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Certificates - Claim for Damages |
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Certificates - Claim for Damages |
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| If | Then |
| there is reason to doubt the financial stability of an institution, | reject the tender of the institution's guaranteed draft. |
| a guaranteed draft is not duly paid, | the United States will have a lien on all assets of the drawee institution in the amount of the draft. |
| payment is received to secure a release, certificate of discharge or subordination, | use the designated payment code of 07 (DPC–07) when preparing the posting voucher. |
5.12.3.2.2 (02-02-1999)
Liability is Unenforceable
- The word "unenforceable" means unenforceable as a matter of law, and not merely uncollectible. See IRM 25.17.14.11 regarding the release of lien in bankruptcy cases.
- NFTL filed on forms revised 12/82 or later do not require that a separate certificate of release be issued when the statutory period for collection has expired unless the NFTL has been refiled or a request is made for a separate release.
- NFTL refiled on Form 668–F, Notice of Federal Tax Lien, are not self-releasing. A certificate of release must be filed when the liability becomes unenforceable.
5.12.3.2.3 (02-02-1999)
Acceptance of a Bond
- Issue a release of a NFTL within 30 days of accepting a bond based on the payment of the amount assessed (including any interest, addition to tax, assessable penalty, together with any accrued costs) within the time agreed to in the bond, but not later than six months before the expiration of the statutory period for collection. See IRC 6325(a)(2).
- The bond must be executed by a surety company holding a certificate of authority from the Secretary of the Treasury, or, in the discretion of the area director, collateral may be accepted within established limits (see IRC 7101). The acceptability of a surety, other than a Treasury approved surety, will be determined on a case by case basis.
5.12.3.2.4 (07-15-2003)
Acceptance of an Offer
- When an offer in
compromise, including a collateral agreement, is
accepted, the NFTL will be released, when:
- the payment of offered amount, including any accrued interest, has been paid;
- all other terms and conditions of the offer are in compliance at the time the release is requested. his includes refund recoupment, collateral and future compliance issues.
- Requests for the issuance of a certificate of release may be made by those OIC Units with ALS access.
- OIC managers with access to ALS may approve the issuance of a certificate of release on the ALS system for a joint liability only when the OIC was granted for both taxpayers.
- OIC Units without ALS
access will FAX a document containing the following
information:
- Name of Taxpayer
- TIN
- Tax Period to be released
- Name and ID number of employee requesting the release
- OIC Unit managers may not issue a certificate of release when extenuating circumstances exist, e.g., innocent spouse, non-petitioning spouse, co-obligors, etc. See Exhibit 5.12.3–2. Use the procedures in (4) above for requesting the release.
5.12.3.2.4.1 (07-15-2003)
OIC Funded by Lending Institutions
- When the offered
amount is paid by a lending institution, request
that the certificate of release be prepared. The
designated employee will sign the certificate of
release. Do not date,
the certificate will be dated upon receipt of
payment.
Note:
Lien Processing Units must be instructed not to mail the certificate of release to the recording office.
- Forward the certificate of release to the assigned revenue officer at the time the taxpayer is informed that the offer is accepted.
- The revenue officer will secure the full offer amount and provide a copy of the release to the lending institution and the taxpayer.
- Provide the taxpayer Notice 48 that explains the process to have the certificate of release recorded.
- Forward a copy of the certificate of release to Technical Services to update the ALS database.
5.12.3.2.5 (02-02-1999)
Trust Fund Recovery Penalty
- Issue a Certificate of Release of Federal Tax Lien to the nonpaying officer(s) on a trust fund recovery penalty assessment when one officer has fully paid the liability. This will be done even though the liability has not been abated pending the expiration of the statutory period within which a claim for refund by the paying officer may be made.
5.12.3.2.6 (07-15-2003)
Bankruptcy Discharge of One Party on a Jointly Filed
Lien
- When one party of a jointly filed NFTL files bankruptcy and is discharged, a transaction code 400 will be used to adjust the joint account.
- The TC 400 will not cause the module to go to master file status 12 and therefore the module will not cause a notification of satisfaction to be passed to the Automated Lien System (ALS). The jointly filed NFTL will not be released.
- A Certificate of Release will be prepared. See Exhibit 5.12.3–1 and 5.12.3–2.
5.12.3.2.7 (07-15-2003)
Innocent Spouse Determinations
- IRC 6015 grants relief to a spouse when it is determined that he/she is not responsible for the liability.
- Issue a release for the taxpayer that is not responsible for the liability.
- Use the Automated Lien System to generate the release. Specific wording has been added to the database to clearly identify the innocent spouse.
5.12.3.3
(02-02-1999)
Request for Release of Lien by Taxpayer
- Procedures for preparing a certificate of release requested by the taxpayer are described in this section.
5.12.3.3.1 (02-02-1999)
Processing Taxpayer Requests for Lien Release
- Issue a certificate of release within 30 calendar days of receipt of a properly completed request in the area where the NFTL is filed. Any request which is incorrect or incomplete will not trigger the 30 day release period.
- Requests received by fax for a certificate of release may be accepted if contact has been made with the taxpayer by phone or in person and the taxpayer history file is documented with the date of contact and notation is made that the taxpayer wishes to send the request by fax.
- Notify the taxpayer when additional information is needed to identify the NFTL to be released or give the reason why a certificate of release will not be issued.
- Timely release of the NFTL is essential. Under the Taxpayer Bill of Rights, Section 6240 (new IRC 7432), taxpayers are provided with the right to sue the Federal Government if the Service knowingly or negligently fails to release a NFTL. Recovery is limited to actual, direct economic damages sustained by the taxpayer which, but for the actions of the IRS, would not have been sustained, plus the costs of the action.
- Prior to being awarded damages, the taxpayer is required to request a release of NFTL in writing.
- Publication 1450, Request for Release of Federal Tax Lien, describes the conditions under which a Certificate of Release of Federal Tax Lien may be issued and the required content of the request.
- An immediate or expedite release will be defined as one requested when the liability has been satisfied for a period beyond 30 days from the date of satisfaction or when the taxpayer wants to pay the liability to secure a release for such things as the transfer of property or the completion of other financial transactions.
