Chief Counsel Notice 2011-005 IRS provides instructions for addressing economic hardship in levy cases Chief Counsel Notice 2011-005 In light of a 2009 Tax Court decision that Appeals abused its discretion by sustaining a proposed levy after the settlement officer concluded that the levy would create an economic hardship for the taxpayer, IRS has issued a Chief Counsel Notice (CCN) with instructions for when a taxpayer alleges in a collection due process (CDP) case that the levy should not be sustained because it would cause an economic hardship. Background. Under Code Sec. 6330 , IRS must provide written notice to a taxpayer of its intent to levy on any of the taxpayer's property or rights to property at least 30 days before the levy and inform the taxpayer of his right to a CDP hearing with the Office of Appeals (Appeals). At the CDP hearing, the settlement or appeals officer verifies that all legal and administrative requirements have been met, considers issues raised by the taxpayer (including whether the proposed collection action would cause an economic hardship), and determines whether the proposed collection activity is appropriate. The taxpayer then has 30 days to appeal this determination to the Tax Court. Under Code Sec. 6343(a)(1)(D) and regs, IRS must release a levy if it creates an economic hardship for the taxpayer. In Vinatieri, (2009) 133 TC No. 16 , the Tax Court held that Appeals abused its discretion by sustaining a proposed levy that would render the taxpayer unable to meet her necessary living expenses. Although the settlement officer determined that the taxpayer met the hardship requirements for “Currently Not Collectible” status, Appeals nonetheless upheld the levy based on the fact that she wasn't currently compliant with her return filing obligations. Contrary to Appeals' decision, Code Sec. 6343(a)(1)(D) and Reg. § 301.6343-1(b)(4) require release of a levy if the taxpayer provides adequate financial information from which it can be determined that the levy will create an economic hardship, which the taxpayer in Vinatieri clearly did, even if the taxpayer isn't compliant with return filing requirements. Accordingly, the Tax Court denied IRS's motion for summary judgment because IRS's determination to proceed with the levy was wrong as a matter of law and therefore an abuse of discretion (see Weekly Alert ¶ 10 01/07/2010 ). CCN's position. In light of the holding in Vinatieri, the CCN provided a series of steps to be taken when a taxpayer is alleging, in an appeal to the Tax Court from a notice of determination sustaining a levy, that the levy shouldn't proceed because it would cause economic hardship. In that situation, the appropriate steps are to: (1) review the administrative record to determine if the taxpayer raised economic hardship and, if so, whether the facts support the taxpayer's claim that the levy would prevent him from meeting necessary living expenses; and (2) file a motion requesting that the case be remanded back to Appeals if the taxpayer raised, and the settlement or appeals officer failed to address, a credible economic hardship argument. Kathleen A. Vinatieri v. Commissioner, 133 T.C. No. 16, Code Sec(s) 6330; 6343. ________________________________________ KATHLEEN A. VINATIERI, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Case Information: Code Sec(s): 6330; 6343[pg. 229] Docket: Dkt No. 15895-08L. Date Issued: 12/21/2009 . Judge: Opinion by Dawson, J. Tax Year(s): Year 2002. Disposition: Decision against Commissioner. HEADNOTE 1. Collection due process—review of administrative determination—collection alternatives—economic hardship—levy release—summary judgment. IRS was denied summary judgment on question of propriety of its administrative determination to proceed with levy despite resulting economic hardship against single mother: IRS's determination, which was based on finding that taxpayer didn't qualify for collection alternatives because she had not stayed compliant with her return filing obligations, was abuse of discretion. Although IRS's tax-compliance policy regarding collection alternatives had been generally upheld in prior cases, Tax Court noted that those cases involved taxpayers with enough income to pay their basic living expenses rather than situations of economic hardship under Code Sec. 6343(a)(1)(D) and Reg § 301.6343-1(b)(4) , which in turn provided for levy release in case of economic hardship regardless of tax filing noncompliance. So, considering foregoing and purpose of CDP provisions, Court determined that settlement officers may not go forward with levy and must consider collection alternatives if taxpayers provide information about economic hardship during pre-levy CDP hearing. Accordingly, as taxpayer here had provided such information, showing that levy on her wages or her car/only asset would leave her without resources to pay basic living expenses or ability to work, and as settlement officer[pg. 230] had found that such amounted to economic hardship, officer's ensuing determination to nevertheless proceed with levy, which would have to be immediately released under Code Sec. 6343 and regs, was arbitrary and wrong as matter of law. Reference(s): ¶ 63,305.01(5) ; ¶ 63,305.01(40) Code Sec. 6330 ; Code Sec. 6343 Syllabus Official Tax Court Syllabus R issued P a notice of intent to levy to collect P's unpaid Federal income taxes for 2002. P timely requested a hearing under sec. 6330, I.R.C. P submitted to the settlement officer Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, indicating she had monthly income of $800 and expenses of $800, had $14 cash on hand, and owned a 1996 Toyota Corolla four-door sedan with 243,000 miles and a value of $300. If P's wages are levied on she will be unable to pay her reasonable basic living expenses. If her car is levied on, she will be unable to work. The settlement officer stated in her log that P meets the criteria to have her account reported as currently not collectible because of hardship in accordance with the Internal Revenue Manual (IRM). However, R's Appeals Office issued a notice of determination to proceed with levy, stating that P was not entitled to collection alternatives because she had not filed her 2005 and 2007 Federal income tax returns. P timely petitioned for review of that determination under sec. 6330(d), I.R.C. R filed a motion for summary judgment. P, proceeding pro se, did not file a cross-motion for summary judgment. Under regulations prescribed by the Secretary, the Secretary must release a levy upon all, or part of, a taxpayer's property or rights to property if, inter alia, the Secretary has determined that the levy is creating an economic hardship due to the financial condition of the taxpayer. Sec. 6343(a)(1)(D), I.R.C. The regulations provide that a levy is creating an economic hardship due to the financial condition of an individual taxpayer and must be released “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.” Sec.301.6343-1(b)(4), Proced. & Admin. Regs. 1. Held: Sec. 6343(a)(1)(D), I.R.C., and sec. 301.6343-1(b)(4), Proced. & Admin. Regs., require release of a levy that creates an economic hardship regardless of the taxpayer's noncompliance with filing required returns. 