Authority to Release Levy and Return Property

DEPARTMENT OF THE TREASURY

26 CFR Part 301

[TD 8587]

RIN 1545-AN48

Authority to Release Levy and Return Property

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations regarding the

authority to release a levy and to return property. The Technical and

Miscellaneous Revenue Act of 1988 sets forth certain conditions under

which the IRS must release a levy. In addition, the Internal Revenue

Code was amended in 1979 to provide for the payment of interest in

certain circumstances in which wrongfully levied upon property is

returned. These final regulations describe the conditions under which a

levy will be released and the procedures for obtaining such a release.

Lastly, these final regulations also conform the existing regulations

regarding the return of wrongfully levied upon property to provide for

the payment of interest in certain circumstances.

EFFECTIVE DATE: These regulations are effective December 30, 1994.

FOR FURTHER INFORMATION CONTACT: Jerome D. Sekula, 202-622-3640 (not a

toll-free call).

SUPPLEMENTARY INFORMATION:

Background

This document contains final regulations amending the Procedure and

Administration Regulations (26 CFR part 301) under section 6343 of the

Internal Revenue Code. These regulations reflect the amendment of

section 6343 by section 6236(f) of the Technical and Miscellaneous

Revenue Act of 1988 (Pub. L. 100-647), section 4(a) of Act of Dec. 29,

1979 (Pub. L. 96-167), and section 1511(c)(10) of the Tax Reform Act of

1986 (Pub. L. 99-514).

On October 16, 1991 a notice of proposed rulemaking concerning the

authority to release and return property was published in the Federal

Register (56 FR 51857). Written comments [[Page 34]] responding to this

notice were received. No public hearing was requested or held. After

consideration of all the comments, the proposed regulations under

section 6343 are adopted as revised by this Treasury decision.

Explanation of Revisions and Summary of Comments

The notice of proposed rulemaking provided different rules with

respect to levies made prior to July 1, 1989, and levies made on or

after that date. It was decided that separate rules concerning levies

made prior to July 1, 1989 are not necessary. Accordingly, they have

been eliminated. These final regulations are prospective in nature and

are effective as of December 30, 1994. In addition, for ease of

administration, it was decided that the authority to release levies

should be extended by regulation to service center and compliance

center directors. These final regulations has been revised to confer

this authority on service center and compliance center directors.

The written comments received made several suggestions for changes

to the proposed regulations. The comments suggested that the

regulations provide an appeal procedure for taxpayers when a request

for a release of levy is denied. These final regulations do not adopt

this suggestion. A taxpayer who believes an IRS employee is not

properly applying these regulations has the right to appeal to that

person's supervisor. Thus, a formal appeals procedure would add a layer

of bureaucracy to the process while providing little or no benefit to

the taxpayer.

The comments also suggested revising an example in the proposed

regulations governing when a levy may be released to facilitate

collection. The comment suggested that the example provide that a

release of levy must be made if that release would increase the fair

market value of the property (and, presumably, the amount that would be

bid) if the taxpayer were to sell that property, irrespective of

whether the proceeds from that sale would satisfy the taxpayer's

outstanding federal tax liabilities. This suggestion has been adopted

in modified form. The final regulations provide that a levy may be

released even though the proceeds of the sale would not fully satisfy

the taxpayer's outstanding federal tax liabilities, but only on a case

by case basis at the discretion of a district director. The IRS is not

required to release a levy merely because a taxpayer alleges that a

sale by the taxpayer would produce a higher bid than if the sale were

made by the IRS.

Another suggestion was that the regulations provide an example of

situations where the fair market value of the property exceeds the

liability for which the levy was made and the release of levy can be

made on only a part of a taxpayer's property without hindering the

collection of the liability. This suggestion has been adopted in the

final regulations.