- Occasionally, the Service may erroneously file a duplicate NFTL and the taxpayer may request the release of the duplicate. If the liability has not been satisfied, respond to the taxpayer using Pattern Letter P–2411. This pattern letter will act as a release and filing will be at the option of the taxpayer. See Exhibit 5.12.3–3.
5.12.3.3.2 (07-15-2003)
Satisfied or Unenforceable Taxpayer Accounts
- Follow these
procedures:
If Then the taxpayer states that the liability is satisfied or unenforceable check ALS to determine if a release has been issued. a release has not been issued, the liability satisfied and the last date for refile or CSED has not passed check IDRS to determine if the modules on the notice of lien are in status 12 and 30 days (37 days for personal checks) have elapsed from the date of payment. 1. Prepare a manual release. 2. Forward a copy to ALS to update the database. the module is unenforceable, 1. Prepare a manual release. 2. Forward a copy to ALS to update the database. there is no record that the NFTL has been satisfied on ALS or IDRS 1. Request that the taxpayer submit a written request to the attention of the Technical Services Group Manager in the area where the NFTL was filed. 2. Provide the taxpayer with Publication 1450, Request for Release of Federal Tax Lien.
5.12.3.3.3 (02-02-1999)
Full Payment in Exchange for Immediate Lien Release
- When a taxpayer wants
to pay the liability in full to secure immediate
release, do the following:
- Ensure that funds are certified.
- Prepare a manual release.
- Forward a copy to ALS to update the database;
- Provide Notice 48 to the taxpayer.
- Advise the taxpayer that he/she will have to file the certificate if the release needs to be recorded immediately.
5.12.3.4
(07-15-2003)
Request for Release
- Area offices are notified by the Service Campus that accounts have been satisfied by means of a module satisfied notice. These notices are generated for all full paid modules that were in balance due or suspended status and a Lien Filed Indicator (LFI) input to the module. The majority of NFTL releases are generated by the systemic processing of the module satisfied notice.
- The ALS system release module is used to enter lien release information not covered by a module satisfied notice. Basic audit trail data as well as how the lien was satisfied, the requesting employee, and the approving official is also displayed using the program. The lien release is assigned to the manager's queue for electronic signature and is produced when it has been approved.
- If a liability is satisfied by cash or by a certified or cashiers check an immediate release of the NFTL is required, provide the satisfying information to the ALS Unit, Case Processing Manager where the release will be prepared without waiting for the module satisfied notice to be received.
- The need to request
immediate release of liens should be restricted to:
- taxpayer requests, or
- pending property transactions that would be delayed by normal processing.
- When the LFI is not present on a module, provide a copy of the Form 668(Y) to the ALS Unit or Technical Services with supporting documentation, to generate the release.
- Provide sufficient documentation to identify periods to be released on a NFTL with multiple periods listed where one or more of the periods were satisfied prior to January 1988. A module satisfied notice will be issued to set the satisfied indicator in the lien database to systemically release the NFTL when the last period is satisfied.
5.12.3.4.1 (02-02-1999)
Request for Release in Another Area
- An out-of-area release will be generated by a module satisfied tape or file sent to each area office that had previously requested input of a TC 582. A systemic release will be generated automatically and forwarded to the proper recording office.
- A telephone call will be made to ALS Unit, Case Processing in the releasing area when immediate release is needed.
- The receiving area will generate the release through the automated system and forward it to the proper recording office.
5.12.3.5
(07-15-2003)
Erroneously Filed Notice of Federal Tax Lien
- The definition of an
erroneously filed NFTL (IRC 6326) is a NFTL filed during the
presence of one of the following conditions:
- the liability was satisfied prior to the NFTL filing;
- Any tax liability which was assessed in violation of deficiency procedures in IRC 6213;
- the statute of limitations for collection expired prior to filing of the NFTL.
- When an erroneous filing situation is identified, a Certificate of Release and Pattern Letter P–544, (Exhibit 5.12.2–4) must be issued by Technical Services within 14 days, where practical. A memorandum outlining the facts should be prepared immediately and forwarded to Technical Services.
- When circumstances dictate immediate action, the facts of the case should be given to Technical Services by telephone for preparation of the letter. The memorandum must still be prepared and forwarded to Technical Services.
- The letter should be signed by the Area Director or Technical Services Territory Manager or other persons authorized to sign on his/her behalf. It is recommended that the authority be delegated to the Field Territory Manager and Technical Services Group Manager.
- At the taxpayer's written request a copy of the release and letter of apology may be furnished to creditors or credit bureaus. Instruct the taxpayer to provide names, mailing addresses, and authority to disclose the information.
- Filing and release fees will be waived on erroneously filed NFTLs.
5.12.3.6
(07-15-2003)
Certificate of Release
- Issue a Certificate of Release only after all assessments covered by the NFTL meet the criteria for release even though a certificate could be issued when each assessment is satisfied or becomes unenforceable.
- If a specific request is received from a taxpayer to issue a release of satisfied or unenforceable modules, forward the request to Technical Services or other designated function for a partial release of the NFTL.
5.12.3.7
(07-15-2003)
Disposition of Certificate of Release
- Form 668(Z) will be mailed or presented to the proper recording office.
- Attach Form 3915, Processing Notices and Releases of Federal Tax Lien and Other Related Certificates, and mark the appropriate block on the form, when certificates are mailed and a transmittal document is necessary.
- A self-addressed, postage and fee paid envelope will accompany certificates of release if a receipt is requested.
- In some instances the taxpayer may insist upon personally recording the release. In those cases, the fee for filing the certificate of release of lien will not be collected from the taxpayer. Notice 48 is provided for transmitting certificates to taxpayers.
- The payment of release fees should be handled in the same manner as filing fees.
5.12.3.8
(07-15-2003)
Partial Lien Release
- There is no provision in the Code or the Regulations for the issuance of a partial release. However, circumstances sometimes dictate that a partial release of the NFTL is necessary.