2. Held, further, a levy on P's wages or car would cause P to be unable to pay her reasonable basic living expenses, creating an economic hardship that would require release of the levy pursuant to sec. 6343(a)(1)(D), I.R.C., and sec. 301.6343-1(b)(4), Proced. & Admin. Regs. 3. Held, further, R's motion for summary judgment is denied because R's determination to proceed with the levy was wrong as a matter of law and, therefore, was an abuse of discretion. Counsel Kathleen A. Vinatieri, pro se. Martha J. Weber, for respondent. DAWSON, Judge OPINION This matter is before the Court on respondent's motion for summary judgment filed pursuant to Rule 121. 1 Petitioner timely filed a petition pursuant to section 6330(d) appealing respondent's determination to proceed with collection by levy of petitioner's 2002 income tax liability. The issue to be decided is whether respondent's determination was an abuse of discretion. Background Petitioner resided in Tennessee when she filed the petition. Her residence is an apartment that she rents for $600 per month. On September 13, 2007, respondent sent petitioner a Final Notice of Intent to Levy and Notice of Your Right to a Hearing (levy notice). The underlying tax liability [pg. 231] was attributable to unpaid self-assessed tax reported on her 2002 return. Petitioner timely requested a hearing on September 24, 2007, and the hearing was conducted through correspondence and by telephone with the settlement officer. Petitioner first learned of the collection activity when her employer notified her about the proposed levy on her wages. When the settlement officer asked petitioner whether she wanted to enter into an installment agreement, petitioner said “she has nothing.” 2 Petitioner told the settlement officer that she has pulmonary fibrosis and is dying. Because of her health she can only find part-time employment. The settlement officer could not find a record that petitioner had filed a return for 2005. Petitioner explained to the settlement officer that the payroll company responsible for completing her 2005 Form W-2, Wage and Tax Statement, was no longer in business. She had attempted to get the tax information from the Internal Revenue Service (IRS), but the IRS had no information regarding her income for 2005. The settlement officer told petitioner that she might be able to have her account placed in currently not collectible status. The settlement officer asked petitioner to submit a Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and a diagnosis regarding her current health condition. Petitioner sent a completed Form 433-A, indicating she had monthly income of $800 and expenses of $800, had $14 cash on hand, and owned a 1996 Toyota Corolla four-door sedan with 243,000 miles and a value of $300. The Form 433-A reported that petitioner did not own any other assets. Verification received by the settlement officer was consistent with the information petitioner provided in the Form 433-A. Petitioner was unable to obtain a written diagnosis of her medical condition from her physician because her physician would provide a diagnosis only in a claim for worker's compensation. The settlement officer's log entry dated May 15, 2008, states: TP [petitioner] meets the criteria to have account placed in CNC [currently not collectible] status per IRM 5.16.[1.]2.9 Hardship. The balance due is less than 10K and the TP has stated she has a terminal illness. CIS verification is not required. The TP has stated she has nothing and is not able to full pay or make payments. However, the TP is not in compliance. The TP has not filed a 2005 return and there is no record of the 2007 tax return being filed. The TP stated she does not have income information for 2005 and company that did payroll is no longer in business. TP stated she contacted IRS and they advised her they have no income information. There is no information per IRTRL. S/O [the settlement officer] contacted TP regarding filing of the 2007 return. The TP stated the return was filed late. The S/O requested the TP fax a copy of the return with the W-2. TP to fax information by 5-19-08. S/O asked TP if she obtained health diagnosis and the TP stated the doctor would only give her something if she is applying for diability. S/O requested income information for 2005 per IRPTRE. The settlement officer's log entry dated May 20, 2008, states: TP did not provide a copy of 2007 return and there is no record that the return has been filed per IDRS research. The TP was employed in 2007 and is currently employed. The 2005 return has not been filed. Since the TP is not in compliance, collection alternative cannot be considered. S/O will issue determination letter. If the 2005 income information is received, the S/O will forward it to the TP. Respondent issued petitioner a Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330 (notice of determination) dated June 2, 2008, sustaining the proposed levy action and stating that, because petitioner was not[pg. 232] in compliance with filing the required tax returns, a collection alternative could not be considered. The notice of determination was reviewed and signed by the Appeals team manager. The attachment to the notice of determination stated: The settlement officer inquired about a collection alternative and you stated you could not make payments. You stated you had pulmonary fibrosis and can only work part-time hours due to your heath condition. The Settlement officer [who] advised you of the collection alternative however explained a collection alternative could not be considered because you were not in compliance with filing required tax returns. *** The attachment explained the balancing of efficient tax collection with concern regarding intrusiveness as follows: Appeals has verified, or received verification, that applicable laws and administrative procedures have been met; has considered the issues raised; and has balanced the proposed collection with the legitimate concern that such action be no more intrusive than necessary by IRC Section 6330(c)(3). Collection alternatives include full payment, installment agreement, offer in compromise and currently-not-collectible. However, since unfiled tax returns exist, the only alternative at present is to take enforced action by levying your assets. It is Appeals decision that the proposed levy action is appropriate. The proposed levy action balances the need for the efficient collection of the taxes with the legitimate concern that any collection action be no more intrusive than necessary. Neither the notice of determination nor the attachment reflect any consideration of the fact that the levy would create an economic hardship as stated by the settlement officer in her daily log and supported by the Form 433-A petitioner submitted. Petitioner timely filed a petition in this Court challenging respondent's determination. Respondent filed the motion for summary judgment, and the Court ordered petitioner to file a response. 