Exhibit
5.10.1–5, Pattern Letter 3174, for an
example)
Note:
The Appeals Collection Due Process (CDP)
Notice of Determination constitutes a
warning of enforcement. For cases that were
submitted to Appeals, a new warning of
enforcement does not need to be sent unless
it is more than 180 days after he CDP Notice
of Determination date.
-
Do not issue another L–1058 when a
supplemental warning is warranted. Taxpayers
are only entitled to one L-1058 per tax
assessment that advises them of their rights
to a pre-levy due process hearing.
-
A supplemental warning is not required:
-
If collection of the tax is in
jeopardy
-
If enforcement has taken place in the
last 180 days (enforcement only includes
seizure or levy action, and the taxpayer
must have been aware of the enforcement
action. A pending judicial proceeding
for court approval of a principal
residence seizure is a seizure action. A
notice of levy issued to a former
employer would not be considered as
enforcement since the taxpayer would
have no way to know about the action.
If, however, a levy is sent to a bank
and a copy of the levy is provided to
the taxpayer, even if there were no
proceeds the taxpayer would be aware of
the levy and this action would qualify
as enforcement.)
-
The L–1058 is required to be sent for
every module that is included on Form 668–B.
However, the taxpayer has had a timely warning
as long as there has been warning of
enforcement for at least one module included
on the 668–B within the last 180 days. The
L-1058 notice requirement must be met for each
module included in the seizure, but the
timeliness of the warning is for the entity,
rather than each individual module.
5.10.1.5.2
(10-01-2004)
Personal Contact to Advise the Taxpayer of
Proposed Seizure Action
-
In addition to the L–1058 notification,
the revenue officer must attempt to personally
contact the taxpayer either by a phone call or
field call prior to seizure. The revenue
officer should attempt to meet with the
taxpayer and discuss what is necessary to
avoid seizure action. In situations where
employee safety is an issue, the attempt at
personal contact should be made by telephone.
Reminder:
If the taxpayer has an authorized
representative, then the personal contact,
by phone or in a field call, to advise of
the proposed seizure action should be made
with the authorized representative, not the
taxpayer unless the taxpayer has consented
to such contact, a court has permitted such
contact, or the authorized representative
does not respond in a timely manner (see IRM
5.1.10.5.2 for taxpayer contact provisions
when the taxpayer has an authorized
representative).
-
During this contact, the revenue officer
should:
-
Advise the taxpayer that seizure is
the next planned action
-
Give the taxpayer an opportunity to
resolve the tax liability voluntarily;
if the liability is the result of an SFR
assessment the taxpayer should be given
an opportunity to file corrected returns
-
Provide and discuss the provisions of
Publications 1 and 594 (if not
previously provided)
-
Advise the taxpayer about the
Taxpayer Advocate, provide Form 911, and
explain its provisions; if the taxpayer
indicates the seizure would create a
hardship, the revenue officer will
assist the taxpayer with the preparation
of Form 911 and should forward the form
to the local Taxpayer Advocate if the
revenue officer cannot or will not
provide the requested relief (see IRM
13.1.7 for Taxpayer Advocate criteria
and procedures).
-
Provide the taxpayer with the name
and location of the immediate supervisor
if the taxpayer requests to have the
case reviewed by a supervisory official
-
Document on Form 9297, Summary of
Taxpayer Contact, specific actions and
deadlines communicated to the taxpayer
-
If personal contact is not made, document
the steps taken to attempt to achieve personal
contact and the reasons why contact with the
taxpayer could not be achieved. Even if the
taxpayer was previously unresponsive, the
revenue officer must attempt to personally
advise the taxpayer of the proposed seizure;
however, the taxpayer's refusal to respond to
attempted contacts should not prevent the
revenue officer from submitting the seizure
for approval.
5.10.1.5.3
(10-01-2004)
Collection Appeal Rights
-
The Collection Appeals Program (CAP) was
created to give taxpayers a chance for an
independent administrative review. Taxpayers
can appeal under CAP when they are told that a
seizure action will be taken or has been
taken. Their right to appeal under CAP is
connected to a specific planned or actual
collection action. See IRM 5.1.9 for
additional information on how to handle
appeals under this program. Publication 1660,
which should be provided with the L–1058 and
again with the Notice of Seizure, explains the
Collection Appeal Rights. The case file must
be documented as to when the Publication 1660
was delivered.
-
Appeal rights after the seizure has been
conducted are contained in IRM 5.10.3.5.1.
5.10.1.6
(10-01-2004)
Pre-Seizure Activity for Courtesy Seizures
-
When a taxpayer's assets are located in
another territory and it becomes necessary to
enforce collection by seizure, Form 2209,
Courtesy Investigation, will be prepared. The
revenue officer in the originating territory and
the revenue officer in the receiving territory
each have specific responsibilities for the
seizure. The approving official in the receiving
territory has the final authority for approval
or disapproval of the seizure.