- When one taxpayer on a jointly filed return is determined not to be liable for the tax debt a certificate of release for that taxpayer must be issued. For example, a partial release is issued when there is a discharge in bankruptcy and only one person petitioned the court, an offer-in-compromise is requested by one party and the offered amount is accepted, or there is an innocent spouse determination
- Issue the certificate of release in the name of the taxpayer that is not liable for the tax debt.
- A partial lien release may be generated when there are multiple tax periods and the taxpayer requests a release for a specific tax period.
- The partial lien release can be prepared using ALS. The ALS allows the user to select a paragraph, clearly identifying the non-liable taxpayer, to be printed on the front of Form 668(Z).
- Do not post TC 583 to the still liable taxpayer's master file account.
5.12.3.9
(07-15-2003)
Authority to Execute Certificate of Release of Lien
- The Secretary may redelegate (IRC 6325) the authority to issue Certificates of Release of Federal Tax Liens.
- Authority may be
redelegated to the following officers. See Delegation Order
5.4 for a complete list.
- Field Territory Manager,
- Field Group managers,
- Technical Services Group Managers,
- Revenue officers Grade 9 and above,
- Advisors Grade 11 and above,
- Campus Offer in Compromise Managers.
- Facsimile signature stamps may be used for large volumes of releases.
5.12.3.10
(07-15-2003)
Civil Cause for Action for Failure to Release Liens
Under IRC 6325
- Taxpayers have the right to sue the Federal Government for damages in federal district court if any officer or employee of the Internal Revenue Service knowingly or by reason of negligence, fails to release a filed Notice of Federal Tax Lien. See IRC 7432.
- Taxpayers must exhaust all administrative remedies available within the IRS prior to initiating a civil action in federal district court.
- Taxpayers must:
- submit a written request for a release of the NFTL to the area office where the NFTL was filed.
- submit an administrative claim for damages (IRC 7432).
- mitigation of damages is not itself an administrative remedy other than the two already listed.
5.12.3.10.1 (03-01-2004)
Administrative Claim Procedures
- Title 26, Part 301, Section 7432-1 of the Code of Federal Regulations (CFR) contains the administrative claim procedures of Internal Revenue Code Section 7432.
- Send the administrative
claim to the Technical Services Group Manager in the
area office where the taxpayer currently resides or the
Technical Services Group Manager where the Notice of
Federal Tax Lien was filed. There is no standard form
used in preparing a claim. It must contain the following
information:
- The name, current address, current home and work telephone numbers and any convenient times to be contacted and the taxpayer identification number of the taxpayer making the call.
- A copy of the NFTL affecting the taxpayer's property, if available.
- A copy of the request for the release of lien made in accordance with section 41.6325-1(f) of the Code of Federal Regulations.
- The grounds, in reasonable detail, for the claim (include copies of any available substantiating documentation or correspondence with the Internal Revenue Service);
- A description of the damages incurred by the taxpayer filing the claim (including copies of any available substantiating documentation or evidence);
- The dollar amount of the claim, including any damages that have not yet been incurred but that are reasonably foreseeable (including copies of any available substantiating documentation or evidence); and
- The signature of the taxpayer or the taxpayer's duly authorized representative.
- Each claim will be reviewed by Technical Services to insure that it contains the required information.
- Notify the taxpayer of
deficiencies and that the claim is not processable in
writing within 14 days of receipt of the claim, when the
claim does not contain the information required in (1)
above.
Note:
This is not considered a rejection of the claim because a claim meeting the requirements of Treasury Regulation 301.7432-1 has not been filed.
- Use Pattern Letter 2730 (See Exhibit 5.12.3-18) to notify the taxpayer of any claim deficiencies.
- If the claim was for a NFTL filed in another area office, forward the claim and all supporting documentation to that area office.
- Notify the taxpayer that the claim is being forwarded to another area office using Pattern Letter 2731 (See Exhibit 5.12.3-19).
- Administrative review
of the claim must be completed within 30 days of receipt
of a processable claim.
Note:
The taxpayer may bring suit either upon:
- a decision on the claim, or
- 30-days after the filing of a processable claim.
- A taxpayer must file an action in federal district court within two years after the cause of action occurs. If the taxpayer files an administrative claim within the last 30 days of the two-year period of limitations, the taxpayer may file an action in federal district court any time after the administrative claim is filed.
- Use Pattern Letter 2732 (Exhibit 5.12.3-20) or Pattern Letter 2733 (Exhibit 5.12.3-21) to notify the taxpayer of the results of the administrative review of the claim. If only a portion of the claim is approved, both pattern letters will be sent to the taxpayer at the same time. Authority to sign these letters should be delegated no lower than the Technical Services Group Manager.
- There is no further administrative appeal of a claim for damages under this section is the claim if denied. The remedy provided by the statute is the institution of a suit.
5.12.3.10.2 (03-01-2004)
Evaluation of Claim for Damages Under IRC 7432
- Date stamp the claim upon receipt. Technical services should complete the review within 30 days of receipt.
- Open an OI on ICS under 101- Claim Other. Review the closed files for any prior claims.
- The statutory elements
contained in IRC 7432 must be applied to each
processable claim. Address the following issues in
determining if a claim is administratively allowable:
- Should the IRS have released the NFTL under the provisions of IR Code section 6325?
- Did an outstanding NFTL against the taxpayer cause the taxpayer to sustain direct, economic damages?
- Are any damages reducible by any amount that could have reasonably been mitigated by the taxpayer?
- Has there been a finding under Section 6325(a)(1) that the liability for the amount assessed, together with all interest, has been fully satisfied or has become legally unenforceable, occurring on the earlier of: the date the appropriate official makes this finding or the date on which the Service receives a request for a certificate of release of lien in accordance with Treasury Regulation 401.6325-2(f), together with any information that is reasonably necessary to conclude that the lien has been fully satisfied or is legally unenforceable.
- Evaluate the facts and circumstances of each case.