3 Petitioner filed a response to respondent's motion for summary judgment but did not file a cross-motion for summary judgment. 4 In her response petitioner describes her situation as follows: To Whom It May Concern, I don't know what you want to know cause I don't understand all the legal stuff you sent me. I can't afford a lawyer. And the closest legal aid is in Knoxville 30 miles away. My poor car will not go that far. So I will start at the beginning of my story and see if you can help me. I was in an unhealthy relationship for many years. During a great deal of that time my husband was doing alcohol and drugs. I had 2 children plus his 3 to take care of. I had been doing janitorial work at a strip mall *** . It was the only place that I could work that I could take my [then] 3 year old daughter with me. I could not support my family and pay day care. *** My husband took care of bills and such cause he demanded that I turn over my money. We even got a divorce during that time cause I was not obeying him. *** Now I am not looking for sympathy just understanding. Do you know how hard it is to be a single parent? * * * I have a high school education and nothing else. It was nearly five years before I was notified of a problem by the I.R.S. Danny [petitioner's former spouse] was suppose to be doing taxes. He even made me sign a form that because he made more money he could claim my kids on his taxes cause we were no longer legally married. I got all the W-2's from the I.R.S. except 2005 that they still have not sent[pg. 233] me. That is why they are not done. I did all those taxes and forfeited the refunds. I do not remember what that total came to. But it was enough to pay I would say most of back taxes. The 2007 taxes were late and I don't know why they didn't arrive. I sent a second copy in as soon as my son gave me my copy. He had my copy for college financial aid and he lost them for a bit of time. I am not a rich person. I work in a job so I can be home with my daughter. I left my husband in July after he threatened to beat my daughter with a baseball bat. Beating me is one thing but I could not have him beating my girl. So I am a single parent again. Right now we have not had much work in nearly a year. I have rent of 600 a mo. Utilities of 150 and get food stamps or I wouldn't eat. I make about 700-800 [per] month. There are no better jobs in our town. My daughter is only 11 so its not like I can leave her alone at night or on weekends. D.H.S. says it's not even legal. She is too young. There is no child care and I have no family here. I have pulmonary fibrosis that makes me sick all the time and the diagnosis says I have about 10 yrs to live. Right now I can work thank God. I did my taxes this year [for 2008] and you are getting a little over $4,700. I'm not asking for much just a break. You can have my tax returns [refunds ?] I don't care. Well I do that is a tremendous loss but oh well. I don't have any money to send you on a monthly basis. Can we stop all the penalties. They are killing me. I will never be able to pay it off. *** I let a relationship screw me up. I am truly sorry for that and am begging for a lifeline here. You can come to my home and see for yourself. I don't have fancy t.v.'s or even cable except for internet. I can't afford a phone. My clothes have holes in them. I even cut my own hair. If I could pay this off faster I would just to stop the nightmares it gives me. Discussion A. Summary Judgment Summary judgment is used to expedite litigation and avoid unnecessary and expensive trials. The Court will render a decision on a motion for summary judgment if the pleadings, answers to interrogatories, depositions, admissions, and other acceptable materials, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law. Rule 121(b). Because the effect of granting a motion for summary judgment is to decide the case against a party without allowing that party an opportunity for a trial, the Court should grant the motion only after a careful consideration of the case. Associated Press v. United States, 326 U.S. 1, 6 (1945); Kroh v. Commissioner, 98 T.C. 383, 390 (1992). For purposes of respondent's motion for summary judgment, respondent has the burden of showing the absence of a genuine issue as to any material fact. Petitioner is afforded the benefit of all reasonable doubt, and the material submitted by both sides is viewed in the light most favorable to petitioner. See, e.g., Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970); Kroh v. Commissioner, supra at 390. Respondent moves the Court for summary judgment on the ground that the settlement officer did not abuse her discretion in rejecting collection alternatives and determining to proceed with levy because petitioner was not in compliance with the filing requirements. Petitioner asks that the levy not be sustained because, if her wages are taken, she will be unable to pay her basic living expenses; and, if her car is taken, she will not be able to work. B. Collection of Federal Taxes by Levy If a taxpayer liable for Federal taxes fails to pay the taxes within 10 days after notice and demand, section 6331authorizes the Secretary to collect the tax by levy upon all property and rights to property (except any property that is exempt under section 6334) belonging to the taxpayer or on which there is a lien for the payment of the tax.[pg. 234] Section 6343(a)(1) provides that, under regulations prescribed by the Secretary, if the Secretary has determined that the levy is creating an economic hardship due to the financial condition of the taxpayer, the Secretary must release a levy upon all, or part of, a taxpayer's property or rights to property. 