§§704, 734 and 743 under AJCA prevent taxpayers from shifting a built-in loss from a tax indifferent party to a U.S. taxpayer through the use of a partnership. The IRSW e DAT variation of the transaction as a listed transaction under §1.6011-4(b)(2) for transactions that are entered into after October 22, 2004.
IRS Memorandum: Distressed Asset Trust (DAT) Transaction; Designation as Coordinated Issue
April 24, 2008
Large and Mid-Size Business Division (LMSB) : Coordinated issue : Distressed asset trust (DAT) transaction .
Coordinated Issue for All Industries: Distressed Asset Trust (DAT) Transaction
LMSB-04-0308-012
April 16, 2008
MEMORANDUM FOR COMMISSIONER, SMALL BUSINESS/SELF-EMPLOYED
DIVISION
LMSB INDUSTRY AND FIELD SPECIALISTS DIRECTORS
DIRECTOR, INTERNATIONAL COMPLIANCE, STRATEGY
AND POLICY
FROM: Frank Y. Ng /s/ Frank Y. Ng
Commissioner, Large and Mid-Size Business Division
SUBJECT: Coordinated Issue for All Industries: Distressed Asset Trust (DAT)
Transaction
Pursuant to IRM 4.51.2.5, the transaction described in Notice 2008-34 (Distressed Asset Trust Transaction) should be treated as a coordinated issue effective February 27, 2008.
Notice 2008-34 (attached) describes a transaction in which a tax indifferent party, directly or indirectly, contributes one or more distressed assets (for example, a creditor's interests in debt) with a high basis and low fair market value to a trust (Main Trust) and/or series of trusts and/or sub-trusts, and a U.S. taxpayer (Taxpayer) acquires an interest in the trust (and/or series of trusts and/or sub-trusts) for the purpose of shifting a built-in loss from the tax indifferent party to the Taxpayer that has not incurred the economic loss.
Ÿ The notice alerts taxpayers and their representatives that these transactions are tax avoidance transactions and identifies these transactions, and substantially similar transactions, as listed transactions for purposes of Treas. Reg. §1.6011-4(b)(2) and IRC §§6111 and 6112, effective February 27, 2008.
Ÿ The notice also alerts persons involved with these transactions to certain responsibilities that may arise from their involvement with these transactions.
Ÿ The notice provides that the Service may assert one or more arguments that may include, but are not limited to the following:
(1) The Taxpayer's transfer of cash or a note to Main-Trust (and/or series of trusts and/or sub-trusts) in exchange for certificates of beneficial interest is a transfer of the distressed assets under IRC §1001;
(2) The Main-Trust does not meet the trust requirements of Treas. Reg. §301.7701-4;
(3) The Main-Trust is not a taxable trust;
(4) One or more of the entities is properly classified for Federal tax purposes as a partnership subject to IRC §§704(c)(1)(C), 734(b) and 743;
(5) The claimed loss deduction under IRC §165 was not incurred in a transaction undertaken for profit;
(6) The judicial doctrines, including substance over form, lack of economic substance, and step transaction, and
(7) In the case of distressed debt, the distressed debt was worthless under IRC §166 at the time of contribution to Main-Trust (and/or any series of trust and/or sub-trusts).
If this transaction surfaces during an examination, it must be raised as an issue following the guidance position set forth in the listing notice. Examiners should contact the Technical Advisor listed below and provide the name of the taxpayer, taxable period(s) involved, type of listed transaction, and the name of the promoter, if known. LMSB examiners should include the names and phone numbers of the Team Manager and Team Coordinator. SB/SE examiners should include the name and phone number of their Group Manager. The initial contact may be via e-mail (utilizing secure messaging), fax or telephone.
In addition, examiners should consult with the Technical Advisor and local assigned DAT Counsel on the development of the issue. Examiners must secure the concurrence of the Technical Advisor if their examination deviates from any mandated specific examination techniques proposed for issue development, or their proposal for adjustment deviates from any stated legal positions. Examiners must also consult with and secure the concurrence of the Technical Advisor and Counsel before proposing any resolution other than full concession of the issue by the taxpayer. No proposals can be made without the concurrence of the Issue Champion listed below.
The Issue Champion and technical contacts for this issue are:
Ÿ Issue Champion: Larry Barnes
Director Field Operations (East)
Heavy Manufacturing & Transportation
(732) 452-8103
Ÿ Technical Advisor: Patricia Ugorowski
Partnership
Phone: (517) 324-7909
FAX: (517) 324-7910
e-mail: patricia.ugorowski@irs.gov
Ÿ Associate Area Counsel: John Guarnieri
(215) 597-3442
This memorandum is not a Coordinated Issue Paper within the meaning of IRM 4.51.2.4 and should not be cited as such.
If you have any questions, please contact me, or a member of your staff may contact Patricia Ugorowski, Partnership Technical Advisor, at (517) 324-7909.
Attachment
Internal Revenue Bulletin: 2008-12
March 24, 2008
Notice 2008-34
Distressed Asset Trust (DAT) Transaction
Table of Contents
Ÿ Background
Ÿ FACTS
Ÿ DISCUSSION
Ÿ DRAFTING INFORMATION
The Internal Revenue Service (Service) and the Treasury Department are aware of a type of transaction, described below, in which a tax indifferent party, directly or indirectly, contributes one or more distressed assets (for example, a creditor's interest in debt) with a high basis and low fair market value to a trust or series of trusts and sub-trusts, and a U.S. taxpayer acquires an interest in the trust (and/or series of trusts and/or sub-trusts) for the purpose of shifting a built-in loss from the tax indifferent party to the U.S. taxpayer that has not incurred the economic loss. This notice alerts taxpayers and their representatives that this transaction (referred to as a distressed asset trust or DAT transaction) is a tax avoidance transaction and identifies this transaction, and substantially similar transactions, as listed transactions for purposes of §1.6011-4(b)(2) of the Income Tax Regulations and §§6111 and 6112 of the Internal Revenue Code. This notice also alerts persons involved with these transactions to certain responsibilities that may arise from their involvement with these transactions.
BACKGROUND
The Service and Treasury Department are aware that, prior to October 23, 2004, taxpayers used partnerships improperly to engage in variations of the distressed asset transaction described in this notice. The Coordinated Issue Paper, "Distressed Asset/Debt Coordinated Issue Paper," LMSB-04-0407-031 (Apr. 18, 2007) describes the variation of the distressed asset transaction involving partnerships (DAD). The American Jobs Creation Act of 2004, Public Law 108-357 (118 Stat. 1418) (AJCA), amended §§704, 734 and 743 effective after October 22, 2004, for contributions of built-in loss property to a partnership, for basis adjustment rules in the case of a distribution for which there is a substantial basis reduction, and for basis adjustment rules in the case of a transfer of a partnership interest for which there is a substantial built-in loss. The revisions to §§704, 734 and 743 generally (1) require that a built-in loss may be taken into account only by the contributing partner and not other partners, and (2) make the basis adjustment rules mandatory in cases with a substantial basis reduction or substantial built-in loss. Thus, the statutory changes to §§704, 734 and 743 under AJCA prevent taxpayers from shifting a built-in loss from a tax indifferent party to a U.S. taxpayer through the use of a partnership. The Service and Treasury Department have learned that a variation of the distressed asset transaction using a trust is being promoted in an attempt to avoid these revisions made by AJCA. Consequently, this notices identifies the DAT variation of the transaction as a listed transaction under §1.6011-4(b)(2) for transactions that are entered into after October 22, 2004.
FACTS
In a DAT transaction, a tax indifferent party creates a trust (Main-Trust) with X as trustee. The tax indifferent party contributes distressed assets directly or indirectly (through a partnership or otherwise) to Main-Trust, and is described as the grantor and beneficiary of Main-Trust.
A U.S. taxpayer (Taxpayer) transfers cash or a note to Main-Trust in exchange for certificates evidencing units of beneficial interest in Main-Trust. The cash or note approximately equals the fair market value of the distressed assets. Under the terms of the Main-Trust agreement, Taxpayer thereby becomes a beneficiary of Main-Trust.
The parties contend that Main-Trust is a trust for tax purposes with the stated purpose of preserving and protecting assets. Thus, the parties contend that Main-Trust is to be taxed as a trust under the Internal Revenue Code, and not as a business entity described in §301.7701-2 of the Procedure and Administration Regulations. As a result, the parties contend that under §1015(b), Main-Trust's basis in the distressed assets is the same as the grantor's basis in the distressed assets (in this case, the tax indifferent party's basis).
Under the Main-Trust agreement, X, the trustee, is permitted to establish one or more sub-trusts of Main-Trust, each for a separate beneficiary of Main-Trust who will then be the sole beneficiary of that sub-trust. The Main-Trust agreement further provides that each sub-trust for a beneficiary constitutes a separate and distinct sub-trust of Main-Trust with beneficial interest certificates issued and separate records maintained for each sub-trust.
As permitted under the Main-Trust agreement, the trustee creates a separate sub-trust (Sub-Trust), transfers certificates evidencing units of beneficial interest in Sub-Trust (Sub-Trust Certificates) to Taxpayer, and allocates the distressed assets to Sub-Trust for the sole benefit of the beneficiary of the Sub-Trust. The Main-Trust agreement entitles the holder of Sub-Trust Certificates to various rights including the right to direct the trustee to vest the holder's ratable share of the corpus or the income of Sub-Trust in the holder. The Taxpayer contends that the existence of these rights causes the Taxpayer to be considered the owner of Sub-Trust under §678, and that Sub-Trust is a grantor trust. As a result of being treated as the owner of Sub-Trust, the Taxpayer takes into account those items of income, deductions, and credits against tax, which are attributable to Sub-Trust, to the extent that such items would be taken into account in computing taxable income or credits against the tax of an individual. Section 671. The Taxpayer contends that Sub-Trust's basis in the distressed assets is the same as the grantor's basis in the distressed assets (in this case Main-Trust's basis). Section 1015(b). Within a short period of time, the distressed assets held by the Sub-Trust are written off as wholly worthless under §166. Alternatively, the distressed assets are sold, and Taxpayer claims a deduction under §165.
DISCUSSION
The transaction described in this notice attempts to shift built-in losses from a tax indifferent party to a U.S. taxpayer who has not incurred an economic loss so that the U.S. taxpayer may claim a deduction of the built-in losses from the distressed assets. The built-in loss purportedly transferred to Main-Trust and Sub-Trust and improperly shifted to the Taxpayer is not an allowable loss for the Taxpayer. The Service may assert one or more arguments that may include, but are not limited to, asserting that the Taxpayer's transfer of cash or a note to Main-Trust in exchange for certificates of beneficial interest is a transfer of the distressed assets under §1001; asserting that Main-Trust does not meet the trust requirements of §301.7701-4; asserting that Main-Trust is not a taxable trust; asserting that one or more of the entities is properly classified for Federal tax purposes as a partnership subject to §§704(c)(1)(C), 734(b) and 743; asserting that the claimed loss deduction under §165 was not incurred in a transaction undertaken for profit; asserting the judicial doctrines, including substance over form, lack of economic substance, and step transaction; and asserting that, in the case of distressed debt, the distressed debt was worthless under §166 at the time of contribution to Main-Trust and Sub-Trust.
Transactions that are the same as, or substantially similar to, the transaction described in this notice that are entered into after October 22, 2004, are identified as "listed transactions" for purposes of §1.6011-4(b)(2) and §§6111 and 6112 effective February 27, 2008, the date this notice was released to the public. Independent of their classification as listed transactions, transactions that are the same as, or substantially similar to, the transaction described in this notice may already be subject to the requirements of §6011, §6111, §6112, or the regulations thereunder. However, the variations of this transaction described in the Coordinated Issue Paper, "Distressed Asset/Debt Coordinated Issue Paper," LMSB-04-0407-031 (Apr. 18, 2007), that are subject to the AJCA changes to §§704, 734 and 743 are not being identified as "listed transactions" for purposes of this notice, §1.6011-4(b)(2), §6111 and §6112.
Persons required to disclose these transactions under §1.6011-4 who fail to do so may be subject to the penalty under §6707A, which applies to returns and statements due after October 22, 2004. Persons required to disclose these transactions under §1.6011-4 who fail to do so may be subject to an extended period of limitations under §6501(c)(10). Persons required to disclose these transactions under §6111 who fail to do so may be subject to the penalty under §6707(a). Persons required to maintain lists of investors under §6112 who fail to do so (or who fail to provide such lists when requested by the Service) may be subject to the penalty under §6708(a). In addition, the Service may impose other penalties on persons involved in these transactions or substantially similar transactions, including the accuracy-related penalty under §6662 or §6662A.
A person that is a tax-exempt entity within the meaning of §4965(c), or an entity manager within the meaning of §4965(d), may be subject to excise tax, disclosure, filing or payment obligations under §4965, §6033(a)(2), §6011, and §6071. Some taxable entities may be subject to disclosure obligations under §6011(g), that apply to "prohibited tax shelter transactions" as defined by §4965(e) (including listed transactions).
The Service and Treasury recognize that some taxpayers may have filed tax returns taking the position that they were entitled to the purported tax benefits of the type of transaction described in this notice. These taxpayers should take appropriate corrective action and ensure that their transactions are disclosed properly.
DRAFTING INFORMATION
The principal author of this notice is Eric Ingala of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this notice, contact Mr. Ingala at (202) 622-3070 (not a toll-free call).
Thursday, April 24, 2008
Tax Lien - Section 6323 proposed regulations
Proposed Amendments of Regulations (REG-141998-06) , published in the Federal Register on April 17, 2008.
Amendments of Reg. §§301.6323(b)-1, 301.6323(c)-2, 301.6323(f)-1, 301.6323(g)-1 and 301.6323(h)-1, relating to the validity and priority of federal tax liens against certain persons under Code Sec. 6323, are proposed.
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains proposed regulations related to the validity and priority of the Federal tax lien against certain persons under section 6323 of the Internal Revenue Code (the Code). The proposed regulations update the corresponding Treasury Regulations in various respects. The proposed regulations reflect the adjustment within section 6323(b) of certain dollar amounts as well as the amendment of section 6323(b)(10) by the IRS Restructuring and Reform Act of 1998 (RRA 1998). In addition, the proposed regulations amend the existing regulations under section 6323(c), (g), and (h) to reflect that a notice of Federal tax lien (NFTL) is not treated as meeting the filing requirements until it is both filed and indexed in the office designated by the state (in the case of real property located in a state where a deed is not valid against a purchaser until the filing of such deed has been entered and recorded in the public index); the lien will be extinguished if an NFTL contains a certificate of release and the NFTL is not timely refiled; and current law provides the IRS with a 10-year period to collect an assessed tax. The proposed regulations also make changes to the existing regulations under section 6323(f) to clarify the IRS's authority to file NFTLs electronically. Finally, the proposed regulations make incidental changes throughout the existing regulations under section 6323 to make the dates in the examples more contemporaneous with the present and to remove language deemed no longer necessary.
DATES: Written or electronic comments and requests for a public hearing must be received by [ INSERT DATE 60 DAYS AFTER DATE OF PUBLICATION OF THIS DOCUMENT IN THE FEDERAL REGISTER].
ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-141998-06), room 5203, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-141998-06), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC, 20224, or via the Federal eRulemaking Portal at www.regulations.gov (IRS-141998-06).
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Debra A. Kohn at (202) 622-7985; concerning submissions of comments and the hearing, Regina Johnson at (202) 622-7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed amendments to the Procedure and Administration Regulations (26 CFR part 301) under section 6323 of the Code. If any person liable for tax neglects or refuses to pay after demand, the amount of that tax is a lien in favor of the United States against all property and rights to property of such person under section 6321. Section 6323 provides that a Federal tax lien is only valid against certain persons if an NFTL is filed and addresses generally the validity and priority of the Federal tax lien against such persons. Section 6323(b) and (c) addresses the protection of certain interests even though an NFTL has been filed. Section 6323(f) prescribes the place for filing and the form of an NFTL. Section 6323(g) addresses the refiling of an NFTL. Section 6323(h) contains definitions of certain terms used throughout section 6323.
Since 1976, there have been numerous amendments to section 6323 that are not reflected in the existing regulations. Section 6323(b)(10) has been amended by RRA 1998. In addition, several subsections of section 6323(b) have been amended to increase the dollar amounts these sections reference. Also, section 6323(f)(4) was amended by the Revenue Act of 1978 to provide that an NFTL does not meet the filing requirements with respect to real property until the filing is entered and recorded in a public index maintained by the state if the laws of the state provide that a deed is not valid against a purchaser unless it is recorded in a public index. Moreover, section 6502, the statute that governs the period the IRS has to take collection action (referenced in various places throughout §301.6323(g)-1(c)), was amended by the Revenue Act of 1990 to change the period from six years to 10 years.
There have also been several changes to IRS practice that are not reflected in the existing regulations. Section 301.6323(f)-1(d)(2) of the existing regulations provides that an NFTL may be filed electronically if the state in which it is being filed permits electronic filing. Whether a state "permits" electronic filing of NFTLs has been subject to varying interpretations, thus casting doubt on the validity of NFTLs filed electronically in jurisdictions that do not specifically provide for electronic filing. However, the requirements for proper filing of liens are a matter of Federal, not state, law. United States v. Union Cent. Life Ins. Co., 368 U.S. 291, 82 S. Ct. 349, 7 L. Ed. 2d 294 (1961). Thus, the IRS already possesses the authority to dictate the form and content of its NFTLs. The proposed regulations remove the "permits" language so that they correctly reflect the IRS's authority to file NFTLs electronically.
Section 301.6323(g)-1(a)(3) and (4) of the existing regulations states that the IRS may refile an NFTL once the filing period has elapsed and that failure to refile within the specified period does not affect the existence of the lien. The existing regulations also provide that failure to refile during the specified period does not affect the NFTL with respect to property that is the subject matter of a suit or that was levied upon prior to the expiration of the required refiling period. These provisions concerning the effect of a failure to refile are, to some extent, inconsistent with current IRS practice. Most filed NFTLs now contain a certificate of release that automatically releases the lien as of the date the NFTL prescribes, which is the date at the end of the required refiling period. Therefore, if the IRS does not refile an NFTL within the specified period, the certificate of release contained in the NFTL extinguishes the lien. The proposed regulations update the regulations under section 6323 to reflect these changes in IRS practice.
The Code currently provides a 10-year period for instituting a proceeding in court or serving a levy to collect an assessed tax liability, while §301.6323(g)-1(c) of the existing regulations references the 6-year period that existed until 1990. The proposed regulations update §301.6323(g)-1(c) to reflect this change in the law.
The proposed regulations also update the regulations under section 6323(h) to reflect changes made by the Uniform Commercial Code (UCC). Section 9-312(a) of the UCC, as adopted by most states in 2001, now provides that a security interest in chattel paper, negotiable documents, instruments, or investment property may be perfected by filing.
The proposed regulations also make various incidental changes throughout the §301.6323 regulations.
Explanation of Provisions
I. Adjustment of Dollar Amounts
Under section 6323(b) of the Code, a Federal tax lien is not valid against certain interests even though an NFTL has been filed.
Section 6323(b)(4) includes, as one such interest, certain tangible personal property purchased in a casual sale. In 1976, the purchase price of such property was required to be less than $250. The limit of $250 is reflected in §301.6323(b)-1(d)(1) and in examples 1 and 3 contained in §301.6323(b)-1(d)(3). This limit has been raised in the most recent amendment to section 6323(b)(4) to $1,000. The statutory limit is indexed annually for inflation. After indexing, the amount for 2008 is $1,320.
Section 6323(b)(7) protects a mechanic's lienor with respect to residential property subject to the mechanic's lien. In 1976, the protection extended to such property was limited to an amount not more than $1,000. The limit of $1,000 is reflected in §301.6323(b)-1(g)(1) and in the examples contained in §301.6323(b)-1(g)(2). This amount was raised to $5,000 in the most recent amendment to section 6323(b)(7). The statutory limit is indexed annually for inflation. After indexing, the amount for 2008 is $6,600. The proposed regulations update §301.6323(b)-1(d) and (g) to make the dollar limits consistent with those applicable under the current version of section 6323(b)(4) and (7).
Section 301.6323(b)-1(d)(3), Example 3, references a $500 limit on household goods exempt from levy, citing Treas. Reg. §301.6334-1(a)(2). Section 301.6334-1(a)(2) is the regulation under I.R.C. § 6334(a)(2). The amount reflected in section 6334(a)(2) as set forth in the most recent version of the Code is $6,250. The amounts in both section 6334(a)(2) and the corresponding regulation are indexed annually for inflation. After indexing, the applicable amount for 2008 is $7,900. Accordingly, §301.6323(b)-1(d)(3), Example 3, is amended to make the reference to the limit on household goods exempt from levy consistent with the amounts applicable in section 6334(a)(2) and §301.6334-1(a)(2).
II. Removal of Protection for Passbook Loans
Section 6323(b)(10) currently protects from a Federal tax lien certain institutions holding deposit-secured loans, to the extent of any loan made without actual notice or knowledge of the Federal tax lien. Prior to the enactment of RRA 1998, section 6323(b)(10) was entitled "passbook loans" and protected from a Federal tax lien an institution granting a loan without actual notice or knowledge of the Federal tax lien, if the loan was secured by an account evidenced by a passbook and if the lending institution was continuously in possession of the passbook from the time the loan was made. Section 301.6323(b)-1(j) reflects this language and, in addition, includes both a definition of "passbook" and an example of the provision's operation.
The amendment of section 6323(b)(10) renders the language in the regulations pertaining to passbook accounts obsolete. Because leaving §301.6323(b)-1(j) in place is misleading and unnecessary in light of the amendment of section 6323(b)(10), the proposed regulations remove §301.6323(b)-1(j).