- If the claim is made without proof or proper substantiation of damages, the taxpayer should be contacted immediately and told of the requirement to provide verification that these damages have been incurred. The Technical Services employee charged with reviewing and making the initial determination should approach this task with the recognition that it is possible that actual economic damages can accrue as a result of untimely NFTL releases. When faced with issues that do not present a clear-cut solution, discuss with area counsel.
- The reviewer must
determine if the IRS knowingly or negligently failed to
release a NFTL under IRC section 6325 and whether the
failure caused direct economic damages which the
taxpayer could not avoid. The
failure to release the lien is negligent.
Note:
Negligence means the appropriate IRS employee failed to use due diligence, or act as a reasonable person would, to release the lien.
- The reviewer must
ascertain when, in time, the taxpayer became aware of
the violation or should have become aware of the
violation.
- Claims filed more than two years after the violation must receive special scrutiny. This means that the violation occurred more than two years before the filing date of the claim. The taxpayer has two years in which to file a claim.
- The taxpayer's two-year limitation to bring suit begins at the point when the taxpayer has had a reasonable opportunity to discover all essential elements in a possible cause of action.
- The reviewer must determine when the taxpayer knew or should have known of IRS' failure knowing or negligent failure to release the NFTL.
- Claims filed outside the two-year limitation will be rejected.
- Certain criteria guide
the amount of an administrative settlement, if any
authorized, under this section. For example:
- the amount of the award is to be reduced by the amount of such damages which could have reasonably been lessened by the taxpayer;
- only actual, direct economic damages are recoverable in an administrative claim. No litigation or administrative costs are recoverable in an administrative claim. To the extent that any costs are recoverable under section 7432, such costs are recoverable only in a court proceeding.
- The determination to accept or reject each claim will be reviewed by Area Counsel for agreement.
- Release the NFTL when it is determined the IRS knowingly or negligently failed to release the NFTL under IRC 6325.
5.12.3.10.3 (03-01-2004)
Reimbursement of Damages and Costs for Failure to
Release Lien Under IRC 6325.
- If an administrative claim is submitted to the approving official, Compliance personnel involved with the filing of the NFTL may be asked to prepare a memo explaining the facts of the case. This should include any documentation which confirms or contradicts the taxpayer's statements.
- When a claim is
approved, prepare an original and three copies of:
- FMS Form 195 - Judgment Fund Payment Request (Admin. Award) (Exhibit 5.12.3-22)
- FMS Form 196 - Judgment Fund Award Data Sheet (Exhibit 5.12.3-23)
- FMS Form 197 - Voucher for Payment of Judgements, Compromise Settlements and Administrative Awards (Exhibit 5.12.3-24)
- FMS Form 198 - Judgment Fund Award Data Sheet - Additional Deductions (complete this form only if appropriate) (Exhibit 5.12.3-25)
- Forward the original voucher (FMS Form 197) to the taxpayer under cover of Pattern Letter 2733 (See Exhibit 5.12.3-24).
- When the form is signed by the taxpayer, the approving official will sign FMS Form 197.
- Mail a copy of the signed form to the taxpayer.
- Use Pattern Letter 2734 (Exhibit 5.12.3-15) to forward the original and three copies with the forms described in (2) above to the Judgment Fund Branch, Funds Management Division, Financial Management Service, Department of the Treasury, Room 6N34, US GAO Building, 441 G Street, NW, Washington, DC 20548.
- In cases where the taxpayer requests a check in lieu of electronic deposit, FMS will return the check to the contact person listed on Form 196 for reimbursement to the taxpayer.
- Mail the check to the taxpayer with a cover letter (locally designed) that specifies the date and the amount of the check.
5.12.3.11
(03-22-2000)
Other Certificates Relating to Liens (Overview)
- There are a number of
certificates that relate to the lien. The distinction
between the certificates are:
- Release—operates to completely extinguish the lien.
- Discharge—removes certain property from the effect of a tax lien.
- Subordination—relegates our lien to a lower priority position.
- Non-attachment—denotes that a person of like or similar name is not, in fact, the taxpayer.
- Revocation—issued when a lien was erroneously released or in connection with a breached collateral agreement with an offer in compromise.
5.12.3.12
(03-22-2000)
Discharge of Property
- The "discharge" of property from a Federal Tax Lien removes certain specifically described realty or personalty from the effect of the lien. The lien continues in full force and effect on all other property or rights to property of the taxpayer.
- Types of discharges are:
- IRC 6325(b)(1) bases the discharge on the fact that property of the taxpayer remaining has a fair market value double the sum of the amount of the FTL. Issue Form 669–A.
- IRC 6325(b)(2)(A) bases the discharge on partial satisfaction of the liability determined to be not less than the value of the governments interest in the property. To qualify the taxpayer must be divested of all interest in the property. Issue Form 669–B.
- IRC 6325(b)(2)(B) bases the discharge on evidence that the property of the taxpayer has no value to the government. Issue Form 669–C.
- IRC 6325(b)(3) bases the discharge on the proceeds of the sale being held as a fund subject to the liens and claims of the government in the same manner and priority as the property that was discharged.
- IRC 6325(b)(4) bases the discharge on the third party's right to substitute the value of the property in cash or an acceptable bond to cover the Government's interest in the property.
5.12.3.12.1 (03-22-2000)
When to Issue a Certificate of Discharge
- You may issue a
certificate of discharge if you determine whether the
property remaining subject to the lien has a fair market
value of at least double the amount of the unsatisfied
tax liability secured by the NFTL, plus double the
amount of all other liens and encumbrances having
priority over the Governments lien.
- Compute the amount necessary to issue a Form 669-A, Certificate of discharge under IRC 6325(b)(1) as follows:
EXAMPLE:
$1,000 Federal Tax Lien
$5,000 Prior Encumbrances (Senior to the Federal Tax Lien)
+100Real Estate Tax Lien (Superpriority)
$6,100
$!2,200 Fair Market Value Necessary for Discharge Under IRC 6325(b)(1)
- Issue Form 669–B,
Certificate of Discharge Under 6325(b)(2)(A), covering
any part of the property subject to the federal tax lien
if an amount is paid in part satisfaction of the
liability secured by the lien. The amount should not be
less than the value of the government's interest in the
property to be discharged and the taxpayer must be
divested of all interest in the property.
