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.
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. 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:
- 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).
- 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.
- 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.
- 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.
- Congress allows a corporation the right to enter into an Installment Agreement when full payment cannot be made.
- Congress allows a corporation to appeal a tax lien under §6320 and appeal a levy under §6330§. 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.
- 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. 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.
- 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.