III. Clarification of Language Authorizing IRS to File NFTLs Electronically
Section 301.6323(f)-1(d)(2) sets forth a definition of a Form 668, the form that, when filed, serves as an NFTL. This section includes NFTLs filed by electronic or magnetic media "if a state in which [an NFTL] is filed permits a notice of Federal tax lien to be filed by the use of an electronic or magnetic medium."
Most local recording offices now have the technological capability to accept electronically-filed NFTLs. The proposed regulations amend §301.6323(f)-1(d)(2) to provide that a Form 668 may be filed either in paper form or electronically. In addition, the proposed regulations specifically define transmission by fax and e-mail as electronic, as opposed to paper, filings. The regulations as amended reflect the IRS's authority to file NFTLs electronically in all situations and allow the IRS to work with local jurisdictions to receive electronically-filed NFTLs if they have the capacity to do so without obtaining permission from the state.
IV. Revision of Language on Late Refiling of NFTLs
Section 301.6323(g)-1(a) sets forth general principles pertaining to refiling NFTLs. Section 301.6323(g)-1(a)(1) provides in part that if two or more NFTLs are filed with respect to a particular tax assessment, the failure to refile during the specified period in respect to one of the notices does not affect the effectiveness of the refiling of any other NFTL. Section 301.6323(g)-1(a)(3) states in part that the failure to refile an NFTL during the required filing period does not affect the effectiveness of the notice with respect to property that is the subject matter of a suit or that has been levied upon prior to the expiration of the filing period. Section 301.6323(g)-1(a)(4), as well as several of the examples in §301.6323(g)-1(b)(3) and (c)(3), suggest that a lien may continue to exist when an NFTL is not refiled. These provisions are, to some extent, inconsistent with current IRS practice. Most NFTLs now contain a certificate of release that automatically becomes effective on the date prescribed in the NFTL, which is the date the required refiling period ends. Therefore, if an NFTL that contains a certificate of release is not timely refiled in each jurisdiction where it was originally filed, the lien self-releases and is extinguished in all jurisdictions. See I.R.C. §6325(f)(1)(A). The extinguishment of the lien invalidates NFTLs filed in other jurisdictions and requires the IRS to file certificates of revocation, as well as new NFTLs, in each jurisdiction where NFTLs were previously filed.
The proposed regulations amend these provisions to provide that, with respect to an NFTL that includes a certificate of release, failure to timely refile the NFTL in any jurisdiction where it was originally filed extinguishes the lien, and that when an NFTL is filed in more than one jurisdiction, certificates of revocation as well as new NFTLs must be filed in all the jurisdictions for the lien to be reinstated.
V. Revision of References to 6-Year Collection Period
Section 6502 generally affords a 10-year period for instituting a proceeding in court or serving a levy to collect a properly assessed tax. The period section 6502 allowed for taking these collection actions was, until 1990, six years. The existing regulations under section 6323(g) do not reflect this change. Instead, subsections (b) and (c) of §301.6323(g)-1, which addresses refiling of NFTLs, imply that the applicable period for collection is six years. Example 5 of §301.6323(g)-1(b)(3) references the 6-year period. In addition, several references to a 6-year collection period occur in §301.6323(g)-1(c)(1), and additional references to the 6-year period occur in Example 1 in §301.6323(g)-1(c)(3). The proposed regulations update §301.6323(g)-1(c) to reflect this change in the law.
VI. Incidental updates
Various references and dates contained in the regulations under section 6323 have been rendered obsolete since 1976. The proposed regulations update various provisions throughout the §301.6323 regulations to make dates more contemporaneous with the present and remove language deemed no longer necessary. In addition, the proposed regulations remove all references to Internal Revenue Service district directors, as these positions were eliminated by the Internal Revenue Service reorganization implemented pursuant to RRA 1998.
Proposed Effective Date
These regulations are proposed to generally apply with respect to any NFTL filed on or after the date that these regulations are published as final regulations in the Federal Register.
Special Analyses
It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 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) does not apply to these regulations, and because these regulations do not impose collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.
Comments and Requests for Public Hearing
Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) or electronic comments that are timely submitted to the IRS. The IRS and Treasury Department request comments on the clarity of the proposed rules and how they may be made easier to understand. All comments will be available for public inspection and copying. A public hearing will be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the Federal Register.
Drafting Information
The principal author of these regulations is Debra A. Kohn of the Office of the Associate Chief Counsel (Procedure and Administration).
List of Subjects in 26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 301 is proposed to be amended as follows:
PART 301 --PROCEDURE AND ADMINISTRATION
Paragraph 1. The authority citation for part 301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6323(b)-1 is amended as follows:
1. Paragraph (d)(1) is revised.
2. Paragraphs (d)(3) Example 1 and Example 3 are revised.
3. Paragraphs (g)(1), and (g)(2) Example 1 through Example 3 are revised.
4. Paragraphs (i)(1)(iii) and (j) are revised.
The revisions read as follows:
§301.6323(b)-1 Protection for certain interests even though notice filed.
* * * * *
(d) Personal property purchased in casual sale --(1) In general. Even though a notice of lien imposed by section 6321 is filed in accordance with §301.6323(f)-1, the lien is not valid against a purchaser (as defined in §301.6323(h)-1(f)) of household goods, personal effects, or other tangible personal property of a type described in §301.6334-1 (which includes wearing apparel, school books, fuel, provisions, furniture, arms for personal use, livestock, and poultry (whether or not the seller is the head of a family); and books and tools of a trade, business, or profession (whether or not the trade, business, or profession of the seller)), purchased, other than for resale, in a casual sale for less than $1,320, effective for 2008 and adjusted each year based on the rate of inflation (excluding interest and expenses described in §301.6323(e)-1).
* * * * *
(3) * * *
Example 1. A, an attorney's widow, sells a set of law books for $200 to B, for B's own use. Prior to the sale a notice of lien was filed with respect to A's delinquent tax liability in accordance with §301.6323(f)-1. B has no actual notice or knowledge of the tax lien. In addition, B does not know that the sale is one of a series of sales. Because the sale is a casual sale for less than $1,320 and involves books of a profession (tangible personal property of a type described in §301.6334-1, irrespective of the fact that A has never engaged in the legal profession), the tax lien is not valid against B even though a notice of lien was filed prior to the time of B's purchase.
* * * * *
Example 3. In an advertisement appearing in a local newspaper, G indicates that he is offering for sale a lawn mower, a used television set, a desk, a refrigerator, and certain used dining room furniture. In response to the advertisement, H purchases the dining room furniture for $200. H does not receive any information which would impart notice of a lien, or that the sale is one of a series of sales, beyond the information contained in the advertisement. Prior to the sale a notice of lien was filed with respect to G's delinquent tax liability in accordance with §301.6323(f)-1. Because H had no actual notice or knowledge that substantially all of G's household goods were being sold or that the sale is one of a series of sales, and because the sale is a casual sale for less than $1,320, H does not purchase the dining room furniture subject to the lien. The household goods are of a type described in §301.6334-1(a)(2) irrespective of whether G is the head of a family or whether all such household goods offered for sale exceed $7,900 in value.
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(g) Residential property subject to a mechanic's lien for certain repairs and improvements --(1) In general. Even though a notice of a lien imposed by section 6321 is filed in accordance with §301.6323(f)-1, the lien is not valid against a mechanic's lienor (as defined in §301.6323(h)-1(b)) who holds a lien for the repair or improvement of a personal residence if --
(i) The residence is occupied by the owner and contains no more than four dwelling units; and
(ii) The contract price on the prime contract with the owner for the repair or improvement (excluding interest and expenses described in §301.6323(e)-1) is not more than $6,600, effective for 2008 and adjusted each year based on the rate of inflation.
(iii) For purposes of paragraph (g)(1)(ii) of this section, the amounts of subcontracts under the prime contract with the owner are not to be taken into consideration for purposes of computing the $6,600 prime contract price. It is immaterial that the notice of tax lien was filed before the contractor undertakes his work or that he knew of the lien before undertaking his work.
(2) * * *
Example 1. A owns a building containing four apartments, one of which he occupies as his personal residence. A notice of lien which affects the building is filed in accordance with §301.6323(f)-1. Thereafter, A enters into a contract with B in the amount of $800, which includes labor and materials, to repair the roof of the building. B purchases roofing shingles from C for $300. B completes the work and A fails to pay B the agreed amount. In turn, B fails to pay C for the shingles. Under local law, B and C acquire mechanic's liens on A's building. Because the contract price on the prime contract with A is not more than $6,600 and under local law B and C acquire mechanic's liens on A's building, the liens of B and C have priority over the Federal tax lien.
Example 2. Assume the same facts as in Example 1, except that the amount of the prime contract between A and B is $7,100. Because the amount of the prime contract with the owner, A, is in excess of $6,600, the tax lien has priority over the entire amount of each of the mechanic's liens of B and C, even though the amount of the contract between B and C is $300.
Example 3. Assume the same facts as in Example 1, except that A and B do not agree in advance upon the amount due under the prime contract but agree that B will perform the work for the cost of materials and labor plus 10 percent of such cost. When the work is completed, it is determined that the total amount due is $850. Because the prime contract price is not more than $6,600 and under local law B and C acquire mechanic's liens on A's residence, the liens of B and C have priority over the Federal tax lien.
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(i) * * * (1) * * *
(iii) After the satisfaction of a levy pursuant to section 6332(b), unless and until the Internal Revenue Service delivers to the insuring organization a notice (for example, another notice of levy, a letter, etc.) executed after the date of such satisfaction, that the lien exists.
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(j) Effective/applicability date. This section applies to any notice of Federal tax lien filed on or after the date these regulations are published as final regulations in the Federal Register.
Par. 3. Section 301.6323(c)-2 is amended as follows:
1. Paragraph (d), Example 1 through Example 5, is revised.
2. Paragraph (e) is added.
The revisions and addition read as follows:
§301.6323(c)-2 Protection for real property construction or improvement financing agreements.
* * * * *
(d) * * *
Example 1. A, in order to finance the construction of a dwelling on a lot owned by him, mortgages the property to B. The mortgage, executed January 4, 2006, includes an agreement that B will make cash disbursements to A as the construction progresses. On February 1, 2006, in accordance with §301.6323(f)-1, a notice of lien is filed and recorded in the public index with respect to A's delinquent tax liability. A continues the construction, and B makes cash disbursements on June 15, 2006, and December 15, 2006. Under local law B's security interest arising by virtue of the disbursements is protected against a judgment lien arising February 1, 2006 (the date of tax lien filing) out of an unsecured obligation. Because B is the holder of a security interest coming into existence by reason of cash disbursements made pursuant to a written agreement, entered into before tax lien filing, to make cash disbursements to finance the construction of real property, and because B's security interest is protected, under local law, against a judgment lien arising as of the time of tax lien filing out of an unsecured obligation, B's security interest has priority over the tax lien.
Example 2. (i) C is awarded a contract for the demolition of several buildings. On March 3, 2004, C enters into a written agreement with D which provides that D will make cash disbursements to finance the demolition and also provides that repayment of the disbursements is secured by any sums due C under the contract. On April 1, 2004, in accordance with §301.6323(f)-1, a notice of lien is filed with respect to C's delinquent tax liability. With actual notice of the tax lien, D makes cash disbursements to C on August 13, September 13, and October 13, 2004. Under local law D's security interest in the proceeds of the contract with respect to the disbursements is entitled to priority over a judgment lien arising on April 1, 2004 (the date of tax lien filing) out of an unsecured obligation.
(ii) Because D's security interest arose by reason of disbursements made pursuant to a written agreement, entered into before tax lien filing, to make cash disbursements to finance a contract to demolish real property, and because D's security interest is valid under local law against a judgment lien arising as of the time of tax lien filed out of an unsecured obligation, the tax lien is not valid with respect to D's security interest in the proceeds of the demolition contract.
Example 3. Assume the same facts as in Example 2 and, in addition, assume that, as further security for the cash disbursements, the March 3, 2004, agreement also provides for a security interest in all of C's demolition equipment. Because the protection of the security interest arising from the disbursements made after tax lien filing under the agreement is limited under section 6323(c)(3) to the proceeds of the demolition contract and because, under the circumstances, the security interest in the equipment is not otherwise protected under section 6323, the tax lien will have priority over D's security interest in the equipment.
Example 4. (i) On January 3, 2006, F and G enter into a written agreement, whereby F agrees to provide G with cash disbursements, seed, fertilizer, and insecticides as needed by G, in order to finance the raising and harvesting of a crop on a farm owned by G. Under the terms of the agreement F is to have a security interest in the crop, the farm, and all other property then owned or thereafter acquired by G. In accordance with §301.6323(f)-1, on January 10, 2006, a notice of lien is filed and recorded in the public index with respect to G's delinquent tax liability. On March 3, 2006, with actual notice of the tax lien, F makes a cash disbursement of $5,000 to G and furnishes him seed, fertilizer, and insecticides having a value of $10,000. Under local law F's security interest, coming into existence by reason of the cash disbursement and the furnishing of goods, has priority over a judgment lien arising January 10, 2006 (the date of tax lien filing and recording in the public index) out of an unsecured obligation.
(ii) Because F's security interest arose by reason of a disbursement (including the furnishing of goods) made under a written agreement which was entered into before tax lien filing and which constitutes an agreement to finance the raising or harvesting of a farm crop, and because F's security interest is valid under local law against a judgment lien arising as of the time of tax lien filing out of an unsecured obligation, the tax lien is not valid with respect to F's security interest in the crop even though a notice of lien was filed before the security interest arose. Furthermore, because the farm is property subject to the tax lien at the time of tax lien filing, F's security interest with respect to the farm also has priority over the tax lien.
Example 5. Assume the same facts as in Example 4 and in addition that on October 2, 2006, G acquires several tractors to which F's security interest attaches under the terms of the agreement. Because the tractors are not property subject to the tax lien at the time of tax lien filing, the tax lien has priority over F's security interest in the tractors.
(e) Effective/applicability date. This section applies with respect to any notice of Federal tax lien filed on or after the date these regulations are published as final regulations in the Federal Register.
Par. 4. Section 301.6323(f)-1 is amended as follows:
1. Paragraph (d)(2) is revised.
2. Paragraph (f) is added.
The revision and addition read as follows:
§301.6323(f)-1 Place for filing notice; form.
* * * * *
(d) * * *
(2) Form 668 defined. The term Form 668 means either a paper form or a form transmitted electronically, including a form transmitted by facsimile (fax) or electronic mail (e-mail). A Form 668 must identify the taxpayer, the tax liability giving rise to the lien, and the date the assessment arose regardless of the method used to file the notice of Federal tax lien.
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(f) Effective/applicability date. This section applies with respect to any notice of Federal tax lien filed on or after the date these regulations are published as final regulations in the Federal Register.
Par 5. Section 301.6323(g)-1 is amended as follows:
1. Paragraphs (a)(1), (a)(4), (b)(3) Example 1, (b)(3) Example 5, and (c)(1) are revised.
2. Paragraphs (a)(3), (a)(3)(i), and (a)(3)(ii) are redesignated as paragraphs (a)(3)(i), (a)(3)(i)(A), and (a)(3)(i)(B), respectively.
3. The undesignated text following newly-designated paragraph (a)(3)(i)(B) is designated as paragraph (a)(3)(ii).
4. Newly-designated paragraph (a)(3)(i) introductory text is revised.
5. Newly-designated paragraph (a)(3)(i)(A) is revised.
6. Newly-designated paragraph (a)(3)(ii) is revised.
7. Paragraph (c)(2) is removed.
8. Paragraph (c)(3) is redesignated as paragraph (c)(2) and revised.
9. Paragraph (d) is added.
The revisions and addition read as follows:
§301.6323(g)-1 Refiling of notice of tax lien.
(a) In general-(1) Requirement to refile. In order to continue the effect of a notice of lien, the notice must be refiled in the place described in paragraph (b) of this section during the required filing period (described in paragraph (c) of this section). If two or more notices of lien are filed with respect to a particular tax assessment, and each notice of lien contains a certificate of release that releases the lien when the required refiling period ends, the failure to comply with the provisions of paragraphs (b)(1)(i) and (c) of this section in respect to one of the notices of lien releases the lien and renders ineffective the refiling of any other notice of lien.
* * * * *.
(3) Effect of failure to refile. (i) If the Internal Revenue Service fails to refile a notice of lien in the manner described in paragraphs (b) and (c) of this section, the notice of lien is not effective, after the expiration of the required filing period, as against any person without regard to when the interest of the person in the property subject to the lien was acquired. If a notice of lien contains a certificate of release that releases the lien at the end of the required refiling period and the notice of lien is not refiled during this period, the lien is extinguished and the notice of lien is ineffective with respect to --
(A) Property which is the subject matter of a suit, to which the United States is a party, commenced prior to the expiration of the required filing period; and
* * * * *
(ii) However, if a notice of lien does not contain a certificate of release that releases the lien at the end of the required refiling period, the failure to refile during the required refiling period will not affect the existence of the lien nor the effectiveness of the notice with respect to property which is the subject matter of a suit commenced prior to the expiration of the required refiling period, or property which has been levied upon prior to the expiration of such period.
(4) Filing of new notice. If a notice of lien is not refiled, and the notice of lien contains a certificate of release that automatically releases the lien when the required refiling period ends, the lien is released as of that date and is no longer in existence. The Internal Revenue Service must revoke the release before it can file a new notice of lien. This new filing must meet the requirements of section 6323(f) and §301.6323(f)-1 and is effective from the date on which such filing is made.
(b) * * *
(3) Examples. The following examples illustrate the provisions of this section:
Example 1. A, a delinquent taxpayer, is a resident of State M and owns real property in State N. In accordance with §301-6323-f(1), notices of lien are filed in States M and N. The notices of lien contain certificates of release that release the lien at the end of the required refiling period. In order to continue the effect of the notice of lien filed in either M or N, the IRS must refile, during the required refiling period, the notice of lien with the appropriate office in M as well as with the appropriate office in N.
* * * * *
Example 5. D, a delinquent taxpayer, is a resident of State M and owns real property in States N and O. In accordance with §301.6323(f)-1, the Internal Revenue Service files notices of lien in M, N, and O States. Nine years and 6 months after the date of the assessment shown on the notice of lien, D establishes his residence in P, and at that time the Internal Revenue Service receives from D a notification of his change in residence in accordance with the provisions of paragraph (b)(2) of this section. On a date which is 9 years and 7 months after the date of the assessment shown on the notice of lien, the IRS properly refiles notices of lien in M, N, and O which refilings are sufficient to continue the effect of each of the notices of lien. The Internal Revenue Service is not required to file a notice of lien in P because D did not notify the Internal Revenue Service of his change of residence to P more than 89 days prior to the date each of the refilings in M, N, and O was completed.
* * * * *
(c) Required filing period --(1) In general. For the purpose of this section, except as provided in paragraph (c)(2) of this section, the term required filing period means --
(i) The 1-year period ending 30 days after the expiration of 10 years after the date of the assessment of the tax; and
(ii) The 1-year period ending with the expiration of 10 years after the close of the preceding required refiling period for such notice of lien.
(2) Examples. The following examples illustrate the provisions of this paragraph:
Example 1. On March 10, 1998, an assessment of tax is made against B, a delinquent taxpayer, and a lien for the amount of the assessment arises on that date. On July 10, 1998, in accordance with §301.6323(f)-1, a notice of lien is filed. The notice of lien filed on July 10, 1998, is effective through April 9, 2008. The first required refiling period for the notice of lien begins on April 10, 2007, and ends on April 9, 2008. A refiling of the notice of lien during that period will extend the effectiveness of the notice of lien filed on July 10, 1998, through April 9, 2018. The second required refiling period for the notice of lien begins on April 10, 2017, and ends on April 9, 2018.
Example 2. Assume the same facts as in Example 1, except that the Internal Revenue Service fails to refile a notice of lien during the first required refiling period (April 10, 2007, through April 9, 2008). A notice of lien is filed on June 9, 2009, in accordance with §301.6323(f)-1. This notice is ineffective if the original notice contained a certificate of release, as the certificate of release would have had the effect of extinguishing the lien as of April 10, 2008. The Internal Revenue Service could revoke the release and file a new notice of lien, which would be effective as of the date it was filed.
(d) Effective/applicability date. This section applies with respect to any notice of Federal tax lien filed on or after the date these regulations are published as final regulations in the Federal Register.
Par. 6. Section 301.6323(h)-1 is amended as follows:
1. Paragraphs (a)(2)(ii) and (a)(3) are revised.
2. A new paragraph (h) is added.
The revisions and addition read as follows:
§301.6323(h)-1 Definitions.
(a) * * *
(2) * * *
(ii) The following example illustrates the application of paragraph (a)(2):
Example. (i) Under the law of State X, a security interest in certificated securities, negotiable documents, or instruments may be perfected, and hence protected against a judgment lien, by filing or by the secured party taking possession of the collateral. However, a security interest in such intangible personal property is considered to be temporarily perfected for a period of 20 days from the time the security interest attaches, to the extent that it arises for new value given under an authenticated security agreement. Under the law of X, a security interest attaches to such collateral when there is an agreement between the creditor and debtor that the interest attaches, the debtor has rights in the property, and consideration is given by the creditor. Under the law of X, in the case of temporary perfection, the security interest in such property is protected during the 20-day period against a judgment lien arising, after the security interest attaches, out of an unsecured obligation. Upon expiration of the 20-day period, the holder of the security interest must perfect its security interest under local law.