Note:
Consider all facts and circumstances of the case when determining the amount to be paid, including all other liens and encumbrances with priority over the government's lien.
- Issue a Form 669–C, when no equity determinations are made.
- Foreclosing mortgagees
may use the administrative provisions rather than
joining the United States as a party in a judicial
foreclosure action. IRC 6325(b)(2)(A) or IRC
6325(b)(2)(B). The administrative process eliminates the
government's right of redemption if the United States
were joined as a party defendant. See 28 U.S.C. 2410(c).
Further, the United States need not become involved in
unnecessary litigation.
Note:
The government has the discretion to issue a certificate of discharge under these subsections.
- In determining the value of the government's interest in property to be discharged from a Federal tax lien, consideration will be given to the "forced value," as distinguished from the "fair market value" of the property. IRC 6325(b)(2)
- Issue a certificate of discharge on any part of the property subject to a tax lien if the property is sold and, it's agreed to by the Internal Revenue Service, that the proceeds of the sale are to be held, as a fund subject to the liens and claims of the United States, in the same manner and with the same priority as such liens and claims had with respect to the discharged property. IRC 6325(b)(3)
- Reasonable and necessary expenses incurred in connection with the sale of the property or administration of the sale proceeds will be paid from the proceeds of the sale before the satisfaction of any claims.
- Refer to IRM 5.12.3.14.1 if taxpayers request consideration of "relocation expenses" as part of their discharge application under IRC 6325(b)(2)(A) and 6325(b)(3).
5.12.3.12.2 (07-15-2003)
Right of Substitution of Value
- At the request of the
non-taxpayer owner (IRC 6325(b)(4)), a certificate of
discharge will be issued on any property subject to a
lien if the non-taxpayer owner:
- deposits an amount equal to the value of the government's interest in the property, or,
- furnishes an acceptable bond in a like amount sufficient to cover the government's interest in the property.
- Follow procedures outlined in IRM 5.6.1.2.1, for processing and disposition of the bond and Technical Services procedures are found in IRM 5.6.1.5.
- Third parties have 120 days after the day the certificate of discharge is issued to file suit. If suit is not filed, the Service has 60 days to either apply the deposit, collect on the bond, or refund any excess amount.
- If you receive a
cashier's check, cash, postal money order, official bank
checks or guaranteed drafts. (See 5.12.3.2.1(4)) or
other type of certified funds:
- Prepare a memo detailing circumstances of the case.
- Prepare posting document and deposit money into Account 4730, Miscellaneous Deposit Fund Account.
- Transmit all of the above to the Campus attached to Form 3210.
- Retain a copy of all documents in Technical Services for follow-up.
- A control number will be assigned by the Campus. Associate receipted copy of Form 3210 with Technical Services file for future follow-up.
- When the case is resolved prepare necessary documentation to either have the money refunded to the third party or applied to the taxpayer's account.
5.12.3.12.2.1 (03-22-2000)
Area Counsel Approval
- Area Counsel must approve all third-party requests for discharge prior to issuance of the certificate.
5.12.3.12.2.2 (07-15-2003)
Applications for Discharge
- Follow procedures outlined in 5.12.3.13 and Publication 783 when providing taxpayers information regarding applications for discharge of property under IRC 6325(b)(4).
5.12.3.12.2.3 (03-22-2000)
Refund Deposit with Interest
- The government will
refund the difference between the Service's
estimated value and the actual value of that
interest (at the overpayment rate) and will release
the bond if it is determined that:
- the unsatisfied liability giving rise to the lien can be satisfied from a source other than such property, or
- the value of the government's interest in the property is less than the Secretary's prior determination.
5.12.3.12.2.4 (03-22-2000)
Processing the Refund
- Use established procedures for processing overpayments.
- Interest must be paid at the prevailing overpayment rate on any amount refunded.
5.12.3.12.2.5 (02-02-1999)
Use of Deposit If Action to Contest Lien Not
Filed
- If no action is
taken within 120 days after the certificate is
issued under IRC 7426(a)(4) to contest the filing of
the lien, within 60 days after the end of the 120
day period:
- Apply the amount deposited or collect on the bond, the amount necessary to satisfy the liability secured by the lien.
- Refund with interest at the overpayment rate, any amount that is not used to satisfy the liability.
Exception:
If the property is owned by the person with the unsatisfied liability on which the lien is based then the right for substitution does not apply.
5.12.3.12.3 (03-22-2000)
Civil Action to Release Erroneous Lien
- If a certificate of discharge is issued (IRC 6325(b)(4)) to any person for any property, then within 120 days of the certificate being issued, the person may bring civil action against the government in a district court of the United States, for a determination of whether the value of the governments interest in the property is less than the value determined by the Secretary.
- No other action may be used for this determination.
5.12.3.12.3.1 (02-02-1999)
Form of Relief—Substitution for Value
- If the court
determines that the Secretary's determination of the
value in the property exceeds the actual value of
the governments interest in the property under IRC
6325(b)(4), then the court will grant a judgment
ordering:
- A refund of the amount deposited,
- A release of a bond to the extent that the aggregate amount exceeds the value determined by the court.
5.12.3.12.3.2 (02-02-1999)
Interest Allowed on Refund of Deposit
- In the case of a judgment which orders a refund of any amount, the Secretary will pay interest from the date the amount was received to the date of payment of the judgment.
5.12.3.12.3.3 (02-02-1999)
Suspension of Running of the Statute
- Suspend the
collection statute of limitations where any
assessment has been made for which a lien has been
filed on any property. IRC 6503(f) states that the
running of the period of limitations under IRC 6502
will be suspended for a period equal to the period
beginning on the date the person becomes entitled to
a certificate of discharge and ending on the date
that is 30 days after the earlier of:
- the earliest date on which the Secretary no longer holds any amount as a deposit or bond under section 6325(b)(4) by reason of such deposit or bond being used to satisfy the unpaid tax or is being refunded or released, or
- the date the judgment secured under IRC 7426(b)(5) becomes final.