5 Sec. 6343(a)(1)(D). The regulations provide that a levy is creating an economic hardship due to the financial condition of an individual taxpayer and must be released “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.” Sec. 301.6343-1(b)(4), Proced. & Admin. Regs. A taxpayer alleging that collection of the liability would create undue hardship must submit complete and current financial data to enable the Commissioner to evaluate the taxpayer's qualification for collection alternatives or other relief. Picchiottino v. Commissioner, T.C. Memo. 2004-231 [TC Memo 2004-231]. The regulations provide that, for purposes of determining the taxpayer's reasonable amount of living expenses, any information that is provided by the taxpayer is to be considered, including the following: (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 *** , medical expenses *** , transportation, current tax payments *** , alimony, child support, or other court-ordered payments, and expenses necessary to the taxpayer's production of income *** ; (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. Sec. 301.6343-1(b)(4)(ii), Proced. & Admin. Regs. C. Section 6330 Procedures Section 6330(a) provides the general rule that no levy may be made on any property or right to property of any taxpayer unless the Secretary has provided 30 days' notice to the taxpayer of the right to an administrative hearing before the levy is carried out. If the taxpayer makes a timely request for an administrative hearing, the hearing is conducted by the IRS Office of Appeals (Appeals Office) before an impartial officer. Sec. 6330(b)(1), (3). The taxpayer may raise any relevant issue during the hearing, including appropriate spousal defenses and challenges to “the appropriateness of collection actions”, and may make “offers of collection alternatives, which may include the posting of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise.” Sec. 6330(c)(2)(A). The taxpayer also may raise challenges to the existence or amount of the underlying tax liability if he/she did not receive a notice of deficiency for that liability or did not otherwise have an opportunity to dispute it. Sec. 6330(c)(2)(B). During the hearing the Appeals officer must verify that the requirements of applicable law and administrative procedure have been met, consider issues properly raised by the taxpayer, and consider whether any proposed collection action balances the need for the efficient collection of taxes with the taxpayer's legitimate concern that any collection action be no more intrusive than necessary. Sec. 6330(c)(3). The Appeals Office then issues a notice of determination indicating whether the proposed levy may proceed. Under section 6330(d)(1) the taxpayer may petition this Court to review the determination made by the Appeals Office. See sec. 301.6330-1(f)(1), Proced. & Admin. [pg. 235] Regs. Where, as in this case, the underlying tax liability is not at issue, we review the Appeals Office's determinations regarding the collection action for abuse of discretion. Goza v. Commissioner, 114 T.C. 176 (2000). An abuse of discretion occurs if the Appeals Office exercises its discretion “arbitrarily, capriciously, or without sound basis in fact or law.” Woodral v. Commissioner, 112 T.C. 19, 23 (1999). When a taxpayer establishes in a pre-levy collection hearing under section 6330 that the proposed levy would create an economic hardship, it is unreasonable for the settlement officer to determine to proceed with the levy which section 6343(a)(1)(D) would require the IRS to immediately release. Rather than proceed with the levy, the settlement officer should consider alternatives to the levy. Respondent argues under the holdings of Rodriguez v. Commissioner, T.C. Memo. 2003-153 [TC Memo 2003-153], and McCorkle v. Commissioner, T.C. Memo. 2003-34 [TC Memo 2003-34], that there is no abuse of discretion if a settlement officer rejects collection alternatives because the taxpayer was not in compliance with the filing requirements for all required tax returns. 6 Generally, we have found the Commissioner's policy requiring individuals seeking collection alternatives to be current with filing their returns to be reasonable. 7 However, taxpayers in those cases have had sufficient income to meet basic living expenses. See, e.g., Speltz v. Commissioner, 124 T.C. 165, 178 (2005) (taxpayers claimed hardship because the tax liability was disproportionate to the value that they received from initial stock offerings and because they had already been forced to change their lifestyle), affd. 454 F.3d 782 [98 AFTR 2d 2006-5364] (8th Cir. 2006); Peterson v. Commissioner, T.C. Memo. 2009-46 [TC Memo 2009-46] (the Court upheld rejection of taxpayers' offer of $20,000 to compromise $70,000 liability where, although they had minimal income from Social Security retirement and disability payments, they had reasonable collection potential of $68,000 from two parcels of real property valued at $80,000); Fangonilo v. Commissioner, T.C. Memo. 2008-75 [TC Memo 2008-75](Commissioner's refusal to treat taxpayer's tax liability as currently not collectible was not an abuse of discretion where although taxpayer's income was not sufficient to meet his stated monthly living expenses, he had a liquid asset worth more than his tax liability); Willis v. Commissioner, T.C. Memo. 2003-302 [TC Memo 2003-302] (taxpayers' ability to make some payments toward their cumulative liability made them ineligible to have the cumulative liability classified as currently not collectible); Rodriguez v. Commissioner, T.C. Memo. 2003-153 [TC Memo 2003-153] (taxpayer had not filed returns for 12 years and did not submit all of the financial information supporting her offer-in-compromise that the settlement officer requested); Ashley v. Commissioner, T.C. Memo. 2002-286 [TC Memo 2002-286] (taxpayer had income in excess of expenses and sufficient equity in his real property to pay his tax liability in full). We have found no cases addressing the requirement that the taxpayer be current with filing returns in a levy case involving economic hardship under section 6343(a)(1)(D) and section 301.6343-1(b)(4), Proced. & Admin. Regs. Neither section 6343 nor the regulations condition a release of a levy that is creating an economic hardship on the taxpayer's compliance with filing and payment requirements. The purpose of section 6330 is to “afford taxpayers adequate notice of collection activity and a meaningful hearing before the IRS deprives them of[pg. 236] their property.” S. Rept. 105-174, at 67 (1998), 1998-3 C.B. 537, 603 (emphasis added). A determination in a hardship case to proceed with a levy that must immediately be released is unreasonable and undermines public confidence that tax