(ii) Because the security interest is perfected during the 20-day period against a subsequent judgment lien arising out of an unsecured obligation, and because filing or the taking of possession before the conclusion of the period of temporary perfection is not considered, for purposes of paragraph (a)(2)(i) of this section, to be a requisite action which relates back to the beginning of such period, the requirements of this paragraph are satisfied. Because filing or taking possession is a condition precedent to continued perfection, filing or taking possession of the collateral is a requisite action to establish such priority after expiration of the period of temporary perfection. If there is a lapse of perfection for failure to take possession, the determination of when the security interest exists (for purposes of protection against the tax lien) is made without regard to the period of temporary perfection.
(3) Money or money's worth. For purposes of this paragraph, the term money or money's worth includes money, a security (as defined in paragraph (d) of this section), tangible or intangible property, services, and other consideration reducible to a money value. Money or money's worth also includes any consideration which otherwise would constitute money or money's worth under the preceding sentence which was parted with before the security interest would otherwise exist if, under local law, past consideration is sufficient to support an agreement giving rise to a security interest. A firm commitment to part with money, a security, tangible or intangible property, services, or other consideration reducible to a money value does not, in itself, constitute a consideration in money or money's worth. A relinquishing or promised relinquishment of dower, curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights is not a consideration in money or money's worth. Nor is love and affection, promise of marriage, or any other consideration not reducible to a money value a consideration in money or money's worth.
* * * * *
(h) Effective/applicability date. This section applies as of the date these regulations are published as final regulations in the Federal Register.
Linda E. Stiff
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2008-8082 Filed 04/16/2008 at 8:45 am; Publication Date: 04/17/2008]
Proposed Amendments of Regulations (REG-141998-06) , published in the Federal Register on April 17, 2008.
Amendments of Reg. §§301.6323(b)-1, 301.6323(c)-2, 301.6323(f)-1, 301.6323(g)-1 and 301.6323(h)-1, relating to the validity and priority of federal tax liens against certain persons under Code Sec. 6323, are proposed.
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains proposed regulations related to the validity and priority of the Federal tax lien against certain persons under section 6323 of the Internal Revenue Code (the Code). The proposed regulations update the corresponding Treasury Regulations in various respects. The proposed regulations reflect the adjustment within section 6323(b) of certain dollar amounts as well as the amendment of section 6323(b)(10) by the IRS Restructuring and Reform Act of 1998 (RRA 1998). In addition, the proposed regulations amend the existing regulations under section 6323(c), (g), and (h) to reflect that a notice of Federal tax lien (NFTL) is not treated as meeting the filing requirements until it is both filed and indexed in the office designated by the state (in the case of real property located in a state where a deed is not valid against a purchaser until the filing of such deed has been entered and recorded in the public index); the lien will be extinguished if an NFTL contains a certificate of release and the NFTL is not timely refiled; and current law provides the IRS with a 10-year period to collect an assessed tax. The proposed regulations also make changes to the existing regulations under section 6323(f) to clarify the IRS's authority to file NFTLs electronically. Finally, the proposed regulations make incidental changes throughout the existing regulations under section 6323 to make the dates in the examples more contemporaneous with the present and to remove language deemed no longer necessary.
DATES: Written or electronic comments and requests for a public hearing must be received by [ INSERT DATE 60 DAYS AFTER DATE OF PUBLICATION OF THIS DOCUMENT IN THE FEDERAL REGISTER].
ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-141998-06), room 5203, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-141998-06), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC, 20224, or via the Federal eRulemaking Portal at www.regulations.gov (IRS-141998-06).
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Debra A. Kohn at (202) 622-7985; concerning submissions of comments and the hearing, Regina Johnson at (202) 622-7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed amendments to the Procedure and Administration Regulations (26 CFR part 301) under section 6323 of the Code. If any person liable for tax neglects or refuses to pay after demand, the amount of that tax is a lien in favor of the United States against all property and rights to property of such person under section 6321. Section 6323 provides that a Federal tax lien is only valid against certain persons if an NFTL is filed and addresses generally the validity and priority of the Federal tax lien against such persons. Section 6323(b) and (c) addresses the protection of certain interests even though an NFTL has been filed. Section 6323(f) prescribes the place for filing and the form of an NFTL. Section 6323(g) addresses the refiling of an NFTL. Section 6323(h) contains definitions of certain terms used throughout section 6323.
Since 1976, there have been numerous amendments to section 6323 that are not reflected in the existing regulations. Section 6323(b)(10) has been amended by RRA 1998. In addition, several subsections of section 6323(b) have been amended to increase the dollar amounts these sections reference. Also, section 6323(f)(4) was amended by the Revenue Act of 1978 to provide that an NFTL does not meet the filing requirements with respect to real property until the filing is entered and recorded in a public index maintained by the state if the laws of the state provide that a deed is not valid against a purchaser unless it is recorded in a public index. Moreover, section 6502, the statute that governs the period the IRS has to take collection action (referenced in various places throughout §301.6323(g)-1(c)), was amended by the Revenue Act of 1990 to change the period from six years to 10 years.
There have also been several changes to IRS practice that are not reflected in the existing regulations. Section 301.6323(f)-1(d)(2) of the existing regulations provides that an NFTL may be filed electronically if the state in which it is being filed permits electronic filing. Whether a state "permits" electronic filing of NFTLs has been subject to varying interpretations, thus casting doubt on the validity of NFTLs filed electronically in jurisdictions that do not specifically provide for electronic filing. However, the requirements for proper filing of liens are a matter of Federal, not state, law. United States v. Union Cent. Life Ins. Co., 368 U.S. 291, 82 S. Ct. 349, 7 L. Ed. 2d 294 (1961). Thus, the IRS already possesses the authority to dictate the form and content of its NFTLs. The proposed regulations remove the "permits" language so that they correctly reflect the IRS's authority to file NFTLs electronically.
Section 301.6323(g)-1(a)(3) and (4) of the existing regulations states that the IRS may refile an NFTL once the filing period has elapsed and that failure to refile within the specified period does not affect the existence of the lien. The existing regulations also provide that failure to refile during the specified period does not affect the NFTL with respect to property that is the subject matter of a suit or that was levied upon prior to the expiration of the required refiling period. These provisions concerning the effect of a failure to refile are, to some extent, inconsistent with current IRS practice. Most filed NFTLs now contain a certificate of release that automatically releases the lien as of the date the NFTL prescribes, which is the date at the end of the required refiling period. Therefore, if the IRS does not refile an NFTL within the specified period, the certificate of release contained in the NFTL extinguishes the lien. The proposed regulations update the regulations under section 6323 to reflect these changes in IRS practice.
The Code currently provides a 10-year period for instituting a proceeding in court or serving a levy to collect an assessed tax liability, while §301.6323(g)-1(c) of the existing regulations references the 6-year period that existed until 1990. The proposed regulations update §301.6323(g)-1(c) to reflect this change in the law.
The proposed regulations also update the regulations under section 6323(h) to reflect changes made by the Uniform Commercial Code (UCC). Section 9-312(a) of the UCC, as adopted by most states in 2001, now provides that a security interest in chattel paper, negotiable documents, instruments, or investment property may be perfected by filing.
The proposed regulations also make various incidental changes throughout the §301.6323 regulations.
Explanation of Provisions
I. Adjustment of Dollar Amounts
Under section 6323(b) of the Code, a Federal tax lien is not valid against certain interests even though an NFTL has been filed.
Section 6323(b)(4) includes, as one such interest, certain tangible personal property purchased in a casual sale. In 1976, the purchase price of such property was required to be less than $250. The limit of $250 is reflected in §301.6323(b)-1(d)(1) and in examples 1 and 3 contained in §301.6323(b)-1(d)(3). This limit has been raised in the most recent amendment to section 6323(b)(4) to $1,000. The statutory limit is indexed annually for inflation. After indexing, the amount for 2008 is $1,320.
Section 6323(b)(7) protects a mechanic's lienor with respect to residential property subject to the mechanic's lien. In 1976, the protection extended to such property was limited to an amount not more than $1,000. The limit of $1,000 is reflected in §301.6323(b)-1(g)(1) and in the examples contained in §301.6323(b)-1(g)(2). This amount was raised to $5,000 in the most recent amendment to section 6323(b)(7). The statutory limit is indexed annually for inflation. After indexing, the amount for 2008 is $6,600. The proposed regulations update §301.6323(b)-1(d) and (g) to make the dollar limits consistent with those applicable under the current version of section 6323(b)(4) and (7).
Section 301.6323(b)-1(d)(3), Example 3, references a $500 limit on household goods exempt from levy, citing Treas. Reg. §301.6334-1(a)(2). Section 301.6334-1(a)(2) is the regulation under I.R.C. § 6334(a)(2). The amount reflected in section 6334(a)(2) as set forth in the most recent version of the Code is $6,250. The amounts in both section 6334(a)(2) and the corresponding regulation are indexed annually for inflation. After indexing, the applicable amount for 2008 is $7,900. Accordingly, §301.6323(b)-1(d)(3), Example 3, is amended to make the reference to the limit on household goods exempt from levy consistent with the amounts applicable in section 6334(a)(2) and §301.6334-1(a)(2).
II. Removal of Protection for Passbook Loans
Section 6323(b)(10) currently protects from a Federal tax lien certain institutions holding deposit-secured loans, to the extent of any loan made without actual notice or knowledge of the Federal tax lien. Prior to the enactment of RRA 1998, section 6323(b)(10) was entitled "passbook loans" and protected from a Federal tax lien an institution granting a loan without actual notice or knowledge of the Federal tax lien, if the loan was secured by an account evidenced by a passbook and if the lending institution was continuously in possession of the passbook from the time the loan was made. Section 301.6323(b)-1(j) reflects this language and, in addition, includes both a definition of "passbook" and an example of the provision's operation.
The amendment of section 6323(b)(10) renders the language in the regulations pertaining to passbook accounts obsolete. Because leaving §301.6323(b)-1(j) in place is misleading and unnecessary in light of the amendment of section 6323(b)(10), the proposed regulations remove §301.6323(b)-1(j).
III. Clarification of Language Authorizing IRS to File NFTLs Electronically
Section 301.6323(f)-1(d)(2) sets forth a definition of a Form 668, the form that, when filed, serves as an NFTL. This section includes NFTLs filed by electronic or magnetic media "if a state in which [an NFTL] is filed permits a notice of Federal tax lien to be filed by the use of an electronic or magnetic medium."
Most local recording offices now have the technological capability to accept electronically-filed NFTLs. The proposed regulations amend §301.6323(f)-1(d)(2) to provide that a Form 668 may be filed either in paper form or electronically. In addition, the proposed regulations specifically define transmission by fax and e-mail as electronic, as opposed to paper, filings. The regulations as amended reflect the IRS's authority to file NFTLs electronically in all situations and allow the IRS to work with local jurisdictions to receive electronically-filed NFTLs if they have the capacity to do so without obtaining permission from the state.
IV. Revision of Language on Late Refiling of NFTLs
Section 301.6323(g)-1(a) sets forth general principles pertaining to refiling NFTLs. Section 301.6323(g)-1(a)(1) provides in part that if two or more NFTLs are filed with respect to a particular tax assessment, the failure to refile during the specified period in respect to one of the notices does not affect the effectiveness of the refiling of any other NFTL. Section 301.6323(g)-1(a)(3) states in part that the failure to refile an NFTL during the required filing period does not affect the effectiveness of the notice with respect to property that is the subject matter of a suit or that has been levied upon prior to the expiration of the filing period. Section 301.6323(g)-1(a)(4), as well as several of the examples in §301.6323(g)-1(b)(3) and (c)(3), suggest that a lien may continue to exist when an NFTL is not refiled. These provisions are, to some extent, inconsistent with current IRS practice. Most NFTLs now contain a certificate of release that automatically becomes effective on the date prescribed in the NFTL, which is the date the required refiling period ends. Therefore, if an NFTL that contains a certificate of release is not timely refiled in each jurisdiction where it was originally filed, the lien self-releases and is extinguished in all jurisdictions. See I.R.C. §6325(f)(1)(A). The extinguishment of the lien invalidates NFTLs filed in other jurisdictions and requires the IRS to file certificates of revocation, as well as new NFTLs, in each jurisdiction where NFTLs were previously filed.
The proposed regulations amend these provisions to provide that, with respect to an NFTL that includes a certificate of release, failure to timely refile the NFTL in any jurisdiction where it was originally filed extinguishes the lien, and that when an NFTL is filed in more than one jurisdiction, certificates of revocation as well as new NFTLs must be filed in all the jurisdictions for the lien to be reinstated.
V. Revision of References to 6-Year Collection Period
Section 6502 generally affords a 10-year period for instituting a proceeding in court or serving a levy to collect a properly assessed tax. The period section 6502 allowed for taking these collection actions was, until 1990, six years. The existing regulations under section 6323(g) do not reflect this change. Instead, subsections (b) and (c) of §301.6323(g)-1, which addresses refiling of NFTLs, imply that the applicable period for collection is six years. Example 5 of §301.6323(g)-1(b)(3) references the 6-year period. In addition, several references to a 6-year collection period occur in §301.6323(g)-1(c)(1), and additional references to the 6-year period occur in Example 1 in §301.6323(g)-1(c)(3). The proposed regulations update §301.6323(g)-1(c) to reflect this change in the law.
VI. Incidental updates
Various references and dates contained in the regulations under section 6323 have been rendered obsolete since 1976. The proposed regulations update various provisions throughout the §301.6323 regulations to make dates more contemporaneous with the present and remove language deemed no longer necessary. In addition, the proposed regulations remove all references to Internal Revenue Service district directors, as these positions were eliminated by the Internal Revenue Service reorganization implemented pursuant to RRA 1998.
Proposed Effective Date
These regulations are proposed to generally apply with respect to any NFTL filed on or after the date that these regulations are published as final regulations in the Federal Register.
Special Analyses
It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 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) does not apply to these regulations, and because these regulations do not impose collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.
Comments and Requests for Public Hearing
Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) or electronic comments that are timely submitted to the IRS. The IRS and Treasury Department request comments on the clarity of the proposed rules and how they may be made easier to understand. All comments will be available for public inspection and copying. A public hearing will be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the Federal Register.
Drafting Information
The principal author of these regulations is Debra A. Kohn of the Office of the Associate Chief Counsel (Procedure and Administration).
List of Subjects in 26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 301 is proposed to be amended as follows:
PART 301 --PROCEDURE AND ADMINISTRATION
Paragraph 1. The authority citation for part 301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6323(b)-1 is amended as follows:
1. Paragraph (d)(1) is revised.
2. Paragraphs (d)(3) Example 1 and Example 3 are revised.
3. Paragraphs (g)(1), and (g)(2) Example 1 through Example 3 are revised.
4. Paragraphs (i)(1)(iii) and (j) are revised.
The revisions read as follows:
§301.6323(b)-1 Protection for certain interests even though notice filed.
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(d) Personal property purchased in casual sale --(1) In general. Even though a notice of lien imposed by section 6321 is filed in accordance with §301.6323(f)-1, the lien is not valid against a purchaser (as defined in §301.6323(h)-1(f)) of household goods, personal effects, or other tangible personal property of a type described in §301.6334-1 (which includes wearing apparel, school books, fuel, provisions, furniture, arms for personal use, livestock, and poultry (whether or not the seller is the head of a family); and books and tools of a trade, business, or profession (whether or not the trade, business, or profession of the seller)), purchased, other than for resale, in a casual sale for less than $1,320, effective for 2008 and adjusted each year based on the rate of inflation (excluding interest and expenses described in §301.6323(e)-1).
* * * * *
(3) * * *
Example 1. A, an attorney's widow, sells a set of law books for $200 to B, for B's own use. Prior to the sale a notice of lien was filed with respect to A's delinquent tax liability in accordance with §301.6323(f)-1. B has no actual notice or knowledge of the tax lien. In addition, B does not know that the sale is one of a series of sales. Because the sale is a casual sale for less than $1,320 and involves books of a profession (tangible personal property of a type described in §301.6334-1, irrespective of the fact that A has never engaged in the legal profession), the tax lien is not valid against B even though a notice of lien was filed prior to the time of B's purchase.
* * * * *
Example 3. In an advertisement appearing in a local newspaper, G indicates that he is offering for sale a lawn mower, a used television set, a desk, a refrigerator, and certain used dining room furniture. In response to the advertisement, H purchases the dining room furniture for $200. H does not receive any information which would impart notice of a lien, or that the sale is one of a series of sales, beyond the information contained in the advertisement. Prior to the sale a notice of lien was filed with respect to G's delinquent tax liability in accordance with §301.6323(f)-1. Because H had no actual notice or knowledge that substantially all of G's household goods were being sold or that the sale is one of a series of sales, and because the sale is a casual sale for less than $1,320, H does not purchase the dining room furniture subject to the lien. The household goods are of a type described in §301.6334-1(a)(2) irrespective of whether G is the head of a family or whether all such household goods offered for sale exceed $7,900 in value.
* * * * *
(g) Residential property subject to a mechanic's lien for certain repairs and improvements --(1) In general. Even though a notice of a lien imposed by section 6321 is filed in accordance with §301.6323(f)-1, the lien is not valid against a mechanic's lienor (as defined in §301.6323(h)-1(b)) who holds a lien for the repair or improvement of a personal residence if --
(i) The residence is occupied by the owner and contains no more than four dwelling units; and
(ii) The contract price on the prime contract with the owner for the repair or improvement (excluding interest and expenses described in §301.6323(e)-1) is not more than $6,600, effective for 2008 and adjusted each year based on the rate of inflation.
(iii) For purposes of paragraph (g)(1)(ii) of this section, the amounts of subcontracts under the prime contract with the owner are not to be taken into consideration for purposes of computing the $6,600 prime contract price. It is immaterial that the notice of tax lien was filed before the contractor undertakes his work or that he knew of the lien before undertaking his work.
(2) * * *
Example 1. A owns a building containing four apartments, one of which he occupies as his personal residence. A notice of lien which affects the building is filed in accordance with §301.6323(f)-1. Thereafter, A enters into a contract with B in the amount of $800, which includes labor and materials, to repair the roof of the building. B purchases roofing shingles from C for $300. B completes the work and A fails to pay B the agreed amount. In turn, B fails to pay C for the shingles. Under local law, B and C acquire mechanic's liens on A's building. Because the contract price on the prime contract with A is not more than $6,600 and under local law B and C acquire mechanic's liens on A's building, the liens of B and C have priority over the Federal tax lien.
Example 2. Assume the same facts as in Example 1, except that the amount of the prime contract between A and B is $7,100. Because the amount of the prime contract with the owner, A, is in excess of $6,600, the tax lien has priority over the entire amount of each of the mechanic's liens of B and C, even though the amount of the contract between B and C is $300.
Example 3. Assume the same facts as in Example 1, except that A and B do not agree in advance upon the amount due under the prime contract but agree that B will perform the work for the cost of materials and labor plus 10 percent of such cost. When the work is completed, it is determined that the total amount due is $850. Because the prime contract price is not more than $6,600 and under local law B and C acquire mechanic's liens on A's residence, the liens of B and C have priority over the Federal tax lien.
* * * * *
(i) * * * (1) * * *
(iii) After the satisfaction of a levy pursuant to section 6332(b), unless and until the Internal Revenue Service delivers to the insuring organization a notice (for example, another notice of levy, a letter, etc.) executed after the date of such satisfaction, that the lien exists.
* * * * *
(j) Effective/applicability date. This section applies to any notice of Federal tax lien filed on or after the date these regulations are published as final regulations in the Federal Register.
Par. 3. Section 301.6323(c)-2 is amended as follows:
1. Paragraph (d), Example 1 through Example 5, is revised.
2. Paragraph (e) is added.
The revisions and addition read as follows:
§301.6323(c)-2 Protection for real property construction or improvement financing agreements.
* * * * *
(d) * * *
Example 1. A, in order to finance the construction of a dwelling on a lot owned by him, mortgages the property to B. The mortgage, executed January 4, 2006, includes an agreement that B will make cash disbursements to A as the construction progresses. On February 1, 2006, in accordance with §301.6323(f)-1, a notice of lien is filed and recorded in the public index with respect to A's delinquent tax liability. A continues the construction, and B makes cash disbursements on June 15, 2006, and December 15, 2006. Under local law B's security interest arising by virtue of the disbursements is protected against a judgment lien arising February 1, 2006 (the date of tax lien filing) out of an unsecured obligation. Because B is the holder of a security interest coming into existence by reason of cash disbursements made pursuant to a written agreement, entered into before tax lien filing, to make cash disbursements to finance the construction of real property, and because B's security interest is protected, under local law, against a judgment lien arising as of the time of tax lien filing out of an unsecured obligation, B's security interest has priority over the tax lien.
Example 2. (i) C is awarded a contract for the demolition of several buildings. On March 3, 2004, C enters into a written agreement with D which provides that D will make cash disbursements to finance the demolition and also provides that repayment of the disbursements is secured by any sums due C under the contract. On April 1, 2004, in accordance with §301.6323(f)-1, a notice of lien is filed with respect to C's delinquent tax liability. With actual notice of the tax lien, D makes cash disbursements to C on August 13, September 13, and October 13, 2004. Under local law D's security interest in the proceeds of the contract with respect to the disbursements is entitled to priority over a judgment lien arising on April 1, 2004 (the date of tax lien filing) out of an unsecured obligation.
(ii) Because D's security interest arose by reason of disbursements made pursuant to a written agreement, entered into before tax lien filing, to make cash disbursements to finance a contract to demolish real property, and because D's security interest is valid under local law against a judgment lien arising as of the time of tax lien filed out of an unsecured obligation, the tax lien is not valid with respect to D's security interest in the proceeds of the demolition contract.