The comments suggested that an example be given of ``essential

business property'' qualifying for expedited determination of whether a

levy should be released. The issue of what constitutes ``essential

business property'' will necessarily turn on the unique facts of an

individual case. An item of property that may be essential to the

carrying on of one business may not be essential in the carrying on of

another business. Thus, any example given in the regulations could not

provide specific guidance as to what specific items of property would

be considered essential in all cases. Conversely, any example given in

the regulations could be erroneously construed as requiring a certain

fact pattern or degree of effect on the operation of a business that

would not be necessary in all cases in order for a specific item of

property to be considered ``essential business property.'' Accordingly,

this suggestion has not been adopted in these final regulations.

The comments also suggested that the final regulations require a

district director to return the specific property levied upon if it is

still in the possession of the United States Government. This

suggestion was adopted in part. It is the practice of the IRS,

generally, to return specific property still in its possession to its

rightful owner if the property has been wrongfully seized. However,

this general rule is not appropriate in all cases. For instance, the

property seized may be found to include items which may be illegal

under State or Federal law. This type of property will not be returned

to its owner. The final regulations indicate that the IRS will normally

return specific property in its possession when that property has been

wrongfully levied upon.

Another suggestion was that the proposed regulations be revised to

require the IRS to return property within 10 days after it is

determined that such property was wrongfully levied upon. This

suggestion is not adopted in these final regulations. Although section

6343 does not mandate a time period within which the property must be

returned, property is normally returned as expeditiously as possible.

There do occur, however, situations where conflicting claims are made

for the return of wrongfully levied upon property. Cases where

conflicting claims to the property are received require greater time

and, in some instances, litigation to resolve who is rightfully

entitled to the return of the property. A requirement that the IRS

return property in 10 days in all cases could adversely affect the

rights of other claimants to the property and would not benefit either

those claimants or the IRS.

The comments also suggested that final regulations require a person

requesting the return of wrongfully levied upon property to include a

copy of the levy itself if it is available. This suggestion was not

adopted in these final regulations. Based on the experience of the IRS,

the actual submission of a copy of the levy or notice of levy has not

been necessary. Thus, the addition of a new requirement for the

submission of a copy of either of those two forms in all cases could be

potentially burdensome for some taxpayers and prove to be of no benefit

to the IRS.

It has also been suggested that the proposed regulations be revised

in order to prevent a taxpayer from making a request for a release of

levy by telephone because such requests lack proper documentation and

make it difficult for the IRS to determine if the taxpayer has complied

with the statutory provisions. The regulations follow current IRS

procedures and are designed to provide the taxpayer with the most

expeditious method to initiate a request for release. The regulations,

however, also provide that the IRS may request any documentation

necessary before making a determination on whether a condition

requiring release has been met. Thus, although the request for a

determination may be made orally, the IRS is not required to make the

determination based on insufficient information.

Another comment interpreted the proposed regulations as creating an

inconsistency in that a request for release of property, in ordinary

circumstances, could be made as little as six days prior to a scheduled

sale of that property, while the IRS was generally allowed up to 30

days to make a determination concerning a request for release. The

commentator indicated its belief that these two rules could be read to

allow a sale to take place without a determination being made

concerning a request for release.

The commentator's concern is unfounded. The period between the date

of seizure and the date notice of sale is given is used by the IRS to

determine whether the property seized [[Page 35]] should be sold or

released. This determination is made whether or not a request for

release has been received. Because this initial determination

concerning sale or the possible release of the levy is made prior to

the issuance of the notice of sale, a subsequent determination in

response to an actual request for release of levy made by a taxpayer

can be accomplished, in most of these cases, prior to the scheduled

sale date if at least five days remain prior to the sale date. It is

only in unusual cases where a determination cannot be made prior to the

date of the scheduled sale if a request for release is made more than

five days prior to the scheduled sale date. In those cases, the sale is

postponed, but a determination is normally made within 30 days of the

date of the request for release.

To clarify this issue, however, these final regulations have been

revised to state that if a request for release is made more than five

days prior to a scheduled sale, the IRS is to make a determination on

any request for release of property before that property can be sold.