-
The revenue officer in the originating
territory will issue the appropriate notices and
due process documents to the taxpayer and advise
the taxpayer of the proposed seizure. The
revenue officer in the initiating territory will
include the following information with the Form
2209:
-
A copy of the complete ICS history,
including a history notation by the group
manager indicating that they concur with
the seizure determination
-
Sufficient information for the
receiving revenue officer to prepare Form
668–B
-
Copies of the Collection Information
Statement, Notices of Federal Tax Liens,
and any other relevant documents
-
Statement of facts involved, including
alternatives considered, results of risk
analysis, any information regarding fair
market value and encumbrances, due process
notifications, etc.
-
Any other relevant information
-
The revenue officer in the receiving
territory will:
-
Verify that the Notices of Federal Tax
Lien are filed in the appropriate
jurisdictions
-
Verify that the taxpayer was provided
with all appropriate publications and
appeal rights
-
Complete the appropriate records checks
in the local jurisdiction
-
Coordinate with the PALS for the
seizure and sale of the property
-
Prepare a draft minimum bid based on
the procedures in IRM 5.10.1.3.3 and IRM
5.10.4.6
-
Prepare all seizure documents and
submit the case for approval (IRM
5.10.2.14) by the receiving office.
-
If the property subject to levy is located in
a contiguous territory within easy access of the
office where the assessment is outstanding, it
may be advisable to have the seizure conducted
by revenue officers from the territory holding
the assessments. The concurrence of the
appropriate seizure approving officials from
both territories must be secured and, where
appropriate, a revenue officer from the
territory where the property is located should
be requested to assist in the seizure. This
coordination between territories should ensure
that all local laws and conditions which might
have a bearing on the seizure and sale
proceedings are given proper consideration.
-
A revenue officer in the receiving territory
will make an investigation of the facts involved
to determine the taxpayer's equity and interest
in the property to be seized. If the
investigation reveals there is no seizure
potential due to insufficient equity to yield
net sale proceeds to apply to the unpaid tax
liability, the revenue officer in the receiving
territory will furnish a report documenting
these facts to the initiating office.
-
If it is determined that there is sufficient
equity to yield net proceeds, the revenue
officer in the receiving territory will follow
the procedures in IRM 5.10.2.14 for securing
managerial approval.
5.10.1.7
(10-01-2004)
Jeopardy Assessments and Seizures
-
Jeopardy assessments are made when the
taxpayer is, or appears to be, placing assets
beyond the reach of the government by removing
them from the United States, by concealing them,
by dissipating them, or by transferring them to
other persons. Jeopardy should also be
considered in cases where the taxpayer's
financial solvency is or appears to be
imperiled. This last criterion does not include
insolvency as a result of accrual of
liabilities.
-
See IRM 5.11.3 regarding jeopardy levy.
Counsel approval is normally required prior to
jeopardy levy. These procedures also apply to a
jeopardy seizure. A jeopardy seizure requiring
Counsel approval occurs when the tax is assessed
and one of the following conditions exists:
-
Notice and demand for payment has not
been issued
-
It is less than 10 days after notice
and demand for payment is issued
-
It is less than 30 days (and the 15 day
waiting period) after notice of intent to
levy is issued or that notice has not been
issued
-
Although an L–1058 is not required prior to
a jeopardy seizure, the taxpayer must still
receive certain notices, forms, and letters
after the seizure. IRM 5.11.3.4 outlines the
appropriate notices that must be sent for
jeopardy seizures.
-
For jeopardy seizures, IRC 7429 provides that
the taxpayer may request the Service to review
whether:
-
The making of the assessment was
reasonable
-
The amount of the assessment is
appropriate
-
The levy is reasonable under the
circumstances
-
Such requests will be coordinated with the
Compliance Examination office that made the
assessment. The sale of seized property will
generally be suspended during this
administrative review process.
-
IRC 6863 prohibits the sale of property
seized by jeopardy seizure until the taxpayer
has exhausted the specified administrative and
judicial review procedures. IRC 6863 only
applies to the sale of property and does not
prohibit seizure of any type of property or
rights to property of the taxpayer. However,
before property is seized, a determination
should be made as to whether the mere filing of
a notice of lien would be adequate protection.
If the notice of lien will not fully protect the
Government's interest, the property may be
seized and maintained under seizure until it can
be lawfully sold or returned to the taxpayer.
-
The intent of IRC 6863 is to prevent
irreparable damage to taxpayers by forced sale
of their property before a determination is made
as to their actual tax liabilities. The Code
does not prohibit levies at any time during the
suspended period on such assets as accounts
receivable, bank accounts, salaries, fees, etc.