Example 3. Assume the same facts as in Example 2 and, in addition, assume that, as further security for the cash disbursements, the March 3, 2004, agreement also provides for a security interest in all of C's demolition equipment. Because the protection of the security interest arising from the disbursements made after tax lien filing under the agreement is limited under section 6323(c)(3) to the proceeds of the demolition contract and because, under the circumstances, the security interest in the equipment is not otherwise protected under section 6323, the tax lien will have priority over D's security interest in the equipment.
Example 4. (i) On January 3, 2006, F and G enter into a written agreement, whereby F agrees to provide G with cash disbursements, seed, fertilizer, and insecticides as needed by G, in order to finance the raising and harvesting of a crop on a farm owned by G. Under the terms of the agreement F is to have a security interest in the crop, the farm, and all other property then owned or thereafter acquired by G. In accordance with §301.6323(f)-1, on January 10, 2006, a notice of lien is filed and recorded in the public index with respect to G's delinquent tax liability. On March 3, 2006, with actual notice of the tax lien, F makes a cash disbursement of $5,000 to G and furnishes him seed, fertilizer, and insecticides having a value of $10,000. Under local law F's security interest, coming into existence by reason of the cash disbursement and the furnishing of goods, has priority over a judgment lien arising January 10, 2006 (the date of tax lien filing and recording in the public index) out of an unsecured obligation.
(ii) Because F's security interest arose by reason of a disbursement (including the furnishing of goods) made under a written agreement which was entered into before tax lien filing and which constitutes an agreement to finance the raising or harvesting of a farm crop, and because F's security interest is valid under local law against a judgment lien arising as of the time of tax lien filing out of an unsecured obligation, the tax lien is not valid with respect to F's security interest in the crop even though a notice of lien was filed before the security interest arose. Furthermore, because the farm is property subject to the tax lien at the time of tax lien filing, F's security interest with respect to the farm also has priority over the tax lien.
Example 5. Assume the same facts as in Example 4 and in addition that on October 2, 2006, G acquires several tractors to which F's security interest attaches under the terms of the agreement. Because the tractors are not property subject to the tax lien at the time of tax lien filing, the tax lien has priority over F's security interest in the tractors.
(e) Effective/applicability date. This section applies with respect to any notice of Federal tax lien filed on or after the date these regulations are published as final regulations in the Federal Register.
Par. 4. Section 301.6323(f)-1 is amended as follows:
1. Paragraph (d)(2) is revised.
2. Paragraph (f) is added.
The revision and addition read as follows:
§301.6323(f)-1 Place for filing notice; form.
* * * * *
(d) * * *
(2) Form 668 defined. The term Form 668 means either a paper form or a form transmitted electronically, including a form transmitted by facsimile (fax) or electronic mail (e-mail). A Form 668 must identify the taxpayer, the tax liability giving rise to the lien, and the date the assessment arose regardless of the method used to file the notice of Federal tax lien.
* * * * *
(f) Effective/applicability date. This section applies with respect to any notice of Federal tax lien filed on or after the date these regulations are published as final regulations in the Federal Register.
Par 5. Section 301.6323(g)-1 is amended as follows:
1. Paragraphs (a)(1), (a)(4), (b)(3) Example 1, (b)(3) Example 5, and (c)(1) are revised.
2. Paragraphs (a)(3), (a)(3)(i), and (a)(3)(ii) are redesignated as paragraphs (a)(3)(i), (a)(3)(i)(A), and (a)(3)(i)(B), respectively.
3. The undesignated text following newly-designated paragraph (a)(3)(i)(B) is designated as paragraph (a)(3)(ii).
4. Newly-designated paragraph (a)(3)(i) introductory text is revised.
5. Newly-designated paragraph (a)(3)(i)(A) is revised.
6. Newly-designated paragraph (a)(3)(ii) is revised.
7. Paragraph (c)(2) is removed.
8. Paragraph (c)(3) is redesignated as paragraph (c)(2) and revised.
9. Paragraph (d) is added.
The revisions and addition read as follows:
§301.6323(g)-1 Refiling of notice of tax lien.
(a) In general-(1) Requirement to refile. In order to continue the effect of a notice of lien, the notice must be refiled in the place described in paragraph (b) of this section during the required filing period (described in paragraph (c) of this section). If two or more notices of lien are filed with respect to a particular tax assessment, and each notice of lien contains a certificate of release that releases the lien when the required refiling period ends, the failure to comply with the provisions of paragraphs (b)(1)(i) and (c) of this section in respect to one of the notices of lien releases the lien and renders ineffective the refiling of any other notice of lien.
* * * * *.
(3) Effect of failure to refile. (i) If the Internal Revenue Service fails to refile a notice of lien in the manner described in paragraphs (b) and (c) of this section, the notice of lien is not effective, after the expiration of the required filing period, as against any person without regard to when the interest of the person in the property subject to the lien was acquired. If a notice of lien contains a certificate of release that releases the lien at the end of the required refiling period and the notice of lien is not refiled during this period, the lien is extinguished and the notice of lien is ineffective with respect to --
(A) Property which is the subject matter of a suit, to which the United States is a party, commenced prior to the expiration of the required filing period; and
* * * * *
(ii) However, if a notice of lien does not contain a certificate of release that releases the lien at the end of the required refiling period, the failure to refile during the required refiling period will not affect the existence of the lien nor the effectiveness of the notice with respect to property which is the subject matter of a suit commenced prior to the expiration of the required refiling period, or property which has been levied upon prior to the expiration of such period.
(4) Filing of new notice. If a notice of lien is not refiled, and the notice of lien contains a certificate of release that automatically releases the lien when the required refiling period ends, the lien is released as of that date and is no longer in existence. The Internal Revenue Service must revoke the release before it can file a new notice of lien. This new filing must meet the requirements of section 6323(f) and §301.6323(f)-1 and is effective from the date on which such filing is made.
(b) * * *
(3) Examples. The following examples illustrate the provisions of this section:
Example 1. A, a delinquent taxpayer, is a resident of State M and owns real property in State N. In accordance with §301-6323-f(1), notices of lien are filed in States M and N. The notices of lien contain certificates of release that release the lien at the end of the required refiling period. In order to continue the effect of the notice of lien filed in either M or N, the IRS must refile, during the required refiling period, the notice of lien with the appropriate office in M as well as with the appropriate office in N.
* * * * *
Example 5. D, a delinquent taxpayer, is a resident of State M and owns real property in States N and O. In accordance with §301.6323(f)-1, the Internal Revenue Service files notices of lien in M, N, and O States. Nine years and 6 months after the date of the assessment shown on the notice of lien, D establishes his residence in P, and at that time the Internal Revenue Service receives from D a notification of his change in residence in accordance with the provisions of paragraph (b)(2) of this section. On a date which is 9 years and 7 months after the date of the assessment shown on the notice of lien, the IRS properly refiles notices of lien in M, N, and O which refilings are sufficient to continue the effect of each of the notices of lien. The Internal Revenue Service is not required to file a notice of lien in P because D did not notify the Internal Revenue Service of his change of residence to P more than 89 days prior to the date each of the refilings in M, N, and O was completed.
* * * * *
(c) Required filing period --(1) In general. For the purpose of this section, except as provided in paragraph (c)(2) of this section, the term required filing period means --
(i) The 1-year period ending 30 days after the expiration of 10 years after the date of the assessment of the tax; and
(ii) The 1-year period ending with the expiration of 10 years after the close of the preceding required refiling period for such notice of lien.
(2) Examples. The following examples illustrate the provisions of this paragraph:
Example 1. On March 10, 1998, an assessment of tax is made against B, a delinquent taxpayer, and a lien for the amount of the assessment arises on that date. On July 10, 1998, in accordance with §301.6323(f)-1, a notice of lien is filed. The notice of lien filed on July 10, 1998, is effective through April 9, 2008. The first required refiling period for the notice of lien begins on April 10, 2007, and ends on April 9, 2008. A refiling of the notice of lien during that period will extend the effectiveness of the notice of lien filed on July 10, 1998, through April 9, 2018. The second required refiling period for the notice of lien begins on April 10, 2017, and ends on April 9, 2018.
Example 2. Assume the same facts as in Example 1, except that the Internal Revenue Service fails to refile a notice of lien during the first required refiling period (April 10, 2007, through April 9, 2008). A notice of lien is filed on June 9, 2009, in accordance with §301.6323(f)-1. This notice is ineffective if the original notice contained a certificate of release, as the certificate of release would have had the effect of extinguishing the lien as of April 10, 2008. The Internal Revenue Service could revoke the release and file a new notice of lien, which would be effective as of the date it was filed.
(d) Effective/applicability date. This section applies with respect to any notice of Federal tax lien filed on or after the date these regulations are published as final regulations in the Federal Register.
Par. 6. Section 301.6323(h)-1 is amended as follows:
1. Paragraphs (a)(2)(ii) and (a)(3) are revised.
2. A new paragraph (h) is added.
The revisions and addition read as follows:
§301.6323(h)-1 Definitions.
(a) * * *
(2) * * *
(ii) The following example illustrates the application of paragraph (a)(2):
Example. (i) Under the law of State X, a security interest in certificated securities, negotiable documents, or instruments may be perfected, and hence protected against a judgment lien, by filing or by the secured party taking possession of the collateral. However, a security interest in such intangible personal property is considered to be temporarily perfected for a period of 20 days from the time the security interest attaches, to the extent that it arises for new value given under an authenticated security agreement. Under the law of X, a security interest attaches to such collateral when there is an agreement between the creditor and debtor that the interest attaches, the debtor has rights in the property, and consideration is given by the creditor. Under the law of X, in the case of temporary perfection, the security interest in such property is protected during the 20-day period against a judgment lien arising, after the security interest attaches, out of an unsecured obligation. Upon expiration of the 20-day period, the holder of the security interest must perfect its security interest under local law.
(ii) Because the security interest is perfected during the 20-day period against a subsequent judgment lien arising out of an unsecured obligation, and because filing or the taking of possession before the conclusion of the period of temporary perfection is not considered, for purposes of paragraph (a)(2)(i) of this section, to be a requisite action which relates back to the beginning of such period, the requirements of this paragraph are satisfied. Because filing or taking possession is a condition precedent to continued perfection, filing or taking possession of the collateral is a requisite action to establish such priority after expiration of the period of temporary perfection. If there is a lapse of perfection for failure to take possession, the determination of when the security interest exists (for purposes of protection against the tax lien) is made without regard to the period of temporary perfection.
(3) Money or money's worth. For purposes of this paragraph, the term money or money's worth includes money, a security (as defined in paragraph (d) of this section), tangible or intangible property, services, and other consideration reducible to a money value. Money or money's worth also includes any consideration which otherwise would constitute money or money's worth under the preceding sentence which was parted with before the security interest would otherwise exist if, under local law, past consideration is sufficient to support an agreement giving rise to a security interest. A firm commitment to part with money, a security, tangible or intangible property, services, or other consideration reducible to a money value does not, in itself, constitute a consideration in money or money's worth. A relinquishing or promised relinquishment of dower, curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights is not a consideration in money or money's worth. Nor is love and affection, promise of marriage, or any other consideration not reducible to a money value a consideration in money or money's worth.
* * * * *
(h) Effective/applicability date. This section applies as of the date these regulations are published as final regulations in the Federal Register.
Linda E. Stiff
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2008-8082 Filed 04/16/2008 at 8:45 am; Publication Date: 04/17/2008]
Wednesday, April 23, 2008
Secs. 162(a)(2), 274(d).
Expenses incurred by an individual for meals and lodging are normally considered nondeductible personal or living expenses. Sec. 262(a). On the other hand, expenses paid or incurred for meals and lodging, if properly substantiated, are deductible if paid or incurred by an individual while traveling away from home in pursuit of the individual's trade or business. Secs. 162(a)(2), 274(d). In this regard, the reference to the individual's trade or business includes the trade or business of being an employee, O'Malley v. Commissioner, 91 T.C. 352, 363-364 (1988), and the reference to the individual's home means the individual's tax home, Henderson v. Commissioner, T.C. Memo. 1995-559, affd. 143 F.3d 497 (9th Cir. 1998).
T.C. Summary Opinion 2008-41]
Eric D. Walker and Lynn Walker v. Commissioner.
Docket No. 7566-06S . Filed April 22, 2008.
[Code Sec. 162]
Tax Court: Summary opinion: Business travel expenses: Tax home. --
[ Code Sec. 6662]
Tax Court: Summary opinion: Penalties, civil: Substantial understatement of tax. --
An electrician whose meals and lodging expenses were denied was liable for an accuracy-related penalty for his substantial understatement of income tax. The underpayment of tax exceeded $5,000 and the taxpayer failed to show that he had reasonable cause and acted in good faith with respect to the underpayment. --CCH.
PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b),THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE.
Eric D. Walker, pro se. Brian A. Pfeifer, for respondent.
CARLUZZO, Special Trial Judge: This case was heard pursuant to the provisions of section 7463.1 Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court, and this opinion shall not be cited as precedent for any other case.
In a notice of deficiency issued to petitioners on January 19, 2006, respondent determined a $5,975 deficiency in and a $1,195 section 6662(a) accuracy-related penalty with respect to petitioners' 2002 Federal income tax.
The issues for decision are: (1) Whether petitioners are entitled to certain trade or business expense deductions, some claimed on a Schedule A, Itemized Deductions, and some claimed on a Schedule C, Profit or Loss From Business; and (2) whether petitioners are liable for the accuracy-related penalty.
Background
Some of the facts have been stipulated and are so found. Petitioners married on March 31, 2002. They filed a timely joint Federal income tax return for that year. At the time the petition was filed, they resided in Florida.
Eric D. Walker (petitioner) is an electrician who at all times relevant was a member of Local 613 of the International Brotherhood of Electrical Workers (IBEW). Local 613 is located in Atlanta, Georgia, but petitioner did not work within the jurisdiction of Local 613, or anywhere within the State of Georgia, during 2002. Instead, he traveled repeatedly up and down the east coast from Massachusetts to Florida in search of or in connection with available union-based employment opportunities. IBEW procedures required that he announce his availability for employment in any given location by visiting the local chapter of the IBEW and signing whatever paperwork was required. This procedure had to be repeated periodically as long as petitioner was unemployed, which he was during part of 2002, and continued to look for jobs.
Although he actively sought employment using the process described above throughout 2002, petitioner was employed only from time to time from May 1 through November 1, 2002, and only for various employers in New Jersey. While working in New Jersey petitioner stayed in a YMCA or in a rented house. Petitioner spent 216 days in New Jersey during 2002, including those days when he was present there either working or looking for work.
Following his marriage in March, petitioner spent only 3 days in Georgia. Lynn Walker lived with her mother in Florida during 2002, both before and after petitioners were married. Petitioner spent a fair amount of time in Florida during that year.2 As of the end of November 2002, petitioner considered that his residence was in Florida.
Petitioners' 2002 self-prepared, joint Federal income tax return was timely filed. That return includes a Schedule C and a Schedule A. The Schedule C identifies the business as "Spinal Connection Rehab and Wellness" and shows the proprietor as Lynn Walker. There is no income reported on the Schedule C, and various deductions totaling $9,087 result in a net loss in that amount which is claimed as a deduction on petitioners' 2002 return. As relevant here, on the Schedule A, petitioners claimed a $32,525 unreimbursed employee business expense deduction, most of which is attributable to meals and lodging expenses.
Petitioners also claimed a $15,218 loss from an S corporation on their 2002 return. That loss is identified as a "nonpassive loss from [a] Schedule K-1" issued to petitioners by Spinal Connection Rehab and Wellness.
In the above-referenced notice of deficiency, respondent: (1) Disallowed the deduction for the net loss reported on the Schedule C; (2) disallowed a portion of the unreimbursed employee business expense deduction claimed on the Schedule A; (3) allowed the standard deduction applicable to petitioners' filing status as the remaining itemized deductions respondent allowed totaled less than the standard deduction;3 and (4) imposed an accuracy-related penalty under section 6662(a) upon the ground that, among other reasons, the underpayment of tax required to be shown on petitioners' 2002 return is a substantial understatement of income tax. Other adjustments made in the notice of deficiency are computational or have been agreed upon by the parties.
Discussion
1. Deduction for Net Loss Claimed on the Schedule C
Petitioners now agree that they are not entitled to a deduction for the net loss shown on the Schedule C. Although less than certain, it appears that the expenses that generated the loss might have been duplicated in the loss claimed from the above-referenced S corporation. That loss has not been disallowed.
2. Disallowed Portion of the Employee Business Expense Deduction
According to the notice of deficiency, the portion of the employee business expenses deduction attributable to "travel, meals and lodging" was disallowed because respondent determined that those expenses, if paid or incurred, were not paid or incurred while petitioner was traveling away from home in pursuit of his employment. According to respondent, petitioner maintained "no fixed place of abode or business locality," consequently, "each place where * * * [petitioner worked became his] principal place of business and * * * tax home." According to petitioner, his residence and tax home, at least until the end of November 2002, was in Stockbridge, Georgia, where he lived with his brother in his brother's house. Petitioner now acknowledges that amounts claimed on his 2002 return for lodging were overstated, but claims entitlement to: (1) A portion of the claimed deduction for lodging; and (2) the entire claimed deduction for meals.
Expenses incurred by an individual for meals and lodging are normally considered nondeductible personal or living expenses. Sec. 262(a). On the other hand, expenses paid or incurred for meals and lodging, if properly substantiated, are deductible if paid or incurred by an individual while traveling away from home in pursuit of the individual's trade or business. Secs. 162(a)(2), 274(d). In this regard, the reference to the individual's trade or business includes the trade or business of being an employee, O'Malley v. Commissioner, 91 T.C. 352, 363-364 (1988), and the reference to the individual's home means the individual's tax home, Henderson v. Commissioner, T.C. Memo. 1995-559, affd. 143 F.3d 497 (9th Cir. 1998).
In general, the location of an individual's tax home is the location of his or her principal place of employment. Daly v. Commissioner, 72 T.C. 190, 195 (1979), affd. 662 F.2d 253 (4th Cir. 1981). If, during the taxable year, the individual has no principal place of employment, this Court considers the individual's permanent place of residence to be his or her tax home. Rambo v. Commissioner, 69 T.C. 920, 923-925 (1978). If an individual has no principal place of employment or permanent residence during the taxable year, then this Court considers that individual to have no tax home from which the individual can be away from for purposes of deducting meals and lodging expenses otherwise deductible under section 162(a)(2). Wirth v. Commissioner, 61 T.C. 855, 859 (1974).
Petitioner's profession and status as an IBEW member required that he seek and/or accept employment on a temporary basis in various locations during 2002. He had no principal place of business during that year.4 Whether petitioner had a permanent place of residence during 2002 is questionable. If he did, then it was at his brother's house only up until the date of his wedding on March 31, and it was in Florida at some point starting in November. The meals and lodging expense deductions here in dispute relate to the period between those dates, and the record does not support a finding that he paid or incurred any living expense in connection with his brother's house or any other "permanent place of residence" while at the same time he was present and working in New Jersey or elsewhere. See Kroll v. Commissioner, 49 T.C. 557, 562 (1968) (noting that the purpose of section 162(a)(2) is to "mitigate the burden of the taxpayer who, because of the exigencies of his trade or business, must maintain two places of abode and thereby incur additional and duplicate living expenses").
Because petitioner had neither a principal permanent place of residence nor a principal place of employment during the period to which the deductions for meals and lodging expenses relate, he is not considered to have a tax home for that period. Because the deductions for meals and lodging expenses relate to a period for which petitioner had no tax home, he is not entitled to those deductions. Respondent's disallowance of the portion of the employee business expense deduction attributable to amounts for meals and lodging is sustained.
Respondent acknowledges that petitioner is entitled to tolls and vehicle expenses incurred in connection with his search for employment during 2002. The amounts already allowed for such expenses exceed the amounts petitioners substantiated and, when taken into account with other itemized deductions allowed or not challenged, do not exceed the $7,850 standard deduction applicable to petitioners' filing status. See sec. 63(b) and (c). It is unnecessary, therefore, to consider petitioners' entitlement to such deductions any further, and respondent's allowance of the standard deduction in lieu of the itemized deductions otherwise claimed and not disallowed is sustained.
3. The Section 6662(a) Accuracy-Related Penalty
Section 6662(a) imposes an accuracy-related penalty of 20 percent of any portion of an underpayment of tax, if among other reasons, the underpayment is attributable to a substantial understatement of income tax. Sec. 6662(b)(2), (d). An understatement of income tax is a substantial understatement of income tax if it exceeds the greater of $5,000 or 10 percent of the tax required to be shown on the taxpayer's return.5 Sec. 6662(d)(1). Ignoring conditions not relevant here, for purposes of section 6662 an understatement is defined as the excess of the amount of the tax required to be shown on the taxpayer's return over the amount of the tax which is shown on the return. Sec. 6662(d)(2)(A). In this case the understatement of income tax is computed in the same manner as and is equal to the deficiency in dispute; that is, $5,975. See secs. 6211, 6662(d)(2).
Under section 7491(c) respondent has the burden of production with respect to the accuracy-related penalty under section 6662(a). To meet that burden, respondent must come forward with sufficient evidence to show that imposition of the penalty is appropriate. See Higbee v. Commissioner, 116 T.C. 438, 446 (2001). We have sustained, or petitioners have conceded, the adjustments in the notice of deficiency that give rise to the deficiency. Respondent has satisfied his burden of production under sec. 7491(c) with respect to the accuracy-related penalty under section 6662(a) determined in the notice of deficiency because the underpayment of tax exceeds $5,000.