- The running of the statute of limitations will be suspended only with respect to the amount of the assessment equal to the value of the interest of the government in the property plus interest, penalties, additions to tax and any additional associated amount.
5.12.3.13
(02-02-1999)
Subordination of Lien
- IRC 6325(d)(1) and (2) provides for the subordination of any NFTL on any part of the property subject to the NFTL. This includes subordination of IRC 6324A liens.
- These three criteria are as
follows:
If Then there is paid over to the Service an amount, on a dollar for dollar basis, equal to the amount of the NFTL or interest to be subordinated, issue Certificate of Subordination (Form 669–D). The typical situation would be the subordination of the lien to one who would furnish private financing on a part of the property. it is determined that the interest of the United States in any part of the property covered by the NFTL will ultimately be increased by the subordination and ultimate collection of the outstanding liability will thereby be facilitated, issue Certificate of Subordination of Federal Tax Lien (Form 669–E). It is intended that this authority will be used by the Service under conditions similar to those under which an ordinary, prudent businessman would subordinate rights in a debtors property in order to secure additional long run benefits. it is determined that the United States will be adequately secured after subordination of a lien imposed by IRC 6324B. issue Certificate of Subordination of Federal Estate Tax Lien (Form 669–F) in the case of any lien imposed by Section 6324B. - IRC 6325(d)(3) provides a more liberalized criteria for subordinating IRC 6324B liens only.
5.12.3.14
(07-15-2003)
Applications for Certificates
- Any person desiring a
certificate will submit to the Technical Services Group
Manager, where the property is located, a written
application in duplicate, executed under penalties of
perjury. The form and content of the applications are
contained in the following Publications:
- Discharge—Pub. 783
- Subordination—Pub. 784
- Subordination of Estate Tax Lien—Pub. 1153
- Non-attachment—Pub. 1024
5.12.3.14.1 (07-15-2003)
Submission of Applications
- Applications for certificates, together with all necessary evidence, will be submitted directly to the Technical Services Group Manager.
- Examine each
application for completeness. Publication 1153, How to
Prepare Application for Certificate of Subordination of
Federal Estate Tax Lien Under Section 6325(d)(3) of the
Internal Revenue Code, requires two appraisals or
estimates be submitted.
- one of the estimated value of the property to be subordinated
- one of the estimated value of the property remaining subject to the estate tax lien.
- The Technical Services Group Manager may waive the appraisal requirement.
- If the application is incomplete or improper, the applicant should be promptly advised.
- Do not reject applications for incompleteness unless the missing information will not allow for a thorough investigation. Every effort should be made to accept the application, provided the information submitted would enable a proper investigation to be conducted.
- Any request for discharge of property subject to the lien imposed by IRC 6324A or 6324B received by Technical Services will be forwarded immediately to the Estate and Gift tax group manager for review and approval. If the request is approved, the Estate and Gift tax manager will advise Technical Services by memorandum. The memorandum shall contain sufficient information to enable preparation of Pattern Letter 1886(P).
- Use the ICS to control and monitor the case.
5.12.3.14.2 (07-15-2003)
Investigation of Applications
- Technical Services will use all available resources to determine whether to issue a certificate of discharge or subordination. Unless there is evidence the process might not involve an arms length transaction, the appraisals submitted will normally be accepted and a separate investigation to determine the value of the property need not be conducted.
- Verify the information
submitted in the application by contacting the:
- Service employee assigned the delinquent account
- applicant,
- applicants representative,
- taxpayer,
- taxpayers representative,
- real estate firms, title companies,
- holders of encumbrances, or
- any other person or entity that might have relevant information.
If Then it is determined that a Field investigation is required before a final decision can be made to discharge the property or to subordinate the lien, Form 2209, will be initiated. Technical Services will complete Form 3033, Investigation of Discharge or Subordination, on each investigation completed in Technical Services. the assessment was made in a foreign area, promptly notify the Technical Services Group Manager for the area with the assessment that an investigation has been initiated and request the status of the NFTL(s) from which the discharge is sought. the application is under IRC 6325(b)(2) and relates to a foreclosure proceeding, the application should be flagged to indicate that the revenue officers report must be returned to the Technical Services within 7 days. - Applications which require a field investigation will be investigated promptly by a revenue officer. The revenue officer assigned the investigation of the application will investigate and verify each item contained in the application, or which should have been contained in the application.
- Escrow funds, a potential payment source, should be considered and accounted for when working discharge investigations. However, if, during the course of the investigation, it is disclosed that the first encumbrance(s) exceeds the value of the property, it will not be necessary for the revenue officer to investigate and verify subsequent encumbrances, even though they were recorded prior to the filing of the NFTL.
- With the creation of
the Home Equity Line of Credit it is now advisable to
investigate the facts of the case to determine the
specific use of the mortgage funds when determining the
priority of the Federal Tax Lien against the Home Equity
Line of Credit.
- In cases where the credit line is drawn down after the Notice of Federal Tax Lien is filed, it is necessary to determine if the mortgagee/lender has a security interest in the real property in question. Often, a credit line is approved for a specific amount, but that entire amount is not turned over to the taxpayer. The taxpayer may draw against this amount as he wants. Also, the credit line may be approved for a specific amount and the entire amount was passed onto the taxpayer, but was done so some time ago and the taxpayer has paid down the amount owed. In these cases, the mortgage is recorded showing the encumbrance as the approved amount of the credit line, not the amount actually borrowed.
- The amount of money or money's worth that changed hands should always be verified. To be a holder of a security interest the mortgagee must first meet the two-pronged test of IRC section 6323(h)(1). (See IRM 5.17 for further explanation.) A possible exception to the above is when the funds are specifically earmarked for construction or improvement of real property and the agreement was entered into prior to the NFTL filing.
- If any payment is received while working the investigation, use designated payment code 07 (DPC–07) when preparing the posting voucher.