In addition, the final regulations state that the IRS is not required

to consider a request for release or an expedited determination made

within five or fewer days prior to a scheduled sale. The IRS has the

discretion, however, to consider such requests.

In Sec. 301.6343-1(b)(3) of these final regulations, the phrase

``there is an intervening judgment lien creditor'' has been added to

the example indicating when the IRS is not required to release a levy

when an installment agreement has been entered into if the release will

jeopardize the secured status of the United States. The final

regulations also clarify that the lack of a filed notice of federal tax

lien does not by itself warrant a finding that the secured status of

the United States is jeopardized in all situations where no notice of

such tax lien has been filed. Finally, the final regulations provide

that, for the purposes of determining a reasonable amount for basic

living expenses, a taxpayer may furnish, and the IRS may consider,

information concerning his or her current employment status, as well as

past employment history.

Special Analyses

It has been determined that this Treasury decision is not a

significant regulatory action as defined in EO 12866. Therefore, a

regulatory assessment is not required. It also has been determined that

section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)

and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to

these regulations, and therefore, a Regulatory Flexibility Analysis is

not required. Pursuant to section 7805(f) of the Code, the notice of

proposed rulemaking was submitted to the Small Business Administration

for comment on its impact on small business.

Drafting Information

The principal author of these final regulations is Jerome D.

Sekula, Office of the Assistant Chief Counsel (General Litigation),

IRS. However, personnel from other offices of the IRS and Treasury

Department participated in their development.

List of Subjects in 26 CFR Part 301

Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income

taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority for part 301 is amended by adding

entries to read as follows:

Authority: 26 U.S.C. 7805 * * *

Section 301.6343-1 also issued under 26 U.S.C. 6343.

Section 301.6343-2 also issued under 26 U.S.C. 6343 * * *

Par. 2. Section 301.6343-1 is revised to read as follows:

Sec. 301.6343-1 Requirement to release levy and notice of release.

(a) In general. A district director, service center director, or

compliance center director (director) must promptly release a levy upon

all, or part of, property or rights to property levied upon and must

promptly notify the person upon whom the levy was made of such a

release, if the director determines that any of the conditions in

paragraph (b) of this section (conditions requiring release) exist. The

director must make a determination whether any of the conditions

requiring release exist if a taxpayer submits a request for release of

levy in accordance with paragraph (c) or (d) of this section; however,

the director may make this determination based upon information

received from a source other than the taxpayer. The director may

require any supporting documentation as is reasonably necessary to

determine whether a condition requiring release exists.

(b) Conditions requiring release. The director must release the

levy upon all or a part of the property or rights to property levied

upon if he or she determines that one of the following conditions

exists--

(1) Liability satisfied or unenforceable--(i) General rule. The

liability for which the levy was made is satisfied or the period of

limitations provided in section 6502 (and any period during which the

period of limitations is suspended as provided by law) has lapsed. A

levy is considered made on the date on which the notice of seizure

provided in section 6335(a) is given. A levy that is made within the

period of limitations provided in section 6502 does not become

unenforceable simply because the person who receives the levy does not

surrender the subject property within the period of limitations. In

this case, the liability remains enforceable to the extent of the value

of the levied upon property. However, a levy made outside the period of

limitations (normally ten years without suspensions) must be released

unless--

(A) The taxpayer agreed in writing to extend the period of

limitations as provided in section 6502(a)(2) and Sec. 301.6502-1; or

(B) A proceeding in court to collect the liability has begun within

the period of limitations.

(ii) Special situations. A continuing levy on salary or wages made

under section 6331(e) must be released at the end of the period of

limitations in section 6502. However, a levy on a fixed and

determinable right to payment which right includes payments to be made

after the period of limitations expires does not become unenforceable

upon the expiration of the period of limitations and will not be

released under this condition unless the liability is satisfied.