The accuracy-related penalty does not apply to any part of an underpayment of tax if it is shown the taxpayer acted with reasonable cause and in good faith. Sec. 6664(c)(1). The determination of whether a taxpayer acted in good faith is made on a case-by-case basis, taking into account all the pertinent facts and circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. Petitioners bear the burden of proving that they had reasonable cause and acted in good faith with respect to the underpayment. See Higbee v. Commissioner, supra at 449. This they have failed to do. Respondent's imposition of the section 6662(a) accuracy-related penalty is sustained.
To reflect the foregoing,
Decision will be entered for respondent.
1 Unless otherwise indicated, section references are to the Internal Revenue Code of 1986, as amended, in effect for the relevant period.
2 Petitioner was in Florida 25 days during January; 7 days during February; 12 days during March; 9 days during April; 3 days during June; 6 days during September; 8 days during November; and all of December.
3 The itemized deductions otherwise allowed are: (1) Taxes --$972; (2) Gifts to Charity --$745; and (3) Miscellaneous deductions, including unreimbursed employee business expenses --$5,498, before the application of sec. 67(a).
4 We disagree with the suggestion made in the notice of deficiency that New Jersey was petitioner's tax home during 2002. His employment there was clearly temporary. This distinction, however, makes no difference to whether petitioner is entitled to deduct expenses for meals and lodging while working in New Jersey.
5 Ten percent of the tax required to be shown on petitioners' 2002 return is $892.50.
Expenses incurred by an individual for meals and lodging are normally considered nondeductible personal or living expenses. Sec. 262(a). On the other hand, expenses paid or incurred for meals and lodging, if properly substantiated, are deductible if paid or incurred by an individual while traveling away from home in pursuit of the individual's trade or business. Secs. 162(a)(2), 274(d). In this regard, the reference to the individual's trade or business includes the trade or business of being an employee, O'Malley v. Commissioner, 91 T.C. 352, 363-364 (1988), and the reference to the individual's home means the individual's tax home, Henderson v. Commissioner, T.C. Memo. 1995-559, affd. 143 F.3d 497 (9th Cir. 1998).
T.C. Summary Opinion 2008-41]
Eric D. Walker and Lynn Walker v. Commissioner.
Docket No. 7566-06S . Filed April 22, 2008.
[Code Sec. 162]
Tax Court: Summary opinion: Business travel expenses: Tax home. --
[ Code Sec. 6662]
Tax Court: Summary opinion: Penalties, civil: Substantial understatement of tax. --
An electrician whose meals and lodging expenses were denied was liable for an accuracy-related penalty for his substantial understatement of income tax. The underpayment of tax exceeded $5,000 and the taxpayer failed to show that he had reasonable cause and acted in good faith with respect to the underpayment. --CCH.
PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b),THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE.
Eric D. Walker, pro se. Brian A. Pfeifer, for respondent.
CARLUZZO, Special Trial Judge: This case was heard pursuant to the provisions of section 7463.1 Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court, and this opinion shall not be cited as precedent for any other case.
In a notice of deficiency issued to petitioners on January 19, 2006, respondent determined a $5,975 deficiency in and a $1,195 section 6662(a) accuracy-related penalty with respect to petitioners' 2002 Federal income tax.
The issues for decision are: (1) Whether petitioners are entitled to certain trade or business expense deductions, some claimed on a Schedule A, Itemized Deductions, and some claimed on a Schedule C, Profit or Loss From Business; and (2) whether petitioners are liable for the accuracy-related penalty.
Background
Some of the facts have been stipulated and are so found. Petitioners married on March 31, 2002. They filed a timely joint Federal income tax return for that year. At the time the petition was filed, they resided in Florida.
Eric D. Walker (petitioner) is an electrician who at all times relevant was a member of Local 613 of the International Brotherhood of Electrical Workers (IBEW). Local 613 is located in Atlanta, Georgia, but petitioner did not work within the jurisdiction of Local 613, or anywhere within the State of Georgia, during 2002. Instead, he traveled repeatedly up and down the east coast from Massachusetts to Florida in search of or in connection with available union-based employment opportunities. IBEW procedures required that he announce his availability for employment in any given location by visiting the local chapter of the IBEW and signing whatever paperwork was required. This procedure had to be repeated periodically as long as petitioner was unemployed, which he was during part of 2002, and continued to look for jobs.
Although he actively sought employment using the process described above throughout 2002, petitioner was employed only from time to time from May 1 through November 1, 2002, and only for various employers in New Jersey. While working in New Jersey petitioner stayed in a YMCA or in a rented house. Petitioner spent 216 days in New Jersey during 2002, including those days when he was present there either working or looking for work.
Following his marriage in March, petitioner spent only 3 days in Georgia. Lynn Walker lived with her mother in Florida during 2002, both before and after petitioners were married. Petitioner spent a fair amount of time in Florida during that year.2 As of the end of November 2002, petitioner considered that his residence was in Florida.
Petitioners' 2002 self-prepared, joint Federal income tax return was timely filed. That return includes a Schedule C and a Schedule A. The Schedule C identifies the business as "Spinal Connection Rehab and Wellness" and shows the proprietor as Lynn Walker. There is no income reported on the Schedule C, and various deductions totaling $9,087 result in a net loss in that amount which is claimed as a deduction on petitioners' 2002 return. As relevant here, on the Schedule A, petitioners claimed a $32,525 unreimbursed employee business expense deduction, most of which is attributable to meals and lodging expenses.
Petitioners also claimed a $15,218 loss from an S corporation on their 2002 return. That loss is identified as a "nonpassive loss from [a] Schedule K-1" issued to petitioners by Spinal Connection Rehab and Wellness.
In the above-referenced notice of deficiency, respondent: (1) Disallowed the deduction for the net loss reported on the Schedule C; (2) disallowed a portion of the unreimbursed employee business expense deduction claimed on the Schedule A; (3) allowed the standard deduction applicable to petitioners' filing status as the remaining itemized deductions respondent allowed totaled less than the standard deduction;3 and (4) imposed an accuracy-related penalty under section 6662(a) upon the ground that, among other reasons, the underpayment of tax required to be shown on petitioners' 2002 return is a substantial understatement of income tax. Other adjustments made in the notice of deficiency are computational or have been agreed upon by the parties.
Discussion
1. Deduction for Net Loss Claimed on the Schedule C
Petitioners now agree that they are not entitled to a deduction for the net loss shown on the Schedule C. Although less than certain, it appears that the expenses that generated the loss might have been duplicated in the loss claimed from the above-referenced S corporation. That loss has not been disallowed.
2. Disallowed Portion of the Employee Business Expense Deduction
According to the notice of deficiency, the portion of the employee business expenses deduction attributable to "travel, meals and lodging" was disallowed because respondent determined that those expenses, if paid or incurred, were not paid or incurred while petitioner was traveling away from home in pursuit of his employment. According to respondent, petitioner maintained "no fixed place of abode or business locality," consequently, "each place where * * * [petitioner worked became his] principal place of business and * * * tax home." According to petitioner, his residence and tax home, at least until the end of November 2002, was in Stockbridge, Georgia, where he lived with his brother in his brother's house. Petitioner now acknowledges that amounts claimed on his 2002 return for lodging were overstated, but claims entitlement to: (1) A portion of the claimed deduction for lodging; and (2) the entire claimed deduction for meals.
Expenses incurred by an individual for meals and lodging are normally considered nondeductible personal or living expenses. Sec. 262(a). On the other hand, expenses paid or incurred for meals and lodging, if properly substantiated, are deductible if paid or incurred by an individual while traveling away from home in pursuit of the individual's trade or business. Secs. 162(a)(2), 274(d). In this regard, the reference to the individual's trade or business includes the trade or business of being an employee, O'Malley v. Commissioner, 91 T.C. 352, 363-364 (1988), and the reference to the individual's home means the individual's tax home, Henderson v. Commissioner, T.C. Memo. 1995-559, affd. 143 F.3d 497 (9th Cir. 1998).
In general, the location of an individual's tax home is the location of his or her principal place of employment. Daly v. Commissioner, 72 T.C. 190, 195 (1979), affd. 662 F.2d 253 (4th Cir. 1981). If, during the taxable year, the individual has no principal place of employment, this Court considers the individual's permanent place of residence to be his or her tax home. Rambo v. Commissioner, 69 T.C. 920, 923-925 (1978). If an individual has no principal place of employment or permanent residence during the taxable year, then this Court considers that individual to have no tax home from which the individual can be away from for purposes of deducting meals and lodging expenses otherwise deductible under section 162(a)(2). Wirth v. Commissioner, 61 T.C. 855, 859 (1974).
Petitioner's profession and status as an IBEW member required that he seek and/or accept employment on a temporary basis in various locations during 2002. He had no principal place of business during that year.4 Whether petitioner had a permanent place of residence during 2002 is questionable. If he did, then it was at his brother's house only up until the date of his wedding on March 31, and it was in Florida at some point starting in November. The meals and lodging expense deductions here in dispute relate to the period between those dates, and the record does not support a finding that he paid or incurred any living expense in connection with his brother's house or any other "permanent place of residence" while at the same time he was present and working in New Jersey or elsewhere. See Kroll v. Commissioner, 49 T.C. 557, 562 (1968) (noting that the purpose of section 162(a)(2) is to "mitigate the burden of the taxpayer who, because of the exigencies of his trade or business, must maintain two places of abode and thereby incur additional and duplicate living expenses").
Because petitioner had neither a principal permanent place of residence nor a principal place of employment during the period to which the deductions for meals and lodging expenses relate, he is not considered to have a tax home for that period. Because the deductions for meals and lodging expenses relate to a period for which petitioner had no tax home, he is not entitled to those deductions. Respondent's disallowance of the portion of the employee business expense deduction attributable to amounts for meals and lodging is sustained.
Respondent acknowledges that petitioner is entitled to tolls and vehicle expenses incurred in connection with his search for employment during 2002. The amounts already allowed for such expenses exceed the amounts petitioners substantiated and, when taken into account with other itemized deductions allowed or not challenged, do not exceed the $7,850 standard deduction applicable to petitioners' filing status. See sec. 63(b) and (c). It is unnecessary, therefore, to consider petitioners' entitlement to such deductions any further, and respondent's allowance of the standard deduction in lieu of the itemized deductions otherwise claimed and not disallowed is sustained.
3. The Section 6662(a) Accuracy-Related Penalty
Section 6662(a) imposes an accuracy-related penalty of 20 percent of any portion of an underpayment of tax, if among other reasons, the underpayment is attributable to a substantial understatement of income tax. Sec. 6662(b)(2), (d). An understatement of income tax is a substantial understatement of income tax if it exceeds the greater of $5,000 or 10 percent of the tax required to be shown on the taxpayer's return.5 Sec. 6662(d)(1). Ignoring conditions not relevant here, for purposes of section 6662 an understatement is defined as the excess of the amount of the tax required to be shown on the taxpayer's return over the amount of the tax which is shown on the return. Sec. 6662(d)(2)(A). In this case the understatement of income tax is computed in the same manner as and is equal to the deficiency in dispute; that is, $5,975. See secs. 6211, 6662(d)(2).
Under section 7491(c) respondent has the burden of production with respect to the accuracy-related penalty under section 6662(a). To meet that burden, respondent must come forward with sufficient evidence to show that imposition of the penalty is appropriate. See Higbee v. Commissioner, 116 T.C. 438, 446 (2001). We have sustained, or petitioners have conceded, the adjustments in the notice of deficiency that give rise to the deficiency. Respondent has satisfied his burden of production under sec. 7491(c) with respect to the accuracy-related penalty under section 6662(a) determined in the notice of deficiency because the underpayment of tax exceeds $5,000.
The accuracy-related penalty does not apply to any part of an underpayment of tax if it is shown the taxpayer acted with reasonable cause and in good faith. Sec. 6664(c)(1). The determination of whether a taxpayer acted in good faith is made on a case-by-case basis, taking into account all the pertinent facts and circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs. Petitioners bear the burden of proving that they had reasonable cause and acted in good faith with respect to the underpayment. See Higbee v. Commissioner, supra at 449. This they have failed to do. Respondent's imposition of the section 6662(a) accuracy-related penalty is sustained.
To reflect the foregoing,
Decision will be entered for respondent.
1 Unless otherwise indicated, section references are to the Internal Revenue Code of 1986, as amended, in effect for the relevant period.
2 Petitioner was in Florida 25 days during January; 7 days during February; 12 days during March; 9 days during April; 3 days during June; 6 days during September; 8 days during November; and all of December.
3 The itemized deductions otherwise allowed are: (1) Taxes --$972; (2) Gifts to Charity --$745; and (3) Miscellaneous deductions, including unreimbursed employee business expenses --$5,498, before the application of sec. 67(a).
4 We disagree with the suggestion made in the notice of deficiency that New Jersey was petitioner's tax home during 2002. His employment there was clearly temporary. This distinction, however, makes no difference to whether petitioner is entitled to deduct expenses for meals and lodging while working in New Jersey.
5 Ten percent of the tax required to be shown on petitioners' 2002 return is $892.50.
Tuesday, April 22, 2008
§7482(a)(1))- penalty for tax protestor argument
Chester E. Richards, Petitioner-Appellant v. Commissioner of Internal Revenue, Respondent-Appellee.
U.S. Court of Appeals, 10th Circuit; 07-9007, April 8, 2008.
Unpublished opinion affirming an unreported Tax Court decision.
[ Code Secs. 6651 and 6673]
Returns: Penalties, civil: Frivolous arguments. --
[Fed. R. App. Proc. 38]
Frivolous appeal: Sanctions. --
Before: Lucero, Hartz and Holmes, Circuit Judges.
ORDER AND JUDGMENT *
LUCERO, Circuit Judge: Chester E. Richards, proceeding pro se, appeals from a decision of the United States Tax Court finding that he: (1) had a $6,754 income-tax deficiency for the 2001 tax year, (2) should be assessed a $1,582 penalty for filing a late return, and (3) should be required to pay a $2,000 penalty to the United States as a sanction for making frivolous and groundless arguments to the court. Exercising jurisdiction under 26 U.S.C. §7482(a)(1), we AFFIRM . Additionally, because Richards has maintained a frivolous appeal before this court, we GRANT the motion for sanctions filed by the Commissioner of Internal Revenue ("Commissioner") but limit the requested award to $4,000.
I
Richards worked as an electrician in 2001 and earned $48,104 for his services. In late October 2003, he filed a Form 1040 applicable to the 2001 tax year in which he reported these earnings but deducted an equivalent amount in itemized expenses. As a result, he reported zero taxable income and zero income tax for the 2001 tax year. In a Form 8275 Disclosure Statement attached to his Form 1040, Richards offered a litany of explanations for why his income was not taxable, including assertions that he was entitled to "common law immunity" from taxation and that he had "a private right to [his] labor."
In early 2005, the Internal Revenue Service ("IRS") notified Richards that he was subject to an $11,882 tax deficiency for the 2001 tax year and a $2,864 penalty for filing a late return. In response to the IRS notification, Richards petitioned the United States Tax Court for relief from the amounts alleged to be due. Among other things, he claimed that the IRS had miscalculated the amount of the deficiency, that Congress could not tax human labor, that tax returns are not mandatory, and that the Sixteenth Amendment "must be struck down as unconstitutional." Because Richards asserted in his petition that the IRS had miscalculated the amount of the tax due, the tax court denied a motion to dismiss from the Commissioner and set the case over for a bench trial. The court did, however, warn Richards that its ruling on the Commissioner's motion to dismiss "should not lead [him] to the conclusion that [he] may have real issues...with respect to exclusion or nontaxability of 1099 income or wage income...."
Prior to trial, Richards entered into a stipulation with the IRS in which he admitted that, if the court rejected his arguments related to the lawfulness of the federal income tax and concluded that his 2001 earnings were subject to federal taxation, he would owe a $6,754 tax deficiency for 2001. Richards also submitted a pretrial memorandum in which he reiterated many of the arguments contained in his petition. He also claimed that Form 1040 was illegal because it failed to comply with requirements from the Office of Management and Budget, that he was not required to file a Form 1040, and that he was not subject to taxation because he lived outside of a "federal zone."
At the bench trial, Richards sought leave of the court to permit his "law clerk" to sit with him at the counsel table as well as to help elicit Richards' direct testimony. The court denied these requests, and Richards testified to the court in narrative form. Richards reiterated several of the arguments in his filings and indicated that he does not plan to file any more tax returns unless "he find[s] out some way that [he is] liable to pay a tax." At the conclusion of trial, the Commissioner moved the court to impose sanctions, contending that Richards' arguments were frivolous and were intended to delay the proceedings.
The court sustained the stipulated deficiency. It also concluded that Richards was liable for a $1,582 penalty because he had failed to timely file his 2001 return, and an additional $2,000 penalty because Richards had "assert[ed] nothing but frivolous and groundless arguments...[as a] protest against the Federal income tax system." Richards thereafter unsuccessfully moved for reconsideration of the court's decision, and this timely appeal followed.
II
In his appeal to this court, Richards challenges the merits of the tax court's determinations that he is liable for an income tax deficiency and a late-filing penalty. He also disputes the tax court's decision to impose a $2,000 penalty against him, as well as the court's refusal to allow his "law clerk" to assist him at trial. We reject each of his challenges.
"We review tax court decisions in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury." Kurzet v. Comm'r, 222 F.3d 830, 833 (10th Cir. 2000) (quoting 26 U.S.C. §7482(a)(1)). "We review the Tax Court's factual findings under the clearly erroneous standard and review its legal conclusions de novo." Anderson v. Comm'r, 62 F.3d 1266, 1270 (10th Cir. 1995).
A
Richards focuses the gravamen of his appeal on the same patently frivolous arguments that he presented to the tax court. He primarily contends that there is no law that makes him liable for filing an income tax return and that the tax court therefore erred in finding him liable for a tax deficiency. We have previously rejected this same tax-protestor argument, and all of the related contentions Richards has raised as to why he should not pay federal income taxes, and we do so again today. See, e.g., United States v. Chisum, 502 F.3d 1237, 1243-44 (10th Cir. 2007), cert. denied, 128 S. Ct. 1290 (2008); United States v. Collins, 920 F.2d 619, 629-31 (10th Cir. 1990); Lonsdale v. United States, 919 F.2d 1440, 1448 (10th Cir. 1990); Casper v. Comm'r, 805 F.2d 902, 904 (10th Cir. 1986); Charczuk v. Comm'r, 771 F.2d 471, 472-73 (10th Cir. 1985); cf. United States v. Ford, 514 F.3d 1047 (10th Cir. 2008).
As to the tax court's decision to impose a penalty for Richards' untimely filing of his 2001 return, we uphold its conclusion. Section 6651(a)(1) of Title 26 unambiguously provides for a five percent penalty per month for the failure "to file any return...on the date prescribed." Richards does not dispute the factual basis underlying the imposition of this addition, and we fail to discern any error in the tax court's determination that this penalty was warranted under the terms of the statute.
Richards' remaining challenge to the merits of the decision below relates to the tax court's conclusion that a $2,000 penalty was warranted based on Richards' frivolous arguments. We review the tax court's decision to impose sanctions for an abuse of discretion. Fox v. Comm'r, 969 F.2d 951, 953 (10th Cir. 1992). Under 26 U.S.C. §6673(a)(1), the tax court may impose sanctions of $25,000 or less when it appears that the taxpayer has instituted or maintained proceedings primarily for purposes of delay, or when the taxpayer's position in the proceeding is frivolous or groundless. See also Fox, 969 F.2d at 953. Richards appears to argue that the penalty assessed by the tax court in this case was inappropriate because the final tax deficiency assessed was less than what the IRS initially alleged he owed, and that his case therefore was not frivolous. This contention lacks merit. By the time of trial, the amount of the deficiency pursued by the Commissioner was no longer an issue --Richards and the IRS had already stipulated to the amount of the deficiency. The only remaining questions for the court to decide, under the terms of the stipulation, related to Richards' arguments that he was not subject to the federal income tax laws. As indicated above, Richards' contentions in that regard were patently frivolous. The tax court therefore did not abuse its discretion in ordering him to pay a $2,000 penalty.
B
In his final argument related to the proceedings below, Richards claims that the district court erred in excluding his "law clerk" from counsel's table and from "use in court." On this score, the court did not err. Although a pro se taxpayer may be assisted in tax court by a nonlawyer who has filed an application, passed a written exam, and been sponsored by at least two tax-court practitioners, see Tax Court Rule 200, there is nothing in the record that would indicate that Richards' "law clerk" satisfied this rule. 1
III
Lastly, the Commissioner moves for sanctions under 28 U.S.C. §1912, Federal Rule of Appellate Procedure 38, and 26 U.S.C. §7482(c)(4), arguing that the instant appeal is frivolous. Richards' response to the motion for sanctions generally rehashes the discredited arguments contained within his opening brief, including his assertions that "there is no statutorily-imposed duty to file, to pay when filing, or to withhold the income of a natural person." The Commissioner requests sanctions in the amount of $8,000, stating that the government expends an average of $11,000 in attorney salaries and other costs to defend against a frivolous tax appeal.
Rule 38 and 28 U.S.C. §1912 allow a court of appeals "to award just damages and single or double costs if the court determines that an appeal is frivolous or brought for purposes of delay." Kyler v. Everson, 442 F.3d 1251, 1253 (10th Cir. 2006) (quotation omitted). Similarly, 26 U.S.C. §7482(c)(4) authorizes a court of appeals "to require the taxpayer to pay...a penalty in any case where the decision of the Tax Court is affirmed and it appears that the appeal was instituted or maintained primarily for delay or that the taxpayer's position in the appeal is frivolous or groundless." This court may award sanctions against a pro se litigant such as Richards because "pro se litigants are subject to the same minimum litigation requirements that bind all litigants and counsel before all federal courts." Kyler, 442 F.3d at 1253. We have consistently recognized that "[a]n appeal is frivolous when the result is obvious, or the appellant's arguments of error are wholly without merit." Braley v. Campbell, 832 F.2d 1504, 1511 (10th Cir. 1987) (quotation omitted).