laws are being administered fairly. In a section 6330 pre-levy hearing, if the taxpayer has provided information that establishes the proposed levy will create an economic hardship, the settlement officer cannot go forward with the levy and must consider an alternative. D. Appeals Office's Determination To Proceed With Levy of Petitioner's Assets The financial information petitioner submitted on the Form 433-A, which was consistent with other information the settlement officer obtained, showed that if petitioner's wages are levied on, she will be unable to pay her basic living expenses; and, if her car is levied on, she will not be able to work. After analyzing petitioner's financial information, the settlement officer concluded that the levy would create an economic hardship and so stated in her log. However, the settlement officer determined collection alternatives to the levy, including an installment agreement, an offer-in-compromise, and reporting the account as currently not collectible, were not available because petitioner had not filed her 2005 and 2007 returns. The settlement officer's determination to proceed with the levy was reviewed and approved by the Appeals team manager who signed the notice of determination. Although the attachment to the notice of determination shows that the Appeals team manager was aware of petitioner's financial situation and health problems, the Appeals team manager signed the notice of determination to proceed with the levy because petitioner had not filed her 2005 and 2007 returns. Proceeding with the levy would be unreasonable because section 6343 would require its immediate release, and the determination to do so was arbitrary. The determination to proceed with the levy was wrong as a matter of law and, therefore, was an abuse of discretion. Respondent is not entitled to summary judgment, and respondent's motion will be denied. An order denying respondent's motion will be issued. ________________________________________ 1 All Rule references are to the Tax Court Rules of Practice and Procedure, and all section references are to the Internal Revenue Code. ________________________________________ 2 Petitioner explained to the settlement officer that she had previously agreed to pay in installments and that she was told she would be sent envelopes for each payment, but she never received the envelopes or monthly bills. ________________________________________ 3 In the order we observed that our preliminary review of the record indicated that the proposed levy action involved a hardship situation and that petitioner needed the assistance of an attorney. We urged petitioner to contact the legal aid society or the local bar association pro bono services and provided their addresses and phone numbers. ________________________________________ 4 After petitioner filed her response to respondent's motion for summary judgment, respondent filed a motion to continue the case wherein respondent stated that petitioner was in the process of submitting a collection alternative to the IRS and that, if the alternative is accepted by the IRS, a trial in this case would not be necessary. The Court granted respondent's motion and directed the parties to file a status report on or before July 27, 2009. In a status report filed on July 17, 2009, respondent reported that respondent has not received any communication from petitioner and requested the Court to grant respondent's motion for summary judgment. ________________________________________ 5 The regulations provide a method whereby a taxpayer may inform the Secretary that a levy is creating an economic hardship and request that the levy be released. See sec. 301.6343-1(c), Proced. & Admin. Regs. “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.” Id. However, service center directors and compliance center directors (to whom requests by taxpayers are not made) who have determined that a levy is creating an economic hardship must also release the levy and promptly notify the taxpayer of the release pursuant to sec. 301.6343-1(a), Proced. & Admin. Regs. ________________________________________ 6 Generally, the IRS will not grant an installment agreement, accept an offer-in-compromise, or report an account as currently not collectible if any tax return for which the taxpayer has a filing requirement has not been filed. See Internal Revenue Manual pts. 5.14.1.4.1(4)-(6) (Sept. 26, 2008) (installment agreements); 5.8.3.13(1), (2), (4) (Sept. 23, 2008)(offers-in-compromise); 5.16.1.1(5) and (6), 5.16.1.2.9(8) (May 5, 2009) (currently not collectible), 5.1.11.2.3 (June 2, 2004) (general collection procedures). ________________________________________ 7 In Estate of Atkinson v. Commissioner, T.C. Memo. 2007-89 [TC Memo 2007-89], we found reasonable requirements that an entity seeking collection alternatives to full payment, including reporting an account as currently not collectible, filing any outstanding tax returns and submitting a full financial statement and verification information for analysis. Mandatory release of levy creating an economic hardship applies only to individuals. Sec. 301.6343-1(b)(4), Proced. & Admin. Regs. § 6343 Authority to release levy and return property. ________________________________________ (a) Release of levy and notice of release. (1) In general. Under regulations prescribed by the Secretary, the Secretary shall release the levy upon all, or part of, the property or rights to property levied upon and shall promptly notify the person upon whom such levy was made (if any) that such levy has been released if— (A) the liability for which such levy was made is satisfied or becomes unenforceable by reason of lapse of time, (B) release of such levy will facilitate the collection of such liability, (C) the taxpayer has entered into an agreement under section 6159 to satisfy such liability by means of installment payments, unless such agreement provides otherwise, (D) the Secretary has determined that such levy is creating an economic hardship due to the financial condition of the taxpayer, or Reg §301.6343-1. Requirement to release levy and notice of (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 §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 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 §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 §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 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 §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. EXP ¶63,354.06 Release of property from levy and return of property. (a) Release from levy. The IRS must release a levy on all or part of the property—and