It is the present position of the IRS and
Treasury, that a levy cannot be halted on a corporation even if
the levy is causing a “hardship” to the business, as defined in
§6343(a)(1)(C) of the Code[1].
Section 6343 of the Code provides in part:
6343(a)(1) IN GENERAL. --Under regulations prescribed by the
Secretary, the Secretary shall release the levy upon all, or
part of, the property or rights to property levied upon and
shall promptly notify the person upon whom such levy was made
(if any) that such levy has been released if –
* * * * *
6343(a)(1)(D) the Secretary has determined that such levy is
creating an economic hardship due to the financial condition of
the taxpayer * * * *.
The mandatory levy release statute does not distinguish between
businesses and individuals. It is the position of the IRS that a
tax levy must be released if it creates a financial “economic
hardship” for an individual but not for a business. It is the
tax policy of the IRS and Treasury that a business cannot suffer
a hardship within the meaning of §6343(a)(1)(D).
Section 301.6343-1(b)(4) states:
(4) Economic hardship
(i) General rule. --The levy is creating an economic hardship
due to the financial condition of an individual taxpayer. This
condition applies if satisfaction of the levy in whole or in
part will cause an individual taxpayer to be unable to pay his
or her reasonable basic living expenses[2]. The determination of
a reasonable amount for basic living expenses will be made by
the director and will vary according to the unique circumstances
of the individual taxpayer.
The regulations do not address corporations. They only address
individuals. However, there is an expedited procedure under
§301.6343(d) of the regulations that include, in part, a
definition of essential business property defined, as follows:
(2) Essential business property defined. --For purposes of this
section, essential business property means tangible personal
property used in carrying on the trade or business of the
taxpayer which when levied upon prevents the taxpayer from
continuing to carry on the trade or business.
The following observations are made from the statement of the
law dealing with the mandatory release of a lien under §6343 of
the Code and its underlying regulations:
1. The statute provides a mandatory release of a tax levy for
“economic hardship” without distinguishing between and
individual and a corporation. There is no statutory mandate to
deny corporations the hardship relief rules of §6343(a)(1)(D).
2. The regulations that define “economic hardship” for
individuals are conditioned by the term General rule. The term
“general rule” means that other rules can apply and suggest that
other rules will be forthcoming.
3. The regulations take into account that special consideration
should be given to essential business property needed to carry
on a trade or business so that the trade or business can be
continued. The tax policy is to recognize "essential business
property" necessary for ongoing business. This concept is
identical to "economic hardship" for corporations. Corporations
conduct businesses as do individuals. No distinction is made
between individual and corporate businesses.
4. Congress treats corporations equal to individuals under the
§7122 Offer in Compromise statute. The tax policy stated by the
Congress is to make all taxpayers economically viable so that
they can continue to work and run a business and become
compliant taxpayers. Section 7122 is an economic-hardship-relief
statute for individuals and corporations. The purpose of §7122
is to resolve an “economic hardship” to a corporation unable to
pay a tax liability that it could never afford to discharge.
5. Congress allows a corporation the right to enter into an
Installment Agreement when full payment cannot be made.
6. Congress allows a corporation to appeal a tax lien under
§6320 and appeal a levy under §6330§[3]. These statutes permit a
corporation the right to provide alternatives to collection in a
Collection Due Process hearing. The purpose of these rules is to
prevent an economic hardship.
7. Congress cannot be deemed to condone a levy of a
corporation’s accounts receivable, bank accounts and other
business property that prevents the taxpayer from continuing to
carry on the trade or business. No business can survive if the
IRS is able to file a continuous levy against all of the
corporation’s accounts receivable. The economic policies of the
Congress do not encourage failures of corporate businesses
attributable to a levy of accounts receivable (gross income).
Congress cannot be deemed to favor a garnishment of a corporate
bank account with money in that account to pay for its current
tax liability, payroll, and other operating and administrative
expenses. A levy of corporate accounts receivable, bank accounts
and other essential business property is a fast track to a
forced closure of a business[4]. There is no Congressional tax
policy to either force corporations to close their businesses or
give preferential hardship rules to individuals and not to
corporations.
8. The position of Treasury is economically counter-productive.
A closed business cannot generate tax revenue for Treasury. A
closed business will add employees to unemployment rolls.
Treasury loses revenue when a viable corporation is put out of
businesses with a continuous levy on money essential to running
a business. The position of Treasury does not distinguish
between a viable business that has profit potential and one
without profit potential. A substantial amount of revenue is
lost to the Treasury when a viable business is closed solely due
to a tax policy that will not recognize “economic hardship” to a
corporation.
It is unreasonable for the IRS to find a bias against
corporation by excluding corporations from mandatory levy relief
in circumstances where a levy can cause a corporation to fail
and go out of business. The present position of the IRS and
Treasury concluding that a corporation cannot have a hardship is
absurd and perverse. If Congress wanted to treat corporations
unequal to individuals in §6343, it could and would put that
bias into the statute.
Reversal of the Treasury position on corporate levies will
likely add substantial tax revenues to Treasury as the viable
corporations go on to generate income, pay taxes, and offer
employment opportunities.
[1] This Article is being presented by Alvin S. Brown, Alvin
Brown & Associates, LLC. I have personal knowledge of this tax
policy during an appeal of a continuous levy that resulted in
discussions with the National Taxpayer Advocate and a
representative from Treasury.
[2] Section 301.6341-4 states that in determining a reasonable
amount for basic living expenses, the IRS will consider: the
taxpayer's age, employment status and history, ability to earn,
number of dependents, and status as a dependent of someone else;
the amount reasonably necessary for food, clothing, housing
(including utilities, home-owner insurance, home-owner dues, and
the like), medical expenses (including health insurance),
transportation, current tax payments (including federal, state,
and local), alimony, child support, or other court-ordered
payments, and expenses necessary to the taxpayer's production of
income (such as dues for a trade union or professional
organization, or child care payments which allow the taxpayer to
be gainfully employed); The cost of living in the geographic
area in which the taxpayer resides; the amount of property
exempt from levy which is available to pay the taxpayer's
expenses; any extraordinary circumstances such as special
education expenses, a medical catastrophe, or natural disaster;
and any other factor that the taxpayer claims bears on economic
hardship
[3] Sections 6320 and 6330 grant the right to appeal to a
“person.” A “person” is defined in §7701(a)(3) as a citizen,
partnership or a corporation.
[4] In the matter noted in footnote #1, the corporation was a
Subchapter S corporation with one owner. The levy was a
continuous levy on an account receivable, the only source of
income for the business. As a consequence of the levy, there was
no income for any employee including the owner of the
corporation. The owner had no income for necessary living
expenses. Therefore, the owner had no choice but to terminate
the business. We have witnessed the closure of other
corporations from a levy on business revenue and assets.
Presented by Alvin Brown and Associates, tax
attorney, formerly with the Office of the Chief Counsel of the IRS.
Call us for all IRS tax issues, problems and emergencies.
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