(2) Release will facilitate collection. The release of the levy

will facilitate collection of the liability. A director has the

discretion to release the levy in all situations, including those where

the proceeds from the sale will not fully satisfy the tax liabilities

of the taxpayer, under terms and conditions as he or she determines are

warranted.

(i) Example. The following example illustrates the provisions of

this paragraph (b)(2):

Example. A and B each own machines which, when used together,

produce widgets. A owes delinquent federal taxes. A notice of

federal tax lien is properly filed against all property or rights to

property belonging to A. A's machine is seized to satisfy A's

delinquent tax liability. The fair market value of A's property is

greater than the expenses of seizure and sale, but less than the

amount of A's tax liability. A and B find a buyer who

[[Page 36]] wants to buy both machines together. The buyer will only

buy the machines together. A's property has a greater value as part

of the package than it does by itself. The larger value, as shown in

the sale contract, is enough to pay A's tax liability in full. In

this situation a release of the levy will facilitate collection

because the sale of both machines can be completed and A's liability

will be paid in full at the settlement.

(ii) Compliance with other conditions. The director may find that

collection will be facilitated by the taxpayer's compliance with

conditions other than immediate payment, such as:

(A) The delinquent taxpayer delivers a satisfactory arrangement,

which is accepted by the director, for placing property in escrow to

secure the payment of the liability (including the expenses of the

levy) which is the basis of the levy.

(B) The delinquent taxpayer delivers an acceptable bond to the

director conditioned upon the payment of the liability (including the

expenses of levy) which is the basis of the levy. This bond shall be in

the form provided in section 7101 and Sec. 301.7101-1.

(C) There is paid to the director an amount determined by the

director to be equal to the interest of the United States in the seized

property or the part of the seized property to be released.

(D) The delinquent taxpayer executes an agreement to extend the

statute of limitations in accordance with section 6502(a)(2) and

Sec. 301.6502-1.

(iii) Expenses of sale exceed the government's interest. If the

director determines that the value of the United States' interest in

the seized property does not exceed the expenses of sale of the

property, a release of the levy will be deemed to facilitate collection

of the liability even though the fair market value of property which

has been seized exceeds the expenses of seizure and sale.

(3) Installment agreement. The taxpayer has entered into an

agreement under section 6159 to satisfy the liability by means of

installment payments, unless the agreement provides otherwise. However,

the director is not required to release the levy under this condition

if a release of the levy will jeopardize the secured creditor status of

the United States, e.g., where there is an intervening judgment lien

creditor and a notice of tax lien has not been filed.

(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.

Unique circumstances, however, do not include the maintenance of an

affluent or luxurious standard of living.

(ii) Information from taxpayer. In determining a reasonable amount

for basic living expenses the director will consider any information

provided by the taxpayer including--

(A) The taxpayer's age, employment status and history, ability to

earn, number of dependents, and status as a dependent of someone else;

(B) 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);

(C) The cost of living in the geographic area in which the taxpayer

resides;

(D) The amount of property exempt from levy which is available to

pay the taxpayer's expenses;

(E) Any extraordinary circumstances such as special education

expenses, a medical catastrophe, or natural disaster; and

(F) Any other factor that the taxpayer claims bears on economic

hardship and brings to the attention of the director.

(iii) Good faith requirement. In addition, in order to obtain a

release of a levy under this subparagraph, the taxpayer must act in

good faith. Examples of failure to act in good faith include, but are

not limited to, falsifying financial information, inflating actual

expenses or costs, or failing to make full disclosure of assets.

(5) Fair market value exceeds liability. The fair market value of

the property exceeds the liability for which the levy was made and

release of the levy on a part of the property can be made without

hindering the collection of the liability. The following example

illustrates the provisions of this paragraph (b)(5):

Example. The Internal Revenue Service levies upon ten widgets

which belong to the taxpayer to satisfy the taxpayer's outstanding

tax liabilities. Subsequent to the levy, the taxpayer establishes

that market conditions have increased the aggregate fair market

value of widgets so that the value of seven widgets equals the

aggregate anticipated expenses of sale and seizure and the tax

liabilities for which the levy was made. The director must release

three widgets from the levy and return them to the taxpayer.