5.12.3.14.3 (07-15-2003)
Request for Relocation Expense Allowance
- In certain situations,
when selling a principal residence, taxpayers will be
allowed limited funds from sale proceeds to pay
relocation costs. Payment of these costs will be
considered if the taxpayer demonstrates a need for this
relief. Allowance of the expense would reduce taxpayer
burden, increase the amount realized by the United
States, facilitate the collection of the tax.
Note:
It is important to remember that funds received under the relocation expense allowance provision will not reduce the taxpayer's tax liability.
- The relocation allowance will be deducted from the Service's interest in the property. Junior lien holders are not impacted and have no entitlement to the funds.
- Use the following
criteria when considering the relocation expenses
allowance:
- Property is limited to principal residences only,
- Taxpayers owning multiple pieces of real property generally will not be considered,
- Taxpayers must demonstrate an "inability to pay" relocation costs and provide documentation for specific expenses on Form 12451, Request for Relocation Expense Allowance. Relocation expenses are subject to limitations based on the local standard "cost of living" locality tables, for the location of the new residence,
- IRS must receive a partial payment of the tax liability that will increase the amount realized and facilitate the collection of the liability. "No value" discharges will not be considered for relocation allowance.
5.12.3.14.3.1 (03-22-2000)
Procedures for Consideration of Relocation
Expense Allowance
- To receive
consideration, taxpayers must provide supporting
documentation for expenses as an attachment to Form
12451, Request for Relocation Expense Allowance.
Supporting documentation may consist of:
- Proposed rental agreement,
- Estimates from moving companies,
- Truck rental estimates,
- Utility hook-ups, etc.
- Reviewers will examine Form 12451 and attached documentation for completeness and contact taxpayers for any additional information.
- A determination will be made to ascertain if the taxpayer has sufficient funds available to pay reasonable relocation expenses. Information such as financial statements, recent bank statements, and last filed return could be used in this determination. Generally, cases in hardship 53 status (excluding closing codes 03 and 12) would not require another "hardship" determination.
- The relocation
allowance should be calculated by multiplying the
National Standard for the new residence locale and
family size times a factor of 2.5. (See IRM Exhibit
5.1, National Standards).
Note:
As a general rule, this will be the maximum allowance considered.
Example:
$1,000 Amount allowed for "Family of 3" from National Standards Table x 2.5 Established Factor $2,500 Maximum relocation allowance - The relocation allowance will be the lesser of actual relocation expenses approved or the National Standard amount determined by the formula above. Adjustments in the maximum allowance may be considered on a case-by-case basis if extenuating circumstances exist, i.e., age, health, disability, etc.
- If the taxpayer is moving within the same locale, the 2.5 factor still would apply.
- In all instances, there must be net proceeds available to apply to the tax liability.
5.12.3.14.4 (07-15-2003)
Report of Investigation
- All revenue officer reports of investigation will be prepared on Form 3033, Investigation of Request for Certificate of Discharge or Subordination, promptly upon completion of the investigation. The application should be carefully examined to make certain that the property is adequately and properly described.
- The revenue officer will submit the report, together with the copy of the application and all exhibits, to the Technical Services Group Manager, for review and approval.
- All reports will be submitted promptly upon completion. In the case of an application relating to a foreclosure proceeding, the report shall be completed within 7 days after receipt of the investigation and, in all other cases, within 30 days.
5.12.3.15
(02-02-1999)
Preparation of Certificates
- Prepare Forms 669–A (Exhibit 5.12.3–5) through F in duplicate. The unused area in the description portion of the form will be blocked or lined out so as to prevent the insertion of description of other property.
- Deliver the original of executed Forms 669 to applicants.
- If Forms 669–B or D are prepared, they should not be issued until the specified amount is received in the same form required for an immediate lien release.
- Post payments using Designated Payment Code 07 (DPC–07) when preparing the posting voucher.
- If the assessment is in an area other than that from which the certificate is issued, Forms 669 will be prepared in triplicate. The triplicate copy will be sent to the area with the assessment to be associated with the lien file.
5.12.3.15.1 (02-02-1999)
Certificate of Discharge in Bankruptcy Court Sales
- The bankruptcy court has inherent power to sell property within its jurisdiction free and clear of liens. Therefore, when a sale is made by a bankruptcy court, its purchaser takes the property unencumbered by the Federal tax lien, and the Federal tax lien should be considered transferred to the proceeds of the sale.
- When property is sold
by a bankruptcy court, and the purchaser desires to
obtain a certificate of discharge of Federal tax lien,
the purchaser, or other interested party will be advised
to submit an affidavit to Technical Services containing:
- a statement of the facts concerning the sale,
- a legal description of the property, and
- attach a properly certified copy of the court order.
- If it is determined that the application is sufficient, a certificate should be issued on the appropriate form.
5.12.3.16
(07-15-2003)
Certificate of Discharge in Foreclosure Proceedings
- Foreclosing mortgagees should be encouraged to request discharges under IRC 6335(b)(2) rather than join the United States in a judicial proceeding. It would be to their advantage to eliminate the governments right of redemption and would eliminate costly litigation proceedings for the government.
- Advise the foreclosing parties that they will be furnished a commitment letter within 30 days of receipt of their application.
- Issue the certificate upon receipt of proof that the taxpayer has been removed of right, title or interest in the property.
- Do not issue a certificate of discharge during the pendency of a suit. Notify the U.S. attorney of the request for a certificate.
- Normally, a commitment letter should not be issued to parties who are nonjudicially foreclosing and have given adequate notice to the Technical Services Group Manager under IRC 7425. If they wish to eliminate the governments right of redemption, they should be advised of the procedures for obtaining a release of that right. Instructions for application are in Publication 487.
- Issue a discharge if a federal agency has foreclosed nonjudicially and given adequate notice when the agency feels that the lien remains a cloud on the title.
5.12.3.17
(03-22-2000)
Certain Government Agency Discharges
- To reduce litigation costs and make property readily marketable, the Veterans Administration (VA), Small Business Administration (SBA), and Federal Housing Administration (FHA) have agreed to accept title to property subject to a junior federal tax lien, provided the payment (if any) required to secure a discharge of property from the tax lien does not exceed the increased cost which would be incurred by them if a mortgagee elected to foreclose by a judicial, rather than by a nonjudicial, proceeding.