Given Richards' insistence on pursuing meritless legal arguments throughout this appeal, we conclude that a sanction is warranted. 2 Nevertheless, because this appeal involves only a few relatively straightforward issues, the Commissioner has not adequately justified the $8,000 sum requested. In our discretion we therefore reduce the requested sanction amount to $4,000.
IV
The judgment of the United States Tax Court is AFFIRMED . The Commissioner's motion for sanctions is GRANTED but the amount is limited to $4,000. The mandate for sanctions shall issue forthwith.
ENTERED FOR THE COURT
* After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore ordered submitted without oral argument. This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
1 To the extent that Richards' pro se opening brief can be read to assert additional procedural irregularities in the tax court's conduct of the bench trial, we summarily reject his claims.
2 We harbor no doubt that Richards appreciates the meritless nature of his arguments. He admitted to this court in his opening brief that "the threads that wind through the many civil and criminal tax cases" support the decision the tax court reached in this case.
Chester E. Richards, Petitioner-Appellant v. Commissioner of Internal Revenue, Respondent-Appellee.
U.S. Court of Appeals, 10th Circuit; 07-9007, April 8, 2008.
Unpublished opinion affirming an unreported Tax Court decision.
[ Code Secs. 6651 and 6673]
Returns: Penalties, civil: Frivolous arguments. --
[Fed. R. App. Proc. 38]
Frivolous appeal: Sanctions. --
Before: Lucero, Hartz and Holmes, Circuit Judges.
ORDER AND JUDGMENT *
LUCERO, Circuit Judge: Chester E. Richards, proceeding pro se, appeals from a decision of the United States Tax Court finding that he: (1) had a $6,754 income-tax deficiency for the 2001 tax year, (2) should be assessed a $1,582 penalty for filing a late return, and (3) should be required to pay a $2,000 penalty to the United States as a sanction for making frivolous and groundless arguments to the court. Exercising jurisdiction under 26 U.S.C. §7482(a)(1), we AFFIRM . Additionally, because Richards has maintained a frivolous appeal before this court, we GRANT the motion for sanctions filed by the Commissioner of Internal Revenue ("Commissioner") but limit the requested award to $4,000.
I
Richards worked as an electrician in 2001 and earned $48,104 for his services. In late October 2003, he filed a Form 1040 applicable to the 2001 tax year in which he reported these earnings but deducted an equivalent amount in itemized expenses. As a result, he reported zero taxable income and zero income tax for the 2001 tax year. In a Form 8275 Disclosure Statement attached to his Form 1040, Richards offered a litany of explanations for why his income was not taxable, including assertions that he was entitled to "common law immunity" from taxation and that he had "a private right to [his] labor."
In early 2005, the Internal Revenue Service ("IRS") notified Richards that he was subject to an $11,882 tax deficiency for the 2001 tax year and a $2,864 penalty for filing a late return. In response to the IRS notification, Richards petitioned the United States Tax Court for relief from the amounts alleged to be due. Among other things, he claimed that the IRS had miscalculated the amount of the deficiency, that Congress could not tax human labor, that tax returns are not mandatory, and that the Sixteenth Amendment "must be struck down as unconstitutional." Because Richards asserted in his petition that the IRS had miscalculated the amount of the tax due, the tax court denied a motion to dismiss from the Commissioner and set the case over for a bench trial. The court did, however, warn Richards that its ruling on the Commissioner's motion to dismiss "should not lead [him] to the conclusion that [he] may have real issues...with respect to exclusion or nontaxability of 1099 income or wage income...."
Prior to trial, Richards entered into a stipulation with the IRS in which he admitted that, if the court rejected his arguments related to the lawfulness of the federal income tax and concluded that his 2001 earnings were subject to federal taxation, he would owe a $6,754 tax deficiency for 2001. Richards also submitted a pretrial memorandum in which he reiterated many of the arguments contained in his petition. He also claimed that Form 1040 was illegal because it failed to comply with requirements from the Office of Management and Budget, that he was not required to file a Form 1040, and that he was not subject to taxation because he lived outside of a "federal zone."
At the bench trial, Richards sought leave of the court to permit his "law clerk" to sit with him at the counsel table as well as to help elicit Richards' direct testimony. The court denied these requests, and Richards testified to the court in narrative form. Richards reiterated several of the arguments in his filings and indicated that he does not plan to file any more tax returns unless "he find[s] out some way that [he is] liable to pay a tax." At the conclusion of trial, the Commissioner moved the court to impose sanctions, contending that Richards' arguments were frivolous and were intended to delay the proceedings.
The court sustained the stipulated deficiency. It also concluded that Richards was liable for a $1,582 penalty because he had failed to timely file his 2001 return, and an additional $2,000 penalty because Richards had "assert[ed] nothing but frivolous and groundless arguments...[as a] protest against the Federal income tax system." Richards thereafter unsuccessfully moved for reconsideration of the court's decision, and this timely appeal followed.
II
In his appeal to this court, Richards challenges the merits of the tax court's determinations that he is liable for an income tax deficiency and a late-filing penalty. He also disputes the tax court's decision to impose a $2,000 penalty against him, as well as the court's refusal to allow his "law clerk" to assist him at trial. We reject each of his challenges.
"We review tax court decisions in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury." Kurzet v. Comm'r, 222 F.3d 830, 833 (10th Cir. 2000) (quoting 26 U.S.C. §7482(a)(1)). "We review the Tax Court's factual findings under the clearly erroneous standard and review its legal conclusions de novo." Anderson v. Comm'r, 62 F.3d 1266, 1270 (10th Cir. 1995).
A
Richards focuses the gravamen of his appeal on the same patently frivolous arguments that he presented to the tax court. He primarily contends that there is no law that makes him liable for filing an income tax return and that the tax court therefore erred in finding him liable for a tax deficiency. We have previously rejected this same tax-protestor argument, and all of the related contentions Richards has raised as to why he should not pay federal income taxes, and we do so again today. See, e.g., United States v. Chisum, 502 F.3d 1237, 1243-44 (10th Cir. 2007), cert. denied, 128 S. Ct. 1290 (2008); United States v. Collins, 920 F.2d 619, 629-31 (10th Cir. 1990); Lonsdale v. United States, 919 F.2d 1440, 1448 (10th Cir. 1990); Casper v. Comm'r, 805 F.2d 902, 904 (10th Cir. 1986); Charczuk v. Comm'r, 771 F.2d 471, 472-73 (10th Cir. 1985); cf. United States v. Ford, 514 F.3d 1047 (10th Cir. 2008).
As to the tax court's decision to impose a penalty for Richards' untimely filing of his 2001 return, we uphold its conclusion. Section 6651(a)(1) of Title 26 unambiguously provides for a five percent penalty per month for the failure "to file any return...on the date prescribed." Richards does not dispute the factual basis underlying the imposition of this addition, and we fail to discern any error in the tax court's determination that this penalty was warranted under the terms of the statute.
Richards' remaining challenge to the merits of the decision below relates to the tax court's conclusion that a $2,000 penalty was warranted based on Richards' frivolous arguments. We review the tax court's decision to impose sanctions for an abuse of discretion. Fox v. Comm'r, 969 F.2d 951, 953 (10th Cir. 1992). Under 26 U.S.C. §6673(a)(1), the tax court may impose sanctions of $25,000 or less when it appears that the taxpayer has instituted or maintained proceedings primarily for purposes of delay, or when the taxpayer's position in the proceeding is frivolous or groundless. See also Fox, 969 F.2d at 953. Richards appears to argue that the penalty assessed by the tax court in this case was inappropriate because the final tax deficiency assessed was less than what the IRS initially alleged he owed, and that his case therefore was not frivolous. This contention lacks merit. By the time of trial, the amount of the deficiency pursued by the Commissioner was no longer an issue --Richards and the IRS had already stipulated to the amount of the deficiency. The only remaining questions for the court to decide, under the terms of the stipulation, related to Richards' arguments that he was not subject to the federal income tax laws. As indicated above, Richards' contentions in that regard were patently frivolous. The tax court therefore did not abuse its discretion in ordering him to pay a $2,000 penalty.
B
In his final argument related to the proceedings below, Richards claims that the district court erred in excluding his "law clerk" from counsel's table and from "use in court." On this score, the court did not err. Although a pro se taxpayer may be assisted in tax court by a nonlawyer who has filed an application, passed a written exam, and been sponsored by at least two tax-court practitioners, see Tax Court Rule 200, there is nothing in the record that would indicate that Richards' "law clerk" satisfied this rule. 1
III
Lastly, the Commissioner moves for sanctions under 28 U.S.C. §1912, Federal Rule of Appellate Procedure 38, and 26 U.S.C. §7482(c)(4), arguing that the instant appeal is frivolous. Richards' response to the motion for sanctions generally rehashes the discredited arguments contained within his opening brief, including his assertions that "there is no statutorily-imposed duty to file, to pay when filing, or to withhold the income of a natural person." The Commissioner requests sanctions in the amount of $8,000, stating that the government expends an average of $11,000 in attorney salaries and other costs to defend against a frivolous tax appeal.
Rule 38 and 28 U.S.C. §1912 allow a court of appeals "to award just damages and single or double costs if the court determines that an appeal is frivolous or brought for purposes of delay." Kyler v. Everson, 442 F.3d 1251, 1253 (10th Cir. 2006) (quotation omitted). Similarly, 26 U.S.C. §7482(c)(4) authorizes a court of appeals "to require the taxpayer to pay...a penalty in any case where the decision of the Tax Court is affirmed and it appears that the appeal was instituted or maintained primarily for delay or that the taxpayer's position in the appeal is frivolous or groundless." This court may award sanctions against a pro se litigant such as Richards because "pro se litigants are subject to the same minimum litigation requirements that bind all litigants and counsel before all federal courts." Kyler, 442 F.3d at 1253. We have consistently recognized that "[a]n appeal is frivolous when the result is obvious, or the appellant's arguments of error are wholly without merit." Braley v. Campbell, 832 F.2d 1504, 1511 (10th Cir. 1987) (quotation omitted).
Given Richards' insistence on pursuing meritless legal arguments throughout this appeal, we conclude that a sanction is warranted. 2 Nevertheless, because this appeal involves only a few relatively straightforward issues, the Commissioner has not adequately justified the $8,000 sum requested. In our discretion we therefore reduce the requested sanction amount to $4,000.
IV
The judgment of the United States Tax Court is AFFIRMED . The Commissioner's motion for sanctions is GRANTED but the amount is limited to $4,000. The mandate for sanctions shall issue forthwith.
ENTERED FOR THE COURT
* After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore ordered submitted without oral argument. This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
1 To the extent that Richards' pro se opening brief can be read to assert additional procedural irregularities in the tax court's conduct of the bench trial, we summarily reject his claims.
2 We harbor no doubt that Richards appreciates the meritless nature of his arguments. He admitted to this court in his opening brief that "the threads that wind through the many civil and criminal tax cases" support the decision the tax court reached in this case.
Monday, April 21, 2008
During a CDP hearing, the taxpayer may raise any relevant issue related to the unpaid tax or proposed lien, including offers of collection alternatives. 26 U.S.C. § 6330(c)(2)(A). However, the taxpayer may only challenge the underlying tax liability at the CDP hearing if the individual did not previously have an opportunity to dispute such tax liability. 26 U.S.C. § 6330(c)(2)(B).
Brian V. Musto, Plaintiff v. Internal Revenue Service, Defendant.
U.S. District Court, Dist. N.J., Camden Vicinage; Civ. 06-3253 (RBK), March 3, 2008.
d opinion.
[ Code Sec. 6330]
Collection: Tax liens: Collection Due Process hearing: Judicial review. --
OPINION
KUGLER, United States District Judge: This matter comes before the Court upon motion by the Internal Revenue Service ("IRS") for summary judgment against Brian V. Musto ("Plaintiff") on his action for redetermination pursuant to 26 U.S.C. § 6330(d). Plaintiff seeks to challenge the IRS Appeals Office's determination that a lien against Plaintiff's property is warranted to collect certain unpaid employment taxes. For the reasons set forth below, the Court will grant the IRS's motion.
I. BACKGROUND
Plaintiff formerly owned a now-dissolved entity called Brian V. Musto & Associates. (Compl. ¶ 5.) On April 15, 1997, the IRS informed Plaintiff of a proposed trust fund recovery penalty assessment against him for the period ending September 30, 1996 for unpaid payroll taxes of Brian V. Musto & Associates, Inc. (Voysest Decl. Ex. 4.) On June 26, 1997, the IRS notified Plaintiff of a similar assessment for the period ending December 31, 1996 for additional payroll taxes owed by Brian V. Musto & Associates, Inc. ( Id. Ex. 5.) These notices informed Plaintiff of his ability to contest the proposed assessments; however, he did not do so.
On September 30, 2005, the IRS wrote Plaintiff a letter notifying him of its intent to impose a lien against his property in an effort to collect the trust fund recovery penalty assessments. ( Id. Ex. 1.) The letter also apprised Plaintiff of his right to request a collection due process hearing ("CDP hearing") to dispute the imposition of the lien. ( Id.) Plaintiff timely requested such a hearing, which was held before Appeals Officer Voysest on May 9, 2006. ( Id. ¶ 7.)
At the hearing, Plaintiff disputed his personal responsibility for the taxes, arguing instead that Brian V. Musto & Associates, Inc. owed the outstanding taxes. ( Id. ¶ 10; Compl. ¶ 7.) Appeals Officer Voysest refused to entertain that argument, however, because Plaintiff had forfeited the opportunity to challenge the proposed assessments when he failed to respond to the initial notification in 1997. ( See Voysest Decl. ¶ 7.) Following the hearing, the Appeals Office issued a Notice of Determination that the imposition of the lien against Plaintiff was proper. ( Id. Ex. 6.) Plaintiff sought review of this determination by filing a complaint with this Court on July 18, 2006 pursuant to 26 U.S.C. § 6330(d). On June 29, 2007, the IRS filed the motion for summary judgment now before the Court. Plaintiff did not oppose the motion.
II. STANDARD FOR SUMMARY JUDGMENT
Summary judgment is appropriate where the Court is satisfied that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 330 (1986). A genuine issue of material fact exists only if "the evidence is such that a reasonable jury could find for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When the Court weighs the evidence presented by the parties, "[t]he evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor." Id. at 255.
The burden of establishing the nonexistence of a "genuine issue" is on the party moving for summary judgment. Celotex, 477 U.S. at 330. The moving party may satisfy this burden by either (1) submitting affirmative evidence that negates an essential element of the nonmoving party's claim; or (2) demonstrating to the Court that the nonmoving party's evidence is insufficient to establish an essential element of the nonmoving party's case. Id. at 331.
Once the moving party satisfies this initial burden, the nonmoving party "must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). To do so, the nonmoving party must "do more than simply show that there is some metaphysical doubt as to material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Rather, to survive summary judgment, the nonmoving party must "make a showing sufficient to establish the existence of [every] element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322.
Because Plaintiffs' motion for summary judgment is unopposed, this Court will "treat all facts properly supported by the movant to be uncontroverted." Brandon v. Warden, No. State Prison, 2006 WL 1128721, *3 (D.N.J. Apr. 27, 2006) (citations omitted). Here, the moving party is also the party bearing the burden of proof, so the Court must determine "that the facts specified in or in connection with the motion entitle the moving party to judgment as a matter of law." Anchorage Assoc. v. Virgin Islands Bd. of Tax Rev., 922 F.2d 168, 176 (3d Cir. 1990).
III. DISCUSSION
The IRS argues that it is entitled to summary judgment because Plaintiff's action for redetermination improperly attempts to challenge the tax liability underlying the imposition of the lien, which he is precluded from doing by the Internal Revenue Code. The IRS argues further that it is entitled to summary judgment because the Appeals Officer Voysest did not abuse its discretion in this matter.
Section 6330 outlines the rights and procedures associated with the imposition of a tax lien. Under § 6330, a taxpayer is entitled to written notice of the IRS's intent to issue a lien, as well as written notice of the right to a CDP hearing before the IRS Appeals Office prior to the imposition of any such lien. See 26 U.S.C. § 6330(a)(1). During the CDP hearing, the taxpayer may raise any relevant issue related to the unpaid tax or proposed lien, including offers of collection alternatives. 26 U.S.C. § 6330(c)(2)(A). However, the taxpayer may only challenge the underlying tax liability at the CDP hearing if the individual did not previously have an opportunity to dispute such tax liability. 26 U.S.C. § 6330(c)(2)(B).
In turn, the IRS Appeals Officer must verify that all applicable laws and procedures have been followed, and he must consider any relevant arguments or challenges raised by the taxpayer. 26 U.S.C. § 6330(c)(3). The Appeals Officer must then weigh "whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary." 26 U.S.C. § 6330(c)(3)(C). Based on these considerations, the Appeals Officer will issue a final determination regarding a proposed tax lien.
Section 6330 also provides for judicial review of the final determination of the Appeals Officer by bringing an action for redetermination in federal district court. 26 U.S.C. § 6330(d). A district court only has jurisdiction to review matters that were properly before the Appeals Officer during the CDP hearing. The standard of review of a CDP hearing is de novo when the underlying tax liability is properly raised at the hearing. Gardner v. United States, No. Civ. A. 04-2686, 2005 WL 1155728 (D.N.J. April 5, 2005) (citing Allglass Sys. v. Commissioner, 330 F. Supp. 2d 540, 543 (E.D. Pa. 2004)). Where the underlying tax liability is not contested during the hearing, however, the reviewing court must use an abuse of discretion standard. Id.
As an initial matter, this Court lacks jurisdiction to review Plaintiff's underlying tax liability since that issue was not properly before Appeals Officer Voysest during the CDP hearing. Plaintiff first received notice of the IRS's proposed trust fund recovery penalty assessment against him for the period ending September 30, 1996 via letter dated April 15, 1997. (Voysest Decl. Ex. 4.) On June 26, 1997, the IRS sent Plaintiff a second notice concerning a proposed trust fund recovery penalty assessment for the period ending December 31, 1996. ( Id. Ex. 5.) Both notices informed Plaintiff of his right to contest the proposed assessments; however, Plaintiff failed to take any action. ( Id. ¶ 7.) As a result, Appeals Officer Voysest refused to entertain Plaintiff's challenges to the underlying tax liability at the CDP hearing pursuant to 26 U.S.C. § 6330(c)(2)(B). ( See id.) Since this Court's jurisdiction extends only to those matters properly before the Appeals Officer at the CDP hearing, the Court can only review whether Appeals Officer Voysest abused his discretion in finding that the lien against Plaintiff's property was proper.
Under the abuse of discretion standard, a court "'must consider whether the decision was based on consideration of the relevant factors and whether there has been a clear error of judgment.... Although this inquiry into the facts is to be searching and careful, the ultimate standard of review is a narrow one. The court is not empowered to substitute its judgment for that of the agency.'" AllGlass Sys., Inc., 330 F. Supp. 2d at 544 (quoting Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416 (1971)).
The Court finds that Appeals Officer Voysest did not abuse its discretion by finding the lien appropriate. First, at the CDP hearing, Appeals Officer Voysest, who had no prior involvement with Plaintiff's case, obtained verification from the Secretary that the requirements of any applicable law or administrative procedure had been met. (Voysest Decl. ¶ 10.) Additionally, Plaintiff did not suggest any collection alternatives. ( Id.) Finally, Appeals Officer Voysest determined that the issuance of the lien by the IRS balanced the need for efficient tax collection with the legitimate concern that any collection action be no more intrusive than necessary. ( Id. ¶ 12.) At the hearing Plaintiff did not make any arguments regarding the satisfaction of applicable law and administrative procedure, collection alternatives, or intrusiveness. ( Id. ¶ 11.) The only challenge Plaintiff raised was whether or not he owed the tax. ( Id.) As a result, this Court finds no basis to conclude that Appeals Officer Voysest abused his discretion in upholding the validity of the lien.
IV. CONCLUSION
For the foregoing reasons, the IRS's motion for summary judgment will be granted. An accompanying order shall issue today.
Saturday, April 19, 2008
H.R. 5719 (House Bill) Taxpayer Assistance and Simplification Act of 2008
April 18, 2008
110th Congress
110th CONGRESS
2d Session
H. R. 5719
To amend the Internal Revenue Code of 1986 to conform return preparer penalty standards, delay implementation of withholding taxes on government contractors, enhance taxpayer protections, assist low-income taxpayers, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
April 8, 2008
Mr. Rangel (for himself, Mr. McDermott, Mr. Lewis of Georgia, Mr. Pomeroy, Mr. Emanuel, Mr. Blumenauer, Mr. Kind, Ms. Berkley, Mr. Crowley, Mr. Meek of Florida, Mr. Ellison, Ms. Giffords, Mr. Hall of New York, Mr. Mahoney of Florida, Mr. Walz of Minnesota, Mr. Welch of Vermont, and Mrs. Jones of Ohio) introduced the following bill; which was referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to conform return preparer penalty standards, delay implementation of withholding taxes on government contractors, enhance taxpayer protections, assist low-income taxpayers, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE, ETC.
(a) Short Title. --This Act may be cited as the "Taxpayer Assistance and Simplification Act of 2008".
(b) Amendment of 1986 Code. --Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.
(c) Table of Contents. --The table of contents of this Act is as follows:
Sec. 1. Short title, etc.
Sec. 2. Modification of penalty on understatement of taxpayer's liability by tax return preparer.