(c) Request for release of levy--(1) Information to be submitted by

taxpayer. A taxpayer who wishes to obtain a release of a levy must

submit a request for release in writing or by telephone to the district

director for the Internal Revenue district in which the levy was made.

The taxpayer making the request must provide the following

information--

(i) The name, address, and taxpayer identification number of the

taxpayer;

(ii) A description of the property levied upon;

(iii) The type of tax and the period for which the tax is due;

(iv) The date of the levy and the originating Internal Revenue

district, if known; and

(v) A statement of the grounds upon which the request for release

of the levy is based.

(2) Time for submission. Except in extraordinary circumstances, a

request for release of a levy must be made more than five days prior to

a scheduled sale of the property to which the levy relates.

(3) Determination by director--(i) When required. The director must

promptly make a determination concerning release prior to sale in all

cases where a request for release of a levy is made except those where

the request for release is made five or fewer days prior to a scheduled

sale of the property to which the levy relates.

(ii) Time for making required determination. The determination will

be made, generally, within 30 days of a request for release made 30 or

more days prior to a scheduled sale of the property to which the levy

relates. If a request for release is made less than 30 days prior to

the scheduled sale but more than 5 days before the scheduled sale, a

determination must be made prior to the scheduled sale. If necessary

the director may postpone the scheduled sale in order to make this

determination.

(iii) Discretionary determination. The director has the discretion,

but is not required, to make a determination concerning release prior

to sale in cases where a request for release of a levy is made five or

fewer days prior to a scheduled sale of the property to which the levy

relates.

(4) Notification to taxpayer of determination. The director must

promptly notify the taxpayer if the levy is released. If the director

determines [[Page 37]] that none of the conditions requiring release of

the levy exist, the director must promptly notify the taxpayer of the

decision not to release the levy and the reason why the levy is not

being released.

(d) Expedited determination with respect to certain business

property--(1) General procedure--(i) Submission by taxpayer. If a levy

is made on essential business property as is described in paragraph

(d)(2) of this section, the taxpayer may obtain an expedited

determination of whether any of the conditions requiring release of the

levy exist. In order to obtain an expedited determination, the taxpayer

must submit, within the time frame specified in paragraph (c)(2) of

this section, the information required in paragraph (c)(1) of this

section and include with the information an explanation of why the

property levied upon qualifies for an expedited determination of

whether a condition requiring release of the levy exists.

(ii) Time for making required determination. The director must make

such a determination by the later of 10 business days from the time the

director receives the request for release, or 10 business days from the

time the director receives any necessary supporting documentation, if

10 or more business days remain before a scheduled sale of the property

to which the levy relates. An expedited determination concerning

release must be made prior to sale in all cases where a request for

release of a levy is made within the time frame specified in paragraph

(c)(2) of this section. If necessary the director may postpone the

scheduled sale in order to make this determination.

(iii) Discretionary determination. The director has the discretion,

but is not required, to make an expedited determination concerning

release in cases where the taxpayer does not submit, within the time

frame specified in paragraph (c)(2) of this section, the information

required in paragraph (c)(1) of this section and include with the

information an explanation of why the property levied upon qualifies

for an expedited determination of whether a condition requiring release

of the levy exists.

(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.

(3) Seizure of perishable goods. The provisions of this paragraph

do not apply in the case of a seizure of perishable goods. Those

seizures are governed by the provisions of section 6336 and

Sec. 301.6336-1.