- Upon receipt of such requests, the Service will cooperate in discharging from junior federal tax liens, property acquired by these agencies in connection with their Loan Guaranty or Direct Loan Salvage operations.
- The procedures described in this section apply only to applications received from VA, SBA, or FHA requesting discharge from a junior federal tax lien on property which has been or is to be acquired by one of those agencies.
- These procedures do not apply where the United States has already been joined as a party to a judicial foreclosure proceeding or when the insured mortgagee forecloses and has not assigned the mortgage or deed of trust to the VA, SBA or FHA.
5.12.3.18
(02-02-1999)
Applications for Discharge (VA, SBA, or FHA)
- Applications for certificates of discharge submitted by the VA, SBA, or FHA will be submitted in duplicate, when they have been notified that the mortgagee has acquired the property and has conveyed it or elected to convey it to the VA, SBA or FHA.
- The property will have been appraised by a designated or staff appraiser of the appropriate agency based on the market value of the property at the time of foreclosure. The appraisal will be accepted as the fair market value of the property in determining the governments interest under the federal tax lien. Field investigation will not be required.
- The amount shown in the concluding paragraph of the application serves only to place a ceiling on the amount the particular agency may pay for the issuance of a discharge. If it is determined that the federal tax lien interest has value in excess of the amount which the agency is legally permitted to pay, they should be advised and the discharge application file closed.
- In accordance with an agreement with VA or FHA, when it has been determined that a notice of lien had been filed more than 30 days prior to a nonjudicial sale, an application for the discharge of the property will be made. No notice will be given under IRC 7525 in these cases.
5.12.3.19
(07-15-2003)
Issuance of Certificate of Discharge (VA, SBA, FHA)
- Form 669–C shall be delivered to the VA, SBA or FHA and the duplicate associated with the application, if it is found that the federal tax lien is valueless.
- If it is determined that the federal tax lien interest has value, Technical Services will prepare in quadruplicate a statement stating the exact amount required for the requested discharge. The original and two copies of the statement will be sent to the VA, SBA, or FHA.
- When a statement signed by
the responsible agency official is received, stating that
the amount required for the issuance of the discharge is
satisfactory, deliver Form 669–B. No payment will be made at
the time of delivery, but will be deferred until the
certificate is filed with the proper recording official.
- When the certificate is properly filed, the VA, SBA, or FHA will forward payment, in the form of a U.S. Treasury Check, to the Technical Services Group Manager.
- If payment is not received within (60) sixty days after the date the certificate was delivered, a follow up will be made to determine the approximate time payment will be received.
- In the event the VA, SBA, or FHA does not acquire the property or agree to accept it from the mortgagee, the certificate will be returned to the area director for cancellation. The canceled certificate will be associated with the application for discharge.
5.12.3.20
(07-15-2003)
Issuance of Certificate of Discharge or Subordination
- Technical Services will review the revenue officer's report to determine the priority of the Federal tax lien and ensure that the information furnished is sufficient to issue a certificate of discharge.
- Issuance of the certificate is conditioned upon the taxpayer's agreement that payments be applied in the best interest of the government as determined by the Service (Exhibit 5.12.3–6 or 5.12.3-7).
- Issue certificates after approval of the revenue officers report.
- Retain a copy of the application, revenue officer's report, and other related documents in Technical Services.
- Reports will be forwarded to Area Counsel only when an advisory legal opinion is needed on a specific issue. When the advisory legal opinion is received from Area Counsel, the Technical Services Group Manager, will advise the applicant of the decision.
5.12.3.21
(02-02-1999)
Revocation of Certificates
- Revocation of a certificate of release or non-attachment and the reinstatement of the NFTL to which the certificate relates is provided by law. See IRC 6325(f)(2). (Exhibit 5.12.3-6)
- A certificate of revocation
may be issued when it has been determined that either the
release of FTL was issued:
- Erroneously, or
- In connection with a collateral agreement entered into in connection with a compromise under IRC 7122 which has been breached, and if the period of limitation on collection after assessment has not expired.
- Issue a Certificate of Revocation to revoke a self-releasing NFTL in those instances when a new NFTL has been filed late.
- Use Form 12474, Revocation of Certificate of Release of Federal Tax Lien (Exhibit 5.12.3-8) to revoke the release when the lien was not self-releasing.
- Use Form 12474A, Revocation of Certificate of Release of Federal Tax Lien (Exhibit 5.12.3-27) to revoke a lien that self-released.
- File a new Notice of Federal Tax Lien to protect the validity of the lien after the Certificate of Revocation is filed. See IRC 6323(a).
- When revocation is in order, a request will be sent to Technical Services to have the ALS Unit, Case Processing, prepare the certificate and to file a new NFTL.
5.12.3.22
(02-02-1999)
Non-attachment of Lien
- Persons wishing to obtain a Certificate of Non-attachment should be furnished a copy of Publication 1024.
- Applications will be referred directly to the Technical Services Group Manager for review and consideration.
- Issue a Certificate of Non-attachment when a NFTL has been filed and there has been a confusion of names. The person (other than the person against whom the tax was assessed) may be injured by the appearance that a NFTL has been filed.
5.12.3.22.1 (02-02-1999)
Certificate of Non-attachment
- A person may submit an application for a Certificate of Non-attachment when there has been confusion, such as similarity in names, resulting in the appearance that a Notice of Federal Tax Lien has been filed against that person. If the determination is made that this condition did occur, the Service may issue a Certificate of Non-attachment of Federal Tax Lien certifying that the property of an individual is free from a NFTL. Innocent spouse determinations are also handled by partial release. See 5.12.3.2.7.
- The Manager, Technical
Services will determine from the information furnished
and from data available in the area office whether a
certificate should be issued.
If Then it is determined that a field investigation is required before a final decision can be made, a Form 2209, Courtesy Investigation, will be prepared and sent to the appropriate office. any doubt exists, refer the matter to Area Counsel for an advisory legal opinion,