Sec. 3. Removal of cellular telephones (or similar telecommunications equipment) from listed property.
Sec. 4. Delay of application of withholding requirement on certain governmental payments for goods and services.
Sec. 5. Elderly and disabled individuals receiving in-home care under certain government programs not subject to employment tax provisions.
Sec. 6. Referrals to low-income taxpayer clinics permitted.
Sec. 7. Programs for the benefit of low-income taxpayers.
Sec. 8. EITC outreach.
Sec. 9. Prohibition on IRS debt indicators for predatory refund anticipation loans.
Sec. 10. Study on delivery of tax refunds.
Sec. 11. Extension of time for return of property for wrongful levy.
Sec. 12. Individuals held harmless on wrongful levy, etc., on individual retirement plan.
Sec. 13. Taxpayer notification of suspected identity theft.
Sec. 14. Repeal of authority to enter into private debt collection contracts.
Sec. 15. Clarification of IRS unclaimed refund authority.
Sec. 16. Prohibition on misuse of Department of the Treasury names and symbols.
Sec. 17. Substantiation of amounts paid or distributed out of health savings account.
Sec. 18. Increase in information return penalties.
Sec. 19. Increase in penalty for failure to file partnership returns.
Sec. 20. Increase in penalty for failure to file S corporation return.
Sec. 21. Time for payment of corporate estimated tax.
SEC. 2. MODIFICATION OF PENALTY ON UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY TAX RETURN PREPARER.
(a) In General. --Subsection (a) of section 6694 (relating to understatement due to unreasonable positions) is amended to read as follows:
"(a) Understatement Due to Unreasonable Positions. --
"(1) In general. --If a tax return preparer --
"(A) prepares any return or claim of refund with respect to which any part of an understatement of liability is due to a position described in paragraph (2), and
"(B) knew (or reasonably should have known) of the position,
such tax return preparer shall pay a penalty with respect to each such return or claim in an amount equal to the greater of $1,000 or 50 percent of the income derived (or to be derived) by the tax return preparer with respect to the return or claim.
"(2) Unreasonable position. --
"(A) In general. --Except as otherwise provided in this paragraph, a position is described in this paragraph unless there is or was substantial authority for the position.
"(B) Disclosed positions. --If the position was disclosed as provided in section 6662(d)(2)(B)(ii)(I) and is not a position to which subparagraph (C) applies, the position is described in this paragraph unless there is a reasonable basis for the position.
"(C) Tax shelters and reportable transactions. --If the position is with respect to a tax shelter (as defined in section 6662(d)(2)(C)(ii)) or a reportable transaction to which section 6662A applies, the position is described in this paragraph unless it is reasonable to believe that the position would more likely than not be sustained on its merits.
"(3) Reasonable cause exception. --No penalty shall be imposed under this subsection if it is shown that there is reasonable cause for the understatement and the tax return preparer acted in good faith.".
(b) Effective Date. --The amendment made by this section shall apply --
(1) in the case of a position described in subparagraph (A) or (B) of section 6694(a)(2) of the Internal Revenue Code of 1986 (as amended by this section), to returns prepared after May 25, 2007, and
(2) in the case of a position described in subparagraph (C) of such section (as amended by this section), to returns prepared for taxable years ending after the date of the enactment of this Act.
SEC. 3. REMOVAL OF CELLULAR TELEPHONES (OR SIMILAR TELECOMMUNICATIONS EQUIPMENT) FROM LISTED PROPERTY.
(a) In General. --Subparagraph (A) of section 280F(d)(4) (defining listed property) is amended by inserting "and" at the end of clause (iv), by striking clause (v), and by redesignating clause (vi) as clause (v).
(b) Effective Date. --The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2008.
SEC. 4. DELAY OF APPLICATION OF WITHHOLDING REQUIREMENT ON CERTAIN GOVERNMENTAL PAYMENTS FOR GOODS AND SERVICES.
(a) In General. --Subsection (b) of section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 is amended by striking "December 31, 2010" and inserting "December 31, 2011".
(b) Report to Congress. --Not later than 6 months after the date of the enactment of this Act, the Secretary of the Treasury shall submit to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate a report with respect to the withholding requirements of section 3402(t) of the Internal Revenue Code of 1986, including a detailed analysis of --
(1) the problems, if any, which are anticipated in administering and complying with such requirements,
(2) the burdens, if any, that such requirements will place on governments and businesses (taking into account such mechanisms as may be necessary to administer such requirements), and
(3) the application of such requirements to small expenditures for services and goods by governments.
SEC. 5. ELDERLY AND DISABLED INDIVIDUALS RECEIVING IN-HOME CARE UNDER CERTAIN GOVERNMENT PROGRAMS NOT SUBJECT TO EMPLOYMENT TAX PROVISIONS.
(a) In General. --Chapter 25 (relating to general provisions relating to employment taxes) is amended by adding at the end the following new section:
"SEC. 3511. ELDERLY AND DISABLED INDIVIDUALS RECEIVING IN-HOME CARE UNDER CERTAIN GOVERNMENT PROGRAMS.
"(a) In General. --In the case of amounts paid under a home care service program to a home care service provider by the fiscal administrator of such program --
"(1) the home care service recipient shall not be liable for the payment of any taxes imposed under this subtitle with respect to amounts paid for the provision of services under such program, and
"(2) the fiscal administrator shall be so liable.
"(b) Definitions. --For purposes of this section --
"(1) Home care service program. --The term `home care service program' means a State or local government program --
"(A) any portion of which is funded with Federal funds, and
"(B) under which domestic services are provided to elderly or disabled individuals in their homes.
Such term shall not include any program to the extent home care service recipients make payments to the home care service providers for such in-home domestic services.
"(2) Home care service provider. --The term `home care service provider' means any individual who provides domestic services to a home care service recipient under a home care service program.
"(3) Home care service recipient. --The term `home care service recipient' means any individual receiving domestic services under a home care service program.
"(4) Fiscal administrator. --The term `fiscal administrator' means any person or governmental entity who pays amounts under a home care service program to home care service providers for the provision of domestic services under such program.
"(c) Returns by Fiscal Administrator. --For purposes of this section --
"(1) In general. --Returns relating to taxes imposed or amounts required to be withheld under this subtitle shall be made under the identifying number of the fiscal administrator.
"(2) Identification of service recipient. --The fiscal administrator shall, to the extent required under regulations prescribed by the Secretary, make a return setting forth --
"(A) the name, address, and identifying number of each home care service recipient for whom amounts are paid by such fiscal administrator under the home care services program, and
"(B) such other information as the Secretary may require.
"(d) Regulations. --The Secretary may prescribe such regulations or other guidance as may be necessary to carry out the purposes of this section, including requiring deposits of any tax imposed under this subtitle.".
(b) Service Recipient Identification Return Treated as Information Return. --Paragraph (3) of section 6724(d) is amended by striking "and" at the end of subparagraph (C)(ii), by striking the period at the end of subparagraph (D)(ii) and inserting ", and", and by adding at the end the following new subparagraph:
"(E) any requirement under section 3511(c)(2).".
(c) Clerical Amendment. --The table of sections for chapter 25 is amended by adding at the end the following new item:
"Sec. 3511. Elderly and disabled individuals receiving in-home care under certain government programs.".
(d) Effective Date. --The amendments made by this section shall apply to amounts paid after December 31, 2008.
SEC. 6. REFERRALS TO LOW-INCOME TAXPAYER CLINICS PERMITTED.
(a) In General. --Subsection (c) of section 7526 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:
"(6) Treasury employees permitted to refer taxpayers to qualified low-income taxpayer clinics. --Notwithstanding any other provision of law, officers and employees of the Department of the Treasury may refer taxpayers for advice and assistance to qualified low-income taxpayer clinics receiving funding under this section.".
(b) Effective Date. --The amendment made by this section shall apply to referrals made after the date of the enactment of this Act.
SEC. 7. PROGRAMS FOR THE BENEFIT OF LOW-INCOME TAXPAYERS.
(a) Volunteer Income Tax Assistance Programs. --Chapter 77 (relating to miscellaneous provisions) is amended by inserting after section 7526 the following new section:
"SEC. 7526A. VOLUNTEER INCOME TAX ASSISTANCE PROGRAMS.
"(a) In General. --The Secretary may, subject to the availability of appropriated funds, make grants to provide matching funds for the development, expansion, or continuation of volunteer income tax assistance programs.
"(b) Volunteer Income Tax Assistance Program. --For purposes of this section, the term `volunteer income tax assistance program' means a program --
"(1) which does not charge taxpayers for its return preparation services,
"(2) which operates programs to assist low and moderate- income (as determined by the Secretary) taxpayers in preparing and filing their Federal income tax returns, and
"(3) in which all of the volunteers who assist in the preparation of Federal income tax returns meet the requirements prescribed by the Secretary.
"(c) Special Rules and Limitations. --
"(1) Aggregate limitation. --Unless otherwise provided by specific appropriation, the Secretary shall not allocate more than $10,000,000 per year (exclusive of costs of administering the program) to grants under this section.
"(2) Other applicable rules. --Rules similar to the rules under paragraphs (2) through (6) of section 7526(c) shall apply with respect to the awarding of grants to volunteer income tax assistance programs.".
(b) Increase in Authorized Grants for Low-Income Taxpayer Clinics. --Paragraph (1) of section 7526(c) (relating to aggregate limitation) is amended by striking "$6,000,000" and inserting "$10,000,000".
(c) Clerical Amendments. --
(1) Section 7526(c)(5) is amended by striking the last sentence by inserting "qualified" before "low-income".
(2) The table of sections for chapter 77 is amended by inserting after the item relating to section 7526 the following new item:
"Sec. 7526A. Volunteer income tax assistance program.".
(d) Effective Date. --The amendments made by this section shall take effect on the date of the enactment of this Act.
SEC. 8. EITC OUTREACH.
(a) In General. --Section 32 (relating to earned income) is amended by adding at the end the following new subsection:
"(n) Notification of Potential Eligibility for Credit and Refund. --
"(1) In general. --To the extent possible and on an annual basis, the Secretary shall provide to each taxpayer who --
"(A) for any preceding taxable year for which credit or refund is not precluded by section 6511, and
"(B) did not claim the credit under subsection (a) but may be allowed such credit for any such taxable year based on return or return information (as defined in section 6103(b)) available to the Secretary,
notice that such taxpayer may be eligible to claim such credit and a refund for such taxable year.
"(2) Notice. --Notice provided under paragraph (1) shall be in writing and sent to the last known address of the taxpayer.".
(b) Effective Date. --The amendment made by this section shall take effect on the date of the enactment of this Act.
SEC. 9. PROHIBITION ON IRS DEBT INDICATORS FOR PREDATORY REFUND ANTICIPATION LOANS.
(a) In General. --Subsection (f) of section 6011 (relating to promotion of electronic filing) is amended by adding at the end the following new paragraph:
"(3) Prohibition on irs debt indicators for predatory refund anticipation loans. --
"(A) In general. --In carrying out any program under this subsection, the Secretary shall not provide a debt indicator to any person with respect to any refund anticipation loan if the Secretary determines that the business practices of such person involve refund anticipation loans and related charges and fees that are predatory.
"(B) Refund anticipation loan. --For purposes of this paragraph, the term `refund anticipation loan' means a loan of money or of any other thing of value to a taxpayer secured by the taxpayer's anticipated receipt of a Federal tax refund.
"(C) IRS debt indicator. --For purposes of this paragraph, the term `debt indicator' means a notification provided through a tax return's acknowledgment file that a refund will be offset to repay debts for delinquent Federal or State taxes, student loans, child support, or other Federal agency debt.".
(b) Effective Date. --The amendment made by this section shall take effect on the date of the enactment of this Act.
SEC. 10. STUDY ON DELIVERY OF TAX REFUNDS.
(a) In General. --The Secretary of the Treasury, in consultation with the National Taxpayer Advocate, shall conduct a study on the feasibility of delivering tax refunds on debit cards, prepaid cards, and other electronic means to assist individuals that do not have access to financial accounts or institutions.
(b) Report. --Not later than 1 year after the date of the enactment of this Act, the Secretary of the Treasury shall submit a report to Congress containing the results of the study conducted under subsection (a).
SEC. 11. EXTENSION OF TIME FOR RETURN OF PROPERTY FOR WRONGFUL LEVY.
(a) Extension of Time for Return of Property Subject to Levy. --Subsection (b) of section 6343 (relating to return of property) is amended by striking "9 months" and inserting "2 years".
(b) Period of Limitation on Suits. --Subsection (c) of section 6532 (relating to suits by persons other than taxpayers) is amended --
(1) in paragraph (1) by striking "9 months" and inserting "2 years", and
(2) in paragraph (2) by striking "9-month" and inserting "2-year".
(c) Effective Date. --The amendments made by this section shall apply to --
(1) levies made after the date of the enactment of this Act, and
(2) levies made on or before such date if the 9-month period has not expired under section 6343(b) of the Internal Revenue Code of 1986 (without regard to this section) as of such date.
SEC. 12. INDIVIDUALS HELD HARMLESS ON WRONGFUL LEVY, ETC., ON INDIVIDUAL RETIREMENT PLAN.
(a) In General. --Section 6343 (relating to authority to release levy and return property) is amended by adding at the end the following new subsection:
"(f) Individuals Held Harmless on Wrongful Levy, etc. on Individual Retirement Plan. --
"(1) In general. --If the Secretary determines that an individual retirement plan has been levied upon in a case to which subsection (b) or (d)(2)(A) applies, an amount equal to the sum of --
"(A) the amount of money returned by the Secretary on account of such levy, and
"(B) interest paid under subsection (c) on such amount of money,
may be deposited into such individual retirement plan or any other individual retirement plan (other than an endowment contract) to which a rollover from the plan levied upon is permitted. An amount may not be deposited into a Roth IRA under the preceding sentence unless the individual retirement plan levied upon was a Roth IRA at the time of such levy.
"(2) Treatment as rollover. --If amounts are deposited into an individual retirement plan under paragraph (1) not later than the 60th day after the date on which the individual receives the amounts under paragraph (1) --
"(A) such deposit shall be treated as a rollover described in section 408(d)(3)(A)(i),
"(B) to the extent the deposit includes interest paid under subsection (c), such interest shall not be includible in gross income, and
"(C) such deposit shall not be taken into account under section 408(d)(3)(B).
For purposes of subparagraph (B), an amount shall be treated as interest only to the extent that the amount deposited exceeds the amount of the levy.
"(3) Refund, etc., of income tax on levy. --If any amount is includible in gross income for a taxable year by reason of a levy referred to in paragraph (1) and any portion of such amount is treated as a rollover under paragraph (2), any tax imposed by chapter 1 on such portion shall not be assessed, and if assessed shall be abated, and if collected shall be credited or refunded as an overpayment made on the due date for filing the return of tax for such taxable year.
"(4) Interest. --Notwithstanding subsection (d), interest shall be allowed under subsection (c) in a case in which the Secretary makes a determination described in subsection (d)(2)(A) with respect to a levy upon an individual retirement plan.".
(b) Effective Date. --The amendment made by this section shall apply to amounts paid under subsections (b), (c), and (d)(2)(A) of section 6343 of the Internal Revenue Code of 1986 after the date of the enactment of this Act.
SEC. 13. TAXPAYER NOTIFICATION OF SUSPECTED IDENTITY THEFT.
(a) In General. --Chapter 77 (relating to miscellaneous provisions) is amended by adding at the end the following new section:
"SEC. 7529. NOTIFICATION OF SUSPECTED IDENTITY THEFT.
"If, in the course of an investigation under the internal revenue laws, the Secretary determines that there was or may have been an unauthorized use of the identity of the taxpayer or a dependent of the taxpayer, the Secretary shall, to the extent permitted by law --
"(1) as soon as practicable and without jeopardizing such investigation, notify the taxpayer of such determination, and
"(2) if any person is criminally charged by indictment or information with respect to such unauthorized use, notify such taxpayer as soon as practicable of such charge.".
(b) Clerical Amendment. --The table of sections for chapter 77 is amended by adding at the end the following new item:
"Sec. 7529. Notification of suspected identity theft.".
(c) Effective Date. --The amendments made by this section shall apply to determinations made after the date of the enactment of this Act.
SEC. 14. REPEAL OF AUTHORITY TO ENTER INTO PRIVATE DEBT COLLECTION CONTRACTS.
(a) In General. --Subchapter A of chapter 64 is amended by striking section 6306.
(b) Conforming Amendments. --
(1) Subchapter B of chapter 76 is amended by striking section 7433A.
(2) Section 7811 is amended by striking subsection (g).
(3) Section 1203 of the Internal Revenue Service Restructuring Act of 1998 is amended by striking subsection (e).
(4) The table of sections for subchapter A of chapter 64 is amended by striking the item relating to section 6306.
(5) The table of sections for subchapter B of chapter 76 is amended by striking the item relating to section 7433A.
(c) Effective Date. --
(1) In general. --Except as otherwise provided in this subsection, the amendments made by this section shall take effect on the date of the enactment of this Act.
(2) Exception for existing contracts, etc. --The amendments made by this section shall not apply to any contract which was entered into before July 18, 2007, and is not renewed or extended on or after March 1, 2008.
(3) Unauthorized contracts and extensions treated as void. --Any qualified tax collection contract (as defined in section 6306 of the Internal Revenue Code of 1986, as in effect before its repeal) which is entered into on or after July 18, 2007, and any extension or renewal on or after March 1, 2008, of any qualified tax collection contract (as so defined) shall be void.
SEC. 15. CLARIFICATION OF IRS UNCLAIMED REFUND AUTHORITY.
Paragraph (1) of section 6103(m) (relating to tax refunds) is amended by inserting ", and through any other means of mass communication," after "media".
SEC. 16. PROHIBITION ON MISUSE OF DEPARTMENT OF THE TREASURY NAMES AND SYMBOLS.
(a) In General. --Subsection (a) of section 333 of title 31, United States Code, is amended by inserting "Internet domain address," after "solicitation," both places it appears.
(b) Penalty for Misuse by Electronic Means. --Subsections (c)(2) and (d)(1) of section 333 of such Code are each amended by inserting "or any other mass communications by electronic means," after "telecast,".
(c) Effective Date. --The amendments made by this section shall apply with respect to violations occurring after the date of the enactment of this Act.
SEC. 17. SUBSTANTIATION OF AMOUNTS PAID OR DISTRIBUTED OUT OF HEALTH SAVINGS ACCOUNT.
(a) In General. --Paragraph (1) of section 223(f) (relating to amounts used for qualified medical expenses) is amended by inserting "(and substantiated in a manner similar to the substantiation required for flexible spending arrangements)" after "account beneficiary".
(b) Reports. --Subsection (h) of section 223 (relating to reports) is amended --
(1) by redesignating paragraphs (1) and (2) as subparagraphs (A) and (B), respectively,
(2) by moving the text of subparagraphs (A) and (B) (as so redesignated) and the last sentence 2 ems to the right,
(3) by striking "(h) Reports. --The Secretary may require --" and inserting the following:
"(h) Reports. --
"(1) In general. --The Secretary may require --", and
(4) by adding at the end the following new paragraph:
"(2) Relating to substantiation. --Not later than January 15 of each calendar year, the trustee of a health savings account shall make a report regarding such account to the Secretary and the account beneficiary setting forth --
"(A) the name, address, and identifying number of the account beneficiary, and
"(B) the amount paid or distributed out of such account for the preceding calendar year not substantiated in accordance with subsection (f)(1).".
(c) Effective Date. --The amendments made by this section shall apply with respect to amounts paid or distributed out of health savings accounts after December 31, 2008.
SEC. 18. INCREASE IN INFORMATION RETURN PENALTIES.
(a) Failure To File Correct Information Returns. --
(1) In general. --Subsections (a)(1), (b)(1)(A), and (b)(2)(A) of section 6721 are each amended by striking "$50" and inserting "$100".
(2) Aggregate annual limitation. --Subsections (a)(1), (d)(1)(A), and (e)(3)(A) of section 6721 are each amended by striking "$250,000" and inserting "$1,500,000".
(b) Reduction Where Correction Within 30 Days. --
(1) In general. --Subparagraph (A) of section 6721(b)(1) is amended by striking "$15" and inserting "$25".
(2) Aggregate annual limitation. --Subsections (b)(1)(B) and (d)(1)(B) of section 6721 are each amended by striking "$75,000" and inserting "$250,000".
(c) Reduction Where Correction on or Before August 1. --
(1) In general. --Subparagraph (A) of section 6721(b)(2) is amended by striking "$30" and inserting "$60".
(2) Aggregate annual limitation. --Subsections (b)(2)(B) and (d)(1)(C) of section 6721 are each amended by striking "$150,000" and inserting "$500,000".
(d) Aggregate Annual Limitations for Persons With Gross Receipts of Not More Than $5,000,000. --Paragraph (1) of section 6721(d) is amended --
(1) by striking "$100,000" in subparagraph (A) and inserting "$500,000",
(2) by striking "$25,000" in subparagraph (B) and inserting "$75,000", and
(3) by striking "$50,000" in subparagraph (C) and inserting "$200,000".
(e) Penalty in Case of Intentional Disregard. --Paragraph (2) of section 6721(e) is amended by striking "$100" and inserting "$250".
(f) Failure To Furnish Correct Payee Statements. --
(1) In general. --Subsection (a) of section 6722 is amended by striking "$50" and inserting "$100".
(2) Aggregate annual limitation. --Subsections (a) and (c)(2)(A) of section 6722 are each amended by striking "$100,000" and inserting "$1,500,000".
(3) Penalty in case of intentional disregard. --Paragraph (1) of section 6722(c) is amended by striking "$100" and inserting "$250".