The application of the proceeds of such levies
to the taxpayers' accounts will not cause
irreparable damage to them since the full value
of the assets are normally reducible to their
cash equivalent by the taxpayers without
financial loss to them. See IRM 5.17.3.1.2.3 and
5.17.3.3.7.2.4.
5.10.1.8
(10-01-2004)
Mutual Collection Assistance Requests (MCARs)
-
International appraisal and seizure and sale
cases include collections of treaty partners'
taxes in the United States and of federal taxes
in U.S. Possessions and Territories. In treaty
collection cases, the Service collects the
treaty partner's finally determined taxes in
accordance with U.S. laws as if they are U.S.
tax liabilities.
-
There are five treaty countries with which
the Service has ongoing programs for MCARs that
may involve seizure and sale. The treaty
partners and types of taxes covered for
collection by the Service are as follows:
-
Canada — All taxes
-
France — Income, Estate and Gift,
Wealth and other specified taxes
-
Denmark — Income and other specified
taxes
-
Sweden — Income and other specified
taxes
-
Netherlands — Income and other
specified taxes
-
MCAR procedures allow for the collection of
foreign taxes by a revenue officer through
enforcement, including levies, liens, proofs of
claim, and seizures. In the same way, the treaty
partner's tax agency will collect a United
States' citizen's or entity's taxes from assets
located in a foreign country. All treaty
collection requests to, or from, these countries
are made through the Director, International (LMSB),
who is the Competent Authority in all tax
treaties.
-
Collection of these liabilities takes place
through MCARs. After the U.S. Competent
Authority has accepted the request for treaty
collection assistance, a revenue officer in
International will issue a courtesy
investigation requesting that a revenue officer
where the asset is located conduct the seizure.
The revenue officer conducting the seizure will
contact the PALS responsible for the location
where the seizure is being made in order to
conduct the sale.
-
See IRM 5.1.8.7.9 for the exceptions to
normal seizure and sale procedures to be
followed when conducting seizures and sales on
MCARs. Coordination with the revenue officer in
International is essential for both the seizure
and the sale, since all money collected is
forwarded to the revenue officer in
International for transmittal to the treaty
partner through the Office of U.S. Competent
Authority and is not applied to the account.
Unless the revenue officer in International has
made arrangements for the treaty partner to pay
the expenses of sale outside of the remittance,
the successful bid remittance should be secured
in two parts — one for the seizure and sale
expenses and the balance of the remittance made
payable to the treaty partner.
-
After the sale, the PALS will prepare a memo
to the revenue officer in International
summarizing the sale information and
transmitting the sale proceeds to him or her so
the proceeds can be forwarded to the treaty
partner.
-
The seizure files should be maintained in the
Technical Services office for the location where
the seizure was conducted.
-
Technical Services will be responsible for
issuing the deed after the appropriate
redemption period has expired when real property
is sold.
5.10.1.9
(10-01-2004)
International Seizure and Sale Procedures
-
International revenue officers conduct
collection activities, including seizures, to
collect federal taxes in U.S. Possessions, such
as Puerto Rico, U.S. Virgin Islands, Guam, and
Commonwealth of Northern Mariana Islands (CNMI).
Seizures and sales are conducted under normal
procedures, and local law guides are available
for each of the U.S. Possessions. Other U.S.
Possessions and territories include the
following:
-
Baker Island
-
American Samoa
-
Howland Islands
-
Jarvis Island
-
Kingman Reef
-
Midway Islands
-
Palmyra
-
Wake Island
-
The revenue officer should contact the PALS
Manager — East for assignment of a PALS to
provide assistance on the appraisal and to
conduct the sale.
-
The Technical Services advisor staff in
Jacksonville, Florida will be responsible for:
-
Pre-seizure case file reviews
-
Seizure advice
-
Assigning seizure numbers
-
Transmitting seizure files and
documents
-
Maintaining the permanent record
-
Any other Technical Services items
-
PALS will conduct the sale under normal sale
procedures, including the collection and posting
of successful bids.
Exhibit 5.10.1-1
(10-01-2004)
Form 2434–B and Instructions Reference:
5.10.1.3.3(12)
Exhibit 5.10.1-2
(10-01-2004)
Landlord Agreement Reference: 5.10.1.3.3.1(7)
Exhibit 5.10.1-3
(10-01-2004)
CASE SCENARIO #1 Reference: 5.10.1.4(4)
Exhibit 5.10.1-4
(10-01-2004)
CASE SCENARIO #2 Reference: 5.10.1.4(4)
Exhibit 5.10.1-5
(10-01-2004)
Letter 3174(P) Reference: 5.10.1.5.1
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