IRM 5.10.1  Pre-Seizure Considerations

• 5.10.1.1   General
• 5.10.1.2   List of Prohibited Seizures
• 5.10.1.3   Actions Required Prior to Seizure
• 5.10.1.4   "Will Pay" , "Can't Pay" , and "Won't Pay" Factors
• 5.10.1.5   Pre-Seizure Taxpayer Notifications
• 5.10.1.6   Pre-Seizure Activity for Courtesy Seizures
• 5.10.1.7   Jeopardy Assessments and Seizures
• 5.10.1.8   Mutual Collection Assistance Requests (MCARs)
• 5.10.1.9   International Seizure and Sale Procedures
• Exhibit 5.10.1-1   Form 2434–B and Instructions Reference: 5.10.1.3.3(12)
• Exhibit 5.10.1-2   Landlord Agreement Reference: 5.10.1.3.3.1(7)
• Exhibit 5.10.1-3   CASE SCENARIO #1 Reference: 5.10.1.4(4)
• Exhibit 5.10.1-4   CASE SCENARIO #2 Reference: 5.10.1.4(4)
• Exhibit 5.10.1-5   Letter 3174(P) Reference: 5.10.1.5.1

5.10.1.1  (10-01-2004)
General

1.       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.

2.       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

·         P-5-28 Successive seizures — Timing to avoid undue hardship

·         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

3.       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.

4.       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

1.       The following types of seizures are prohibited:

·         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

·         Seizures conducted on the day the taxpayer has to appear for a summons

·         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

·         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

·         Seizures when the taxpayer is in bankruptcy (BC Section 362)

·         Seizures which allow the taxpayer less then the exempt amounts to which they are entitled

·         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

1.       IRC 6331(j) outlines specific actions that must be completed before the seizure of a taxpayer's assets can be recommended:

A.      The liability must be verified.

B.      Alternative collection methods must be thoroughly considered.

C.      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.

D.      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

1.       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.

2.       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.

3.       Some of the actions that can be taken to verify the liability include reviewing:

·         NMF/MF transactions

·         Pending transactions

·         Copies of cancelled checks

·         Innocent spouse claims

·         Abatement requests

·         IDRS history items

4.       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.

5.       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

1.       The service is required to consider alternative methods of collection prior to seizure. Alternative methods of collection include, but are not limited to:

·         Installment agreements

·         Offers in Compromise

·         Posting of bond by the taxpayer

·         Lien foreclosure

·         Levy

·         Assignments

·         Judgments

·         Specific follow up actions

2.       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.

3.       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?

·         Current compliance — is the taxpayer current and has the cause of past non-compliance been corrected?

·         Current financial condition — can the taxpayer meet current obligations, including FTD's?

·         Future financial condition — can financial adjustments help the taxpayer experience future profits?

·         Collection statute — does the alternative provide for payment within the allowable statute?

·         Interest in Asset — is the government's interest in the asset protected and will the taxpayer's interest in the asset increase?

·         Impact — what impact will the seizure have on third parties or on non-compliant taxpayer groups?

·         Yield — will an alternative collection method potentially yield more than the seizure and sale?

4.       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

1.       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.

2.       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:

·         Used vehicle guides

·         Assessment office

·         Property appraisals

·         Comparable sales

·         Financing statements

·         Tax returns

·         Contact with businesses or dealers that are familiar with the particular type of asset

·         Personal observation

·         Area realtors

·         Collection information statement

·         Daily stock quotations

·         Valuation Engineers

·         Property Appraisal and Liquidation Specialist (PALS)

3.       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.

4.       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:

·         Joint owners

·         Senior lienholders

·         Junior lienholders

·         Nominees

·         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.

5.       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.

6.       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.

7.       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.

8.       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.

9.       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.

10.   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.

11.   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

·         The taxpayer resides in the Tenth Circuit

·         The Internal Revenue Service office is located in the Tenth Circuit

12.   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.

13.   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

1.       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:

·         Towing fees

·         Storage costs

·         Transportation costs

·         Locksmith fees

·         Advertising costs

·         Auctioneer services

·         Appraisal fees

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