PMTA explains time limit during which IRS can return wrongfully levied funds

Program Manager Technical Assistance 2010-66 Program Manager Technical Assistance (PMTA), IRS has explained the period of time during which IRS can return payments that were erroneously issued from a pension administrator to deceased taxpayers, then levied on by IRS. The PMTA concludes that IRS lacks the authority to return the wrongfully levied funds because the pension administrator didn't file administrative claims during the nine-month period following the levies under Code Sec. 6343(b) or file a wrongful levy action within the period prescribed by Code Sec. 6532 .

Background. If IRS determines that property was wrongfully levied on, it can administratively return the specific property at any time. It can also return within nine months from date of levy the amount of money levied on, the amount received from sale of levied-on property or (in case of property bid in by IRS) the IRS minimum bid price for the property, or the amount received from resale of property bid in by IRS if that is larger than the minimum bid price. ( Code Sec. 6343(b) )

An administrative claim for return of wrongfully levied funds must be in writing, submitted within nine months of the levy, and sent to the IRS official, office, and address specified in IRS Pub. 4528 (Making an Administrative Wrongful Levy Claim Under Internal Revenue Code (IRC) Section 6343(b)). It also must include:

... 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. ( Reg. § 301.6343-2 )

If there are deficiencies in the content of the request, IRS must actively seek to cure them or they will be deemed cured. However, if the request is not submitted to the proper office, as specified in Pub. 4528, it won't be effective. ( Reg. § 301.6343-2(c) ) The reference to Pub. 4528 and the statement of ineffectiveness were also included in the predecessor temporary reg which was in effect for claims submitted from Aug. 21, 2007, until July 8, 2008, when the final reg became effective.

For requests for return of wrongfully levied property filed before Aug. 21, 2007, the regs provided that the written request was to be addressed to the IRS district director, even though that position no longer existed in 2007. However, Pub. 4528, which was in effect until November 2007, directed claimants to mail their requests to the Advisory Group (or its predecessors) in various locations depending on where the levy or seizure was made.

Alternatively, instead of filing an administrative claim, a third party may bring a wrongful levy action under Code Sec. 7426 within nine months from the date of the levy. ( Code Sec. 6532(c)(1) ) However, if the third party made a timely written request for the return of the property, the nine-month period is extended for a period of 12 months from the date of the filing of the request or six months from the date IRS rejects the request, whichever comes first. ( Code Sec. 6532(c)(2)

Facts. A pension administrator erroneously issued pension payments to eight taxpayers after their respective dates of death because their deaths weren't timely reported to it. These payments were levied on by IRS during 2007 to 2010 pursuant to notices of levy. The pension administrator asserted that, because the taxpayers were no longer entitled to the pension payments upon their deaths, they had no interest in the wrongfully issued payments to which a levy could attach. Thus, the pension administrator claimed that IRS's levies were wrongful and sought a return of the levied funds.

The pension administrator sent written reimbursement requests for four of the taxpayers to IRS to the attention of the Automatic Collection System Office over the period from 2007 to 2009, but didn't receive any response. It then e-mailed its requests for the remaining taxpayers in 2010 to an individual at IRS's Wage and Investment Automated Collection System and Automated Collection System Support.

Conclusion. The PMTA holds that, although Code Sec. 6343 and the underlying reg don't directly address IRS's authority to return wrongfully levied funds when a timely administrative claim is submitted to the correct office but IRS fails to act on it, the overall statutory scheme shows that Congress intended to limit the time period in which IRS is authorized to return wrongfully levied funds. For instance, under Code Sec. 6343(b) , IRS can return funds only within nine months of the date of levy, whereas property can be returned at any time. Thus, the PMTA concludes that IRS lacks the authority to return wrongfully levied funds after the expiration of the time period for bringing a wrongful levy suit, even if the third party timely and properly submitted an administrative claim.

The PMTA concludes that the administrative wrongful levy claims relating to seven of the taxpayers were not effective because the pension administrator submitted them to the wrong office, and several of those were also untimely submitted more than nine months after the wrongful levies occurred. However, for the wrongful levies relating to two of those taxpayers, the nine-month period to submit an administrative claim remained open, so the pension administrator could submit administrative claims for levied funds which IRS would be authorized to return.

For the remaining taxpayer, even though the administrative claim was arguably effective under the regs applicable to pre-Aug. 7, 2007 claims (which contained outdated mailing information), the pension administrator failed to timely file a wrongful levy suit in federal district court after IRS failed to administratively address the claim. Therefore, because the time period for bringing a wrongful levy action has expired, the pension administrator is not entitled to a return of the wrongfully levied funds.

§ 6343 Authority to release levy and return property.

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(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

(E) the fair market value of the property exceeds such liability and release of the levy on a part of such property could be made without hindering the collection of such liability.