(g) Failure To Comply With Other Information Reporting Requirements. --Section 6723 is amended --
(1) by striking "$50" and inserting "$100", and
(2) by striking "$100,000" and inserting "$1,500,000".
(h) Effective Date. --The amendments made by this section shall apply with respect to information returns required to be filed after December 31, 2008.
SEC. 19. INCREASE IN PENALTY FOR FAILURE TO FILE PARTNERSHIP RETURNS.
Section 6698 is amended by adding at the end the following new subsection:
"(e) Modifications. --In the case of any return required to be filed after December 31, 2008, the dollar amount in effect under subsection (b)(1) shall be increased by $15.".
SEC. 20. INCREASE IN PENALTY FOR FAILURE TO FILE S CORPORATION RETURN.
Section 6699 is amended by adding at the end the following new subsection:
"(e) Modifications. --In the case of any return required to be filed after December 31, 2008, the dollar amount in effect under subsection (b)(1) shall be increased by $15.".
SEC. 21. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAX.
The percentage under subparagraph (C) of section 401(1) of the Tax Increase Prevention and Reconciliation Act of 2005 in effect on the date of the enactment of this Act is increased by 0.25 percentage points.
April 18, 2008
110th Congress
110th CONGRESS
2d Session
H. R. 5719
To amend the Internal Revenue Code of 1986 to conform return preparer penalty standards, delay implementation of withholding taxes on government contractors, enhance taxpayer protections, assist low-income taxpayers, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
April 8, 2008
Mr. Rangel (for himself, Mr. McDermott, Mr. Lewis of Georgia, Mr. Pomeroy, Mr. Emanuel, Mr. Blumenauer, Mr. Kind, Ms. Berkley, Mr. Crowley, Mr. Meek of Florida, Mr. Ellison, Ms. Giffords, Mr. Hall of New York, Mr. Mahoney of Florida, Mr. Walz of Minnesota, Mr. Welch of Vermont, and Mrs. Jones of Ohio) introduced the following bill; which was referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to conform return preparer penalty standards, delay implementation of withholding taxes on government contractors, enhance taxpayer protections, assist low-income taxpayers, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE, ETC.
(a) Short Title. --This Act may be cited as the "Taxpayer Assistance and Simplification Act of 2008".
(b) Amendment of 1986 Code. --Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.
(c) Table of Contents. --The table of contents of this Act is as follows:
Sec. 1. Short title, etc.
Sec. 2. Modification of penalty on understatement of taxpayer's liability by tax return preparer.
Sec. 3. Removal of cellular telephones (or similar telecommunications equipment) from listed property.
Sec. 4. Delay of application of withholding requirement on certain governmental payments for goods and services.
Sec. 5. Elderly and disabled individuals receiving in-home care under certain government programs not subject to employment tax provisions.
Sec. 6. Referrals to low-income taxpayer clinics permitted.
Sec. 7. Programs for the benefit of low-income taxpayers.
Sec. 8. EITC outreach.
Sec. 9. Prohibition on IRS debt indicators for predatory refund anticipation loans.
Sec. 10. Study on delivery of tax refunds.
Sec. 11. Extension of time for return of property for wrongful levy.
Sec. 12. Individuals held harmless on wrongful levy, etc., on individual retirement plan.
Sec. 13. Taxpayer notification of suspected identity theft.
Sec. 14. Repeal of authority to enter into private debt collection contracts.
Sec. 15. Clarification of IRS unclaimed refund authority.
Sec. 16. Prohibition on misuse of Department of the Treasury names and symbols.
Sec. 17. Substantiation of amounts paid or distributed out of health savings account.
Sec. 18. Increase in information return penalties.
Sec. 19. Increase in penalty for failure to file partnership returns.
Sec. 20. Increase in penalty for failure to file S corporation return.
Sec. 21. Time for payment of corporate estimated tax.
SEC. 2. MODIFICATION OF PENALTY ON UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY TAX RETURN PREPARER.
(a) In General. --Subsection (a) of section 6694 (relating to understatement due to unreasonable positions) is amended to read as follows:
"(a) Understatement Due to Unreasonable Positions. --
"(1) In general. --If a tax return preparer --
"(A) prepares any return or claim of refund with respect to which any part of an understatement of liability is due to a position described in paragraph (2), and
"(B) knew (or reasonably should have known) of the position,
such tax return preparer shall pay a penalty with respect to each such return or claim in an amount equal to the greater of $1,000 or 50 percent of the income derived (or to be derived) by the tax return preparer with respect to the return or claim.
"(2) Unreasonable position. --
"(A) In general. --Except as otherwise provided in this paragraph, a position is described in this paragraph unless there is or was substantial authority for the position.
"(B) Disclosed positions. --If the position was disclosed as provided in section 6662(d)(2)(B)(ii)(I) and is not a position to which subparagraph (C) applies, the position is described in this paragraph unless there is a reasonable basis for the position.
"(C) Tax shelters and reportable transactions. --If the position is with respect to a tax shelter (as defined in section 6662(d)(2)(C)(ii)) or a reportable transaction to which section 6662A applies, the position is described in this paragraph unless it is reasonable to believe that the position would more likely than not be sustained on its merits.
"(3) Reasonable cause exception. --No penalty shall be imposed under this subsection if it is shown that there is reasonable cause for the understatement and the tax return preparer acted in good faith.".
(b) Effective Date. --The amendment made by this section shall apply --
(1) in the case of a position described in subparagraph (A) or (B) of section 6694(a)(2) of the Internal Revenue Code of 1986 (as amended by this section), to returns prepared after May 25, 2007, and
(2) in the case of a position described in subparagraph (C) of such section (as amended by this section), to returns prepared for taxable years ending after the date of the enactment of this Act.
SEC. 3. REMOVAL OF CELLULAR TELEPHONES (OR SIMILAR TELECOMMUNICATIONS EQUIPMENT) FROM LISTED PROPERTY.
(a) In General. --Subparagraph (A) of section 280F(d)(4) (defining listed property) is amended by inserting "and" at the end of clause (iv), by striking clause (v), and by redesignating clause (vi) as clause (v).
(b) Effective Date. --The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2008.
SEC. 4. DELAY OF APPLICATION OF WITHHOLDING REQUIREMENT ON CERTAIN GOVERNMENTAL PAYMENTS FOR GOODS AND SERVICES.
(a) In General. --Subsection (b) of section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 is amended by striking "December 31, 2010" and inserting "December 31, 2011".
(b) Report to Congress. --Not later than 6 months after the date of the enactment of this Act, the Secretary of the Treasury shall submit to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate a report with respect to the withholding requirements of section 3402(t) of the Internal Revenue Code of 1986, including a detailed analysis of --
(1) the problems, if any, which are anticipated in administering and complying with such requirements,
(2) the burdens, if any, that such requirements will place on governments and businesses (taking into account such mechanisms as may be necessary to administer such requirements), and
(3) the application of such requirements to small expenditures for services and goods by governments.
SEC. 5. ELDERLY AND DISABLED INDIVIDUALS RECEIVING IN-HOME CARE UNDER CERTAIN GOVERNMENT PROGRAMS NOT SUBJECT TO EMPLOYMENT TAX PROVISIONS.
(a) In General. --Chapter 25 (relating to general provisions relating to employment taxes) is amended by adding at the end the following new section:
"SEC. 3511. ELDERLY AND DISABLED INDIVIDUALS RECEIVING IN-HOME CARE UNDER CERTAIN GOVERNMENT PROGRAMS.
"(a) In General. --In the case of amounts paid under a home care service program to a home care service provider by the fiscal administrator of such program --
"(1) the home care service recipient shall not be liable for the payment of any taxes imposed under this subtitle with respect to amounts paid for the provision of services under such program, and
"(2) the fiscal administrator shall be so liable.
"(b) Definitions. --For purposes of this section --
"(1) Home care service program. --The term `home care service program' means a State or local government program --
"(A) any portion of which is funded with Federal funds, and
"(B) under which domestic services are provided to elderly or disabled individuals in their homes.
Such term shall not include any program to the extent home care service recipients make payments to the home care service providers for such in-home domestic services.
"(2) Home care service provider. --The term `home care service provider' means any individual who provides domestic services to a home care service recipient under a home care service program.
"(3) Home care service recipient. --The term `home care service recipient' means any individual receiving domestic services under a home care service program.
"(4) Fiscal administrator. --The term `fiscal administrator' means any person or governmental entity who pays amounts under a home care service program to home care service providers for the provision of domestic services under such program.
"(c) Returns by Fiscal Administrator. --For purposes of this section --
"(1) In general. --Returns relating to taxes imposed or amounts required to be withheld under this subtitle shall be made under the identifying number of the fiscal administrator.
"(2) Identification of service recipient. --The fiscal administrator shall, to the extent required under regulations prescribed by the Secretary, make a return setting forth --
"(A) the name, address, and identifying number of each home care service recipient for whom amounts are paid by such fiscal administrator under the home care services program, and
"(B) such other information as the Secretary may require.
"(d) Regulations. --The Secretary may prescribe such regulations or other guidance as may be necessary to carry out the purposes of this section, including requiring deposits of any tax imposed under this subtitle.".
(b) Service Recipient Identification Return Treated as Information Return. --Paragraph (3) of section 6724(d) is amended by striking "and" at the end of subparagraph (C)(ii), by striking the period at the end of subparagraph (D)(ii) and inserting ", and", and by adding at the end the following new subparagraph:
"(E) any requirement under section 3511(c)(2).".
(c) Clerical Amendment. --The table of sections for chapter 25 is amended by adding at the end the following new item:
"Sec. 3511. Elderly and disabled individuals receiving in-home care under certain government programs.".
(d) Effective Date. --The amendments made by this section shall apply to amounts paid after December 31, 2008.
SEC. 6. REFERRALS TO LOW-INCOME TAXPAYER CLINICS PERMITTED.
(a) In General. --Subsection (c) of section 7526 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:
"(6) Treasury employees permitted to refer taxpayers to qualified low-income taxpayer clinics. --Notwithstanding any other provision of law, officers and employees of the Department of the Treasury may refer taxpayers for advice and assistance to qualified low-income taxpayer clinics receiving funding under this section.".
(b) Effective Date. --The amendment made by this section shall apply to referrals made after the date of the enactment of this Act.
SEC. 7. PROGRAMS FOR THE BENEFIT OF LOW-INCOME TAXPAYERS.
(a) Volunteer Income Tax Assistance Programs. --Chapter 77 (relating to miscellaneous provisions) is amended by inserting after section 7526 the following new section:
"SEC. 7526A. VOLUNTEER INCOME TAX ASSISTANCE PROGRAMS.
"(a) In General. --The Secretary may, subject to the availability of appropriated funds, make grants to provide matching funds for the development, expansion, or continuation of volunteer income tax assistance programs.
"(b) Volunteer Income Tax Assistance Program. --For purposes of this section, the term `volunteer income tax assistance program' means a program --
"(1) which does not charge taxpayers for its return preparation services,
"(2) which operates programs to assist low and moderate- income (as determined by the Secretary) taxpayers in preparing and filing their Federal income tax returns, and
"(3) in which all of the volunteers who assist in the preparation of Federal income tax returns meet the requirements prescribed by the Secretary.
"(c) Special Rules and Limitations. --
"(1) Aggregate limitation. --Unless otherwise provided by specific appropriation, the Secretary shall not allocate more than $10,000,000 per year (exclusive of costs of administering the program) to grants under this section.
"(2) Other applicable rules. --Rules similar to the rules under paragraphs (2) through (6) of section 7526(c) shall apply with respect to the awarding of grants to volunteer income tax assistance programs.".
(b) Increase in Authorized Grants for Low-Income Taxpayer Clinics. --Paragraph (1) of section 7526(c) (relating to aggregate limitation) is amended by striking "$6,000,000" and inserting "$10,000,000".
(c) Clerical Amendments. --
(1) Section 7526(c)(5) is amended by striking the last sentence by inserting "qualified" before "low-income".
(2) The table of sections for chapter 77 is amended by inserting after the item relating to section 7526 the following new item:
"Sec. 7526A. Volunteer income tax assistance program.".
(d) Effective Date. --The amendments made by this section shall take effect on the date of the enactment of this Act.
SEC. 8. EITC OUTREACH.
(a) In General. --Section 32 (relating to earned income) is amended by adding at the end the following new subsection:
"(n) Notification of Potential Eligibility for Credit and Refund. --
"(1) In general. --To the extent possible and on an annual basis, the Secretary shall provide to each taxpayer who --
"(A) for any preceding taxable year for which credit or refund is not precluded by section 6511, and
"(B) did not claim the credit under subsection (a) but may be allowed such credit for any such taxable year based on return or return information (as defined in section 6103(b)) available to the Secretary,
notice that such taxpayer may be eligible to claim such credit and a refund for such taxable year.
"(2) Notice. --Notice provided under paragraph (1) shall be in writing and sent to the last known address of the taxpayer.".
(b) Effective Date. --The amendment made by this section shall take effect on the date of the enactment of this Act.
SEC. 9. PROHIBITION ON IRS DEBT INDICATORS FOR PREDATORY REFUND ANTICIPATION LOANS.
(a) In General. --Subsection (f) of section 6011 (relating to promotion of electronic filing) is amended by adding at the end the following new paragraph:
"(3) Prohibition on irs debt indicators for predatory refund anticipation loans. --
"(A) In general. --In carrying out any program under this subsection, the Secretary shall not provide a debt indicator to any person with respect to any refund anticipation loan if the Secretary determines that the business practices of such person involve refund anticipation loans and related charges and fees that are predatory.
"(B) Refund anticipation loan. --For purposes of this paragraph, the term `refund anticipation loan' means a loan of money or of any other thing of value to a taxpayer secured by the taxpayer's anticipated receipt of a Federal tax refund.
"(C) IRS debt indicator. --For purposes of this paragraph, the term `debt indicator' means a notification provided through a tax return's acknowledgment file that a refund will be offset to repay debts for delinquent Federal or State taxes, student loans, child support, or other Federal agency debt.".
(b) Effective Date. --The amendment made by this section shall take effect on the date of the enactment of this Act.
SEC. 10. STUDY ON DELIVERY OF TAX REFUNDS.
(a) In General. --The Secretary of the Treasury, in consultation with the National Taxpayer Advocate, shall conduct a study on the feasibility of delivering tax refunds on debit cards, prepaid cards, and other electronic means to assist individuals that do not have access to financial accounts or institutions.
(b) Report. --Not later than 1 year after the date of the enactment of this Act, the Secretary of the Treasury shall submit a report to Congress containing the results of the study conducted under subsection (a).
SEC. 11. EXTENSION OF TIME FOR RETURN OF PROPERTY FOR WRONGFUL LEVY.
(a) Extension of Time for Return of Property Subject to Levy. --Subsection (b) of section 6343 (relating to return of property) is amended by striking "9 months" and inserting "2 years".
(b) Period of Limitation on Suits. --Subsection (c) of section 6532 (relating to suits by persons other than taxpayers) is amended --
(1) in paragraph (1) by striking "9 months" and inserting "2 years", and
(2) in paragraph (2) by striking "9-month" and inserting "2-year".
(c) Effective Date. --The amendments made by this section shall apply to --
(1) levies made after the date of the enactment of this Act, and
(2) levies made on or before such date if the 9-month period has not expired under section 6343(b) of the Internal Revenue Code of 1986 (without regard to this section) as of such date.
SEC. 12. INDIVIDUALS HELD HARMLESS ON WRONGFUL LEVY, ETC., ON INDIVIDUAL RETIREMENT PLAN.
(a) In General. --Section 6343 (relating to authority to release levy and return property) is amended by adding at the end the following new subsection:
"(f) Individuals Held Harmless on Wrongful Levy, etc. on Individual Retirement Plan. --
"(1) In general. --If the Secretary determines that an individual retirement plan has been levied upon in a case to which subsection (b) or (d)(2)(A) applies, an amount equal to the sum of --
"(A) the amount of money returned by the Secretary on account of such levy, and
"(B) interest paid under subsection (c) on such amount of money,
may be deposited into such individual retirement plan or any other individual retirement plan (other than an endowment contract) to which a rollover from the plan levied upon is permitted. An amount may not be deposited into a Roth IRA under the preceding sentence unless the individual retirement plan levied upon was a Roth IRA at the time of such levy.
"(2) Treatment as rollover. --If amounts are deposited into an individual retirement plan under paragraph (1) not later than the 60th day after the date on which the individual receives the amounts under paragraph (1) --
"(A) such deposit shall be treated as a rollover described in section 408(d)(3)(A)(i),
"(B) to the extent the deposit includes interest paid under subsection (c), such interest shall not be includible in gross income, and
"(C) such deposit shall not be taken into account under section 408(d)(3)(B).
For purposes of subparagraph (B), an amount shall be treated as interest only to the extent that the amount deposited exceeds the amount of the levy.
"(3) Refund, etc., of income tax on levy. --If any amount is includible in gross income for a taxable year by reason of a levy referred to in paragraph (1) and any portion of such amount is treated as a rollover under paragraph (2), any tax imposed by chapter 1 on such portion shall not be assessed, and if assessed shall be abated, and if collected shall be credited or refunded as an overpayment made on the due date for filing the return of tax for such taxable year.
"(4) Interest. --Notwithstanding subsection (d), interest shall be allowed under subsection (c) in a case in which the Secretary makes a determination described in subsection (d)(2)(A) with respect to a levy upon an individual retirement plan.".
(b) Effective Date. --The amendment made by this section shall apply to amounts paid under subsections (b), (c), and (d)(2)(A) of section 6343 of the Internal Revenue Code of 1986 after the date of the enactment of this Act.
SEC. 13. TAXPAYER NOTIFICATION OF SUSPECTED IDENTITY THEFT.
(a) In General. --Chapter 77 (relating to miscellaneous provisions) is amended by adding at the end the following new section:
"SEC. 7529. NOTIFICATION OF SUSPECTED IDENTITY THEFT.
"If, in the course of an investigation under the internal revenue laws, the Secretary determines that there was or may have been an unauthorized use of the identity of the taxpayer or a dependent of the taxpayer, the Secretary shall, to the extent permitted by law --
"(1) as soon as practicable and without jeopardizing such investigation, notify the taxpayer of such determination, and
"(2) if any person is criminally charged by indictment or information with respect to such unauthorized use, notify such taxpayer as soon as practicable of such charge.".
(b) Clerical Amendment. --The table of sections for chapter 77 is amended by adding at the end the following new item:
"Sec. 7529. Notification of suspected identity theft.".
(c) Effective Date. --The amendments made by this section shall apply to determinations made after the date of the enactment of this Act.
SEC. 14. REPEAL OF AUTHORITY TO ENTER INTO PRIVATE DEBT COLLECTION CONTRACTS.
(a) In General. --Subchapter A of chapter 64 is amended by striking section 6306.
(b) Conforming Amendments. --
(1) Subchapter B of chapter 76 is amended by striking section 7433A.
(2) Section 7811 is amended by striking subsection (g).
(3) Section 1203 of the Internal Revenue Service Restructuring Act of 1998 is amended by striking subsection (e).
(4) The table of sections for subchapter A of chapter 64 is amended by striking the item relating to section 6306.
(5) The table of sections for subchapter B of chapter 76 is amended by striking the item relating to section 7433A.
(c) Effective Date. --
(1) In general. --Except as otherwise provided in this subsection, the amendments made by this section shall take effect on the date of the enactment of this Act.
(2) Exception for existing contracts, etc. --The amendments made by this section shall not apply to any contract which was entered into before July 18, 2007, and is not renewed or extended on or after March 1, 2008.
(3) Unauthorized contracts and extensions treated as void. --Any qualified tax collection contract (as defined in section 6306 of the Internal Revenue Code of 1986, as in effect before its repeal) which is entered into on or after July 18, 2007, and any extension or renewal on or after March 1, 2008, of any qualified tax collection contract (as so defined) shall be void.
SEC. 15. CLARIFICATION OF IRS UNCLAIMED REFUND AUTHORITY.
Paragraph (1) of section 6103(m) (relating to tax refunds) is amended by inserting ", and through any other means of mass communication," after "media".
SEC. 16. PROHIBITION ON MISUSE OF DEPARTMENT OF THE TREASURY NAMES AND SYMBOLS.
(a) In General. --Subsection (a) of section 333 of title 31, United States Code, is amended by inserting "Internet domain address," after "solicitation," both places it appears.
(b) Penalty for Misuse by Electronic Means. --Subsections (c)(2) and (d)(1) of section 333 of such Code are each amended by inserting "or any other mass communications by electronic means," after "telecast,".
(c) Effective Date. --The amendments made by this section shall apply with respect to violations occurring after the date of the enactment of this Act.
SEC. 17. SUBSTANTIATION OF AMOUNTS PAID OR DISTRIBUTED OUT OF HEALTH SAVINGS ACCOUNT.
(a) In General. --Paragraph (1) of section 223(f) (relating to amounts used for qualified medical expenses) is amended by inserting "(and substantiated in a manner similar to the substantiation required for flexible spending arrangements)" after "account beneficiary".
(b) Reports. --Subsection (h) of section 223 (relating to reports) is amended --
(1) by redesignating paragraphs (1) and (2) as subparagraphs (A) and (B), respectively,
(2) by moving the text of subparagraphs (A) and (B) (as so redesignated) and the last sentence 2 ems to the right,
(3) by striking "(h) Reports. --The Secretary may require --" and inserting the following:
"(h) Reports. --
"(1) In general. --The Secretary may require --", and
(4) by adding at the end the following new paragraph:
"(2) Relating to substantiation. --Not later than January 15 of each calendar year, the trustee of a health savings account shall make a