promptly notify the person whose property was levied on—if • the liability for which the levy was made is satisfied or becomes unenforceable due to lapse of time, • release of the levy will facilitate the collection of the liability, • the taxpayer has entered into an installment agreement under Code Sec. 6159 to satisfy the liability (unless the agreement provides otherwise or release would jeopardize the IRS's secured creditor status), • the IRS has determined that the levy is creating an economic hardship because of the taxpayer's financial condition, or • the fair market value of the property exceeds the liability and partial release wouldn't hinder collection of the tax. Code Sec. 6343(a)(1) ; Reg §301.6343-1 , ¶63,432 . The IRS must release the levy promptly and notify the person on whom the levy was made of the release if it determines that a condition, listed above, for release is present. It must make a determination if a taxpayer submits a request for release of levy (see below), or may make the determination based on information received from another source. Reg §301.6343-1(a) . A liability becomes unenforceable when the Code Sec. 6502 limitation period on collection (taking into account suspension periods) lapses. But a levy made within the limitation period by giving the notice of seizure doesn't become unenforceable merely because the person receiving the levy doesn't surrender the property within the limitation period. A continuing levy on salary or wages must be released at the end of the collection limitation period, but this doesn't apply to a levy on a fixed and determinable right to payment that includes payments to be made after the limitation period expires. Reg §301.6343-1(b)(1) . The IRS has the discretion to release the levy in all situations where it will facilitate collection, under terms and conditions that he determines are warranted. This may occur where a sale of the property by the taxpayer is demonstrated to be more advantageous, or where the taxpayer meets other conditions such as placing the property in escrow to secure payment of the tax liability, delivering an acceptable bond, paying to the IRS an amount equal to the U.S. interest in the seized property, or executing an agreement to extend the limitation period. A release can also occur if the IRS determines that the value of the U.S. interest in the seized property doesn't exceed the expenses of sale of the property. Reg §301.6343-1(b)(2) . Economic hardship due to taxpayer's financial condition occurs if the satisfaction of the levy in whole or in part will cause an individual taxpayer to be unable to pay reasonable basic living expenses. This determination is made by the IRS on the basis of certain information provided by the taxpayer who must act in good faith. Reg §301.6343-1(b)(4) . If levy on tangible personal property essential to carrying on a taxpayer's trade or business would prevent the taxpayer from carrying on the trade or business, the IRS must provide for an expedited determination of whether to release a levy for the above reasons. Release of levy doesn't prevent a later levy on the same property. Code Sec. 6343(a)(2) and Code Sec. 6343(a)(3) . A taxpayer must ordinarily submit a request for expedited determination more than five days before a scheduled sale of the business property. The request has to include the same information required for a request for release of levy, described below, plus an explanation of why the property levied on qualifies for an expedited determination. The IRS then has to make the determination by the later of 10 business days after receiving the request for release or 10 business days after receiving any necessary supporting documentation. If necessary, the IRS may postpone a scheduled sale to make the determination. Reg §301.6343-1(d) . Where a levy is on salary or wages payable to or received by the taxpayer, the IRS, on agreement with the taxpayer that the tax isn't collectible, will be required to release the levy as soon as practicable. Code Sec. 6343(e) . Thus, the IRS is not to intentionally delay until one wage payment has been made and levied on before releasing the levy. Conf Rept No. 105-599 (PL 105-206), p. 279, see ¶63,431.004 . Requests for release of levy. A taxpayer seeking a release of levy has to submit a request for release in writing or by telephone to the IRS. The taxpayer must provide the following information: • taxpayer's name, address, and taxpayer identification number; • a description of the property levied on; • the type of tax and the period for which the tax is due; • the date of the levy and the originating IRS office, if known; and • a statement of the grounds on which the request for release of the levy is based. Reg §301.6343-1(c)(1) . Except in extraordinary circumstances, a request for release has to be made more than five days before a scheduled sale of the property. And the IRS generally has to make a determination within 30 days if the request is made 30 or more days before a scheduled sale, or before the scheduled sale if the request is made less than 30 days but more than 5 days before the scheduled sale. The IRS may (but doesn't have to) make a release determination for requests made 5 days or less before the scheduled sale. The IRS must promptly notify the taxpayer if the levy is released. If the IRS decides not to release the levy, the taxpayer has to be promptly notified of that decision and the reason for it. Reg §301.6343-1(c)(2)--(4) . For administrative release of lien, see ¶63,254 . Prior law. For levies imposed before Jan. 1, 2000 ( Sec. 3432(b), PL 105-206, 7/22/1998 ), the rule requiring levy release where tax isn't collectible did not apply. Code Sec. 6343 before amended by Sec. 3432(a), PL 105-206, 7/22/1998 . (b) Return of property in case of wrongful levy. If the IRS determines that property was wrongfully levied on, then it can administratively return the specific property at any time. It can also return within 9 months from date of levy the amount of money levied on; or the amount received from sale of levied-on property; or (in case of property bid in by the IRS) the IRS minimum bid price for the property, or amount received from resale of property bid in by the IRS if that is larger than the minimum bid price. Code Sec. 6343(b) ; Reg §301.6343-2(a) . A wrongful levy usually occurs if there has been a mistake as to ownership of property. Requests for return of property. A written request for the return of property wrongfully levied on must be addressed to the IRS official, office and address specified in IRS Pub. 4528 . The request should contain: • the name and address of the person submitting the request; • a detailed description of the property levied on; • a description of the claimant's basis for claiming an interest in the property levied on; and • the name and address of the taxpayer, the originating IRS office, and the date of the levy as shown on the notice of levy or levy form (or a statement of the reasons that information can't be furnished). Reg §301.6343-2(b) . Although a written request generally has to contain this information, any written request is considered adequate unless the IRS mails to the claimant a notification of inadequacies within 30 days of receiving the request. If the IRS timely notifies the claimant of inadequacies, the claimant has 30 days from receipt of the notification to supply in writing any omitted information. If the claimant supplies the information within the 30-day period, the request is considered adequate from the time the original request was made for purposes of determining the limitations period for bringing suit for return of the property under Code Sec. 7426 . Reg §301.6343-2(c) . Interest. The IRS will pay interest at the overpayment rate prescribed under Code Sec. 6621 , explained at ¶66,214 , if money is wrongfully seized or if the proceeds from a sale of seized property are returned to the owner. The interest begins from the date the money is seized or the property is sold and ends on the date not more than 30 days before the date money is returned or payment is made to the owner. Code Sec. 6343(c) ; Reg §301.6343-2(d) . Prior law. For requests for the return of property filed before July 8, 2008, the rules were substantially the same under temporary regulations. Reg §301.6343-2(e) . For requests for the return of property filed before Aug 21, 2007 ( Reg § 301.6343-2T(e), before amended by TD 9410, 07/08/2008 ) the regs provided that the district director determined whether property was wrongfully levied upon and requests to return property were submitted to the district director. Reg § 301.6343-2(a), before amended by TD 9334, 7/19/2007 ; Reg § 301.6343-2(b), before amended by TD 9334, 7/19/2007 . (c) Return of levied property where levy procedure incorrect or installment agreement made or where return facilitates collection or is in best interests of parties. The IRS may return levied property if the IRS determines that: (1) the levy on the property was premature or otherwise was not in accordance with IRS administrative procedures ( Code Sec. 6343(d)(2)(A) ; Reg §301.6343-3(c)(1) ); (2) subsequent to the levy, the taxpayer entered into an agreement to pay off the tax liability for which the levy was made in installments ( ¶61,594 ), except where the agreement precludes return ( Code Sec. 6343(d)(2)(B) ; Reg §301.6343-3(c)(2) ); (3) the return of the property will facilitate collection of the tax liability for which the levy was made ( Code Sec. 6343(d)(2)(C) ; Reg §301.6343-3(c)(3) ); or (4) the return of the property is in the best interest of the taxpayer, as determined by the National Taxpayer Advocate (or his delegate) and in the best interest of the IRS, as determined by the IRS. Returning levied property for this reason requires the consent of the taxpayer or the National Taxpayer Advocate (or his delegate). Code Sec. 6343(d)(2)(D) ; Reg §301.6343-3(c)(4) . The property is returned under the rules that apply to the return of wrongfully levied property discussed at (b) above, except that the rule requiring the IRS to pay interest when wrongfully levied property is returned does not apply. Code Sec. 6343(d) ; Reg §301.6343-3(i) . OBSERVATION: Thus, above rules cover property that is not covered by the wrongful levy rules at (b) above. In contrast to the wrongful levy rules, a levy may be covered by the above rules even if it is completely valid and lawful and recovery under the above rules is without interest. If money has been levied on and applied toward the taxpayer's liability, or property has been levied on and sold, and the receipts have been applied toward the taxpayer's liability, or property has been levied on and purchased by the U.S. and the U.S. still possesses the property, and the IRS determines that any of the four conditions listed above exist, the IRS may return ( Reg §301.6343-3(a) ): (A) an amount of money equal to the amount of money levied on ( Reg §301.6343-3(a)(1) ); (B) an amount of money equal to the amount of money received by the U.S. from a sale of the property ( Reg §301.6343-3(a)(2) ); or (C) the specific property levied on and purchased by the U.S. Reg §301.6343-3(a)(3) . With respect to item (4) above, the National Taxpayer Advocate (or his delegate) generally will determine whether the return of property is in the taxpayer's best interest. If, however, a taxpayer requests the IRS to return property and hasn't specifically requested the National Taxpayer Advocate (or his delegate) to determine the taxpayer's best interest, a finding by the IRS that the return of property is in the taxpayer's best interest will be sufficient to support the return of property. Only the National Taxpayer Advocate (or his delegate) may determine that a return of property is not in the taxpayer's best interest. Reg §301.6343-3(c)(4)(ii) . Example 1. A owes $1,000 in federal income taxes. The IRS levies on a broker with respect to a money market account belonging to the taxpayer and receives payment from the broker which it applies to the taxpayer's outstanding liability. However, the IRS fails to follow procedures provided by the Internal Revenue Manual (but not required by statute) with regard to managerial approval before the making of the levy. The IRS may return an amount of money equal to the amount of money the IRS levied on and applied toward the taxpayer's tax liability. Reg §301.6343-3(c)(5) , Ex. 1. Example 2. B owes $1,000 in federal income taxes. The IRS levies on a bank with respect to a savings account belonging to the taxpayer and receives funds from the bank which it applies to the taxpayer's liability. Subsequent to the levy, B enters into an installment agreement, under which it will pay timely installments to satisfy the entire liability. The installment agreement does not by its terms preclude the return of levied property. The revenue officer verifies that B is financially capable of paying the entire liability, including accruals, in the agreed-on installment payments. The IRS may return an amount of money equal to the amount of money levied on and applied toward the taxpayer's liability. Reg §301.6343-3(c)(5) , Ex. 2. Example 3. Crane owns a house that is deteriorating and in unsalable condition. Crane is in the process of renovating the house for sale when the IRS levies on Crane's bank account for the payment of a $20,000 outstanding federal tax liability and receives funds in the amount of $3,000, which it applies toward Crane's liability. A notice of federal tax lien is the only lien encumbering the house. Crane requests that an amount of money equal to the amount seized from the bank account be returned so that he can complete the renovation of the house. Without the funds, Crane will be unable to complete the renovation and sell the house. On examination, the IRS determines that the IRS can collect the entire tax liability if Crane's house is restored to salable condition. If the National Taxpayer Advocate, or the IRS in lieu of the National Taxpayer Advocate, determines that the return of the seized money is in the taxpayer's best interest, the IRS may return an amount of money equal to the amount seized from the bank account in the best interest of the taxpayer and the IRS. Reg §301.6343-3(c)(5) , Ex. 3. The IRS must determine whether any of the conditions authorizing the return of property exists if a taxpayer submits a request for the return of property in accordance with the rules at “Request for return of property where levy procedure incorrect or installment agreement made or where return facilitates collection or is in best interests of parties” below. However, the IRS may also make this determination independently. If the IRS determines that conditions authorizing the return of property aren't present, IRS may not authorize the return of property. If the IRS determines that conditions authorizing the return of property are present, the IRS may authorize the return of property (but is not required to, unless the reason for the return of property is that the levy was made in violation of law and is governed by the rules at “Automatic return where levy violates law” below). If the IRS decides independently to return property based on the best interests of the taxpayer and the IRS, the taxpayer or the National Taxpayer Advocate (or his delegate) must consent to the return of property. Reg §301.6343-3(g) . If the IRS returns property under the above rules, and the taxpayer fails to pay the previously assessed liability for which the levy was made on the returned property, the IRS may administratively collect the liability. Collection may include levying again on the returned property as long as statutory and administrative requirements are followed. Reg §301.6343-3(j) . Prior law. Before July 14, 2005, Reg §301.6343-3 , discussed above, was not effective. Reg §301.6343-3(k) . Automatic return where levy violates law. If the IRS makes a levy in violation of the law, it is in the best interest of the U.S. and the taxpayer to release the levy, and the IRS will return to the taxpayer any property obtained under that levy. For example, the IRS will release the levy and return the taxpayer's property if the levy was made: • without giving the requisite 30-day notice of intent to levy under Code Sec. 6330 , discussed at ¶63,304 ; • during the pendency of a proceeding for refund of divisible tax in violation of Code Sec. 6331(i) , discussed at ¶63,314.01 ; • before investigation of the status of levied property in violation of Code Sec. 6331(j) , discussed at ¶63,314.015 ; • during the pendency of an offer-in-compromise in violation of Code Sec. 6331(k)(1) , discussed at ¶63,314.01 ; or • during the period an offer to enter into an installment agreement is pending (or for 30 days following the rejection of an offer, or, if the rejection is timely appealed, during the period that the appeal is pending) or during the period an installment agreement is in effect (or during the 30 days following a termination or, if a timely appeal of termination is filed, during the period the appeal is pending) in violation of Code Sec. 6331(k)(2) , discussed at ¶63,314.01 . Reg §301.6343-3(d)(1) . When the release of a levy and the return of property are required under the above rules, the property or the proceeds from the sale of the property received by the IRS under the levy must be returned to the taxpayer, unless the taxpayer requests otherwise. The property or proceeds of sale may not be credited to any outstanding tax liability of the taxpayer, including the one with respect to which the IRS made the levy, without the taxpayer's written permission. Reg §301.6343-3(d)(2) . OBSERVATION: Thus, the regulations allow the taxpayer to give permission to the IRS to keep the levied property and apply the levy proceeds to the taxpayer's outstanding tax debts. In some cases the taxpayer may find it beneficial to allow the IRS to keep the levied property and apply the levy proceeds to his tax debts (for example where such a course would simplify the taxpayer's financial problems). OBSERVATION: Unlike recovery under the wrongful levy rules at (b) above, recovery under the above rules is without interest. Prior law. Before July 14, 2005, Reg §301.6343-3 , discussed above, was not effective. Reg §301.6343-3(k) . Time of return. Levied property in possession of the IRS (other than money) may be returned at any time. An amount of money equal to the amount of money levied on or received from a sale of property may be returned at any time before the expiration of nine months from the date of the levy. When a request for the return of money filed in accordance with the rules below is filed before the expiration of the nine-month period, or a determination to return an amount of money is made before the expiration of the nine-month period, the money may be returned within a reasonable period of time after the expiration of the nine-month period if additional time is necessary for investigation or processing. Reg §301.6343-3(e) . Prior law. Before July 14, 2005, Reg §301.6343-3 , discussed above, was not effective. Reg §301.6343-3(k) . Request for return of property where levy procedure incorrect or installment agreement made or where return facilitates collection or is in best interests of parties. A request for the return of property must be made in writing to the address on the levy form. Reg §301.6343-3(h)(1) . The written request must include the following information ( Reg §301.6343-3(h)(2) ): • the name, current address, and taxpayer identification number of the person requesting the return of money (or property purchased by the U.S.) ( Reg §301.6343-3(h)(2)(i) ); • a description of the property levied on ( Reg §301.6343-3(h)(2)(ii) ); • the date of the levy ( Reg §301.6343-3(h)(2)(iii) ); and • a statement of the grounds on which the return of money is being requested (or property purchased by the U.S.). Reg §301.6343-3(h)(2)(iv) . www.irstaxattorney.com 888-712-7690