For purposes of subparagraph (C) , the Secretary is not required to release such levy if such release would jeopardize the secured creditor status of the Secretary.

(2) Expedited determination on certain business property.
In the case of any tangible personal property essential in carrying on the trade or business of the taxpayer, the Secretary shall provide for an expedited determination under paragraph (1) if levy on such tangible personal property would prevent the taxpayer from carrying on such trade or business.

(3) Subsequent levy.
The release of levy on any property under paragraph (1) shall not prevent any subsequent levy on such property.

(b) Return of property.
If the Secretary determines that property has been wrongfully levied upon, it shall be lawful for the Secretary to return—

(1) the specific property levied upon,

(2) an amount of money equal to the amount of money levied upon, or

(3) an amount of money equal to the amount of money received by the United States from a sale of such property.

Property may be returned at any time. An amount equal to the amount of money levied upon or received from such sale may be returned at any time before the expiration of 9 months from the date of such levy. For purposes of paragraph (3) , if property is declared purchased by the United States at a sale pursuant to section 6335(e) (relating to manner and conditions of sale), the United States shall be treated as having received an amount of money equal to the minimum price determined pursuant to such section or (if larger) the amount received by the United States from the resale of such property.

(c) Interest.
Interest shall be allowed and paid at the overpayment rate established under section 6621 —

(1) in a case described in subsection (b)(2) , from the date the Secretary receives the money to a date (to be determined by the Secretary) preceding the date of return by not more than 30 days, or

(2) in a case described in subsection (b)(3) , from the date of the sale of the property to a date (to be determined by the Secretary) preceding the date of return by not more than 30 days.

(d) Return of property in certain cases.
If—

(1) any property has been levied upon, and

(2) the Secretary determines that—

(A) the levy on such property was premature or otherwise not in accordance with administrative procedures of the Secretary,

(B) the taxpayer has entered into an agreement under section 6159 to satisfy the tax liability for which the levy was imposed by means of installment payments, unless such agreement provides otherwise,

(C) the return of such property will facilitate the collection of the tax liability, or

(D) with the consent of the taxpayer or the National Taxpayer Advocate, the return of such property would be in the best interests of the taxpayer (as determined by the National Taxpayer Advocate) and the United States,

the provisions of subsection (b) shall apply in the same manner as if such property had been wrongly levied upon, except that no interest shall be allowed under subsection (c) .

(e) New Law Analysis Release of levy upon agreement that amount is not collectible.
In the case of a levy on the salary or wages payable to or received by the taxpayer, upon agreement with the taxpayer that the tax is not collectible, the Secretary shall release such levy as soon as practicable.

§ 6532 Periods of limitation on suits.

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(a) WG&L Treatises Suits by taxpayers for refund.

(1) WG&L Treatises General rule.
No suit or proceeding under section 7422(a) for the recovery of any internal revenue tax, penalty, or other sum, shall be begun before the expiration of 6 months from the date of filing the claim required under such section unless the Secretary renders a decision thereon within that time, nor after the expiration of 2 years from the date of mailing by certified mail or registered mail by the Secretary to the taxpayer of a notice of the disallowance of the part of the claim to which the suit or proceeding relates.

(2) WG&L Treatises Extension of time.
The 2-year period prescribed in paragraph (1) shall be extended for such period as may be agreed upon in writing between the taxpayer and the Secretary.

(3) Waiver of notice of disallowance.
If any person files a written waiver of the requirement that he be mailed a notice of disallowance, the 2-year period prescribed in paragraph (1) shall begin on the date such waiver is filed.

(4) Reconsideration after mailing of notice.
Any consideration, reconsideration, or action by the Secretary with respect to such claim following the mailing of a notice by certified mail or registered mail of disallowance shall not operate to extend the period within which suit may be begun.

(5) Cross reference.
For substitution of 120-day period for the 6-month period contained in paragraph (1) in a title 11 case, see section 505(a)(2) of title 11 of the United States Code .

(b) Suits by United States for recovery of erroneous refunds.
Recovery of an erroneous refund by suit under section 7405 shall be allowed only if such suit is begun within 2 years after the making of such refund, except that such suit may be brought at any time within 5 years from the making of the refund if it appears that any part of the refund was induced by fraud or misrepresentation of a material fact.

(c) Suits by persons other than taxpayers.

(1) General rule.
Except as provided by paragraph (2) , no suit or proceeding under section 7426 shall be begun after the expiration of 9 months from the date of the levy or agreement giving rise to such action.

(2) Period when claim is filed.
If a request is made for the return of property described in section 6343(b) , the 9-month period prescribed in paragraph (1) shall be extended for a period of 12 months from the date of filing of such request or for a period of 6 months from the date of mailing by registered or certified mail by the Secretary to the person making such request of a notice of disallowance of the part of the request to which the action relates, whichever is shorter.

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