(e) Effect of a release of levy. If property has not yet been

surrendered to the director in response to a levy, a release of the

levy under section 6343(a) will relieve the possessor of any obligation

to surrender the property. Otherwise, a release of a levy under section

6343(a) will cause the property to be returned to the custody of the

person or persons legally entitled thereto. The release of a levy on

any property under this section does not prevent any subsequent levy on

the property. Section 301.6343-2, dealing with return of wrongfully

levied upon property, is subject to section 6402 which prohibits the

Internal Revenue Service from refunding a payment of money that has

been deposited in the Treasury and credited to the taxpayer's liability

unless there is an overpayment.

(f) Effective date. This section is effective as of December 30,

1994.

Par. 3. Section 301.6343-2 is added to read as follows:

Sec. 301.6343-2 Return of wrongfully levied upon property.

(a) Return of property--(1) General rule. If the district director,

service center director, or compliance center director (the director)

determines that property has been wrongfully levied upon, the director

may return--

(i) The specific property levied upon;

(ii) An amount of money equal to the amount of money levied upon;

or

(iii) An amount of money equal to the amount of money received by

the United States from a sale of the property.

(2) Time of return. If the United States is in possession of

specific property, the property may be returned at any time. An amount

equal to the amount of money levied upon or received from a sale of the

property may be returned at any time before the expiration of 9 months

from the date of the levy. When a request described in paragraph (b) of

this section is filed for the return of property before the expiration

of 9 months from the date of levy, an amount of money may be returned

after a reasonable period of time subsequent to the expiration of the

9-month period if necessary for the investigation and processing of

such request.

(3) Specific property. In general the specific property levied upon

will be returned whenever possible. For this purpose, money that is

specifically identifiable, as in the case of a coin collection which

may be worth substantially more than its face value, is treated as

specific property.

(4) Purchase by United States. For purposes of paragraph

(a)(1)(iii) of this section, if property is declared purchased by the

United States at a sale pursuant to section 6335(e), the United States

is treated as having received an amount of money equal to the minimum

price determined by the director before the sale or, if larger, the

amount received by the United States from the resale of the property.

(b) Request for return of property. A written request for the

return of property wrongfully levied upon must be addressed to the

district director (marked for the attention of the Chief, Special

Procedures Staff) for the Internal Revenue district in which the levy

was made. The written request must contain the following information--

(1) The name and address of the person submitting the request;

(2) A detailed description of the property levied upon;

(3) A description of the claimant's basis for claiming an interest

in the property levied upon; and

(4) The name and address of the taxpayer, the originating Internal

Revenue district, and the date of the levy as shown on the notice of

levy form, or levy form, or, in lieu thereof, a statement of the

reasons why such information cannot be furnished.

(c) Inadequate request. A request for the return of property

wrongfully levied upon will not be considered adequate unless it is a

written request containing the information required by paragraph (b) of

this section. However, unless a notification is mailed by the director

to the claimant within 30 days of receipt of the request to inform the

claimant of the inadequacies, any written request will be considered

adequate. If the director timely notifies the claimant of the

inadequacies of his request, the claimant has 30 days from the receipt

of the notification of inadequacy to supply in writing any omitted

information. Where the omitted information is so supplied within the

30-day period, the request will be considered to be adequate from the

time the original request was made for purposes of determining the

applicable period of limitation upon suit under section 6532(c).

(d) Payment of interest. Interest is paid at the overpayment rate

established under section 6621--

(1) In the case of money returned under paragraph (a)(1)(ii) of

this section, from the date the director received the money to a date

(to be determined by the director) preceding the date of return by not

more than 30 days; or

(2) In the case of money returned under paragraph (a)(1)(iii) of

this [[Page 38]] section, from the date of the sale of the property to

a date (to be determined by the director) preceding the date of return

by not more than 30 days.

(e) Effective date. This section is effective as of December 30,

1994.

Approved: December 13, 1994.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Leslie Samuels,

Assistant Secretary of the Treasury.

[FR Doc. 94-31665 Filed 12-30-94; 8:45 am]

BILLING CODE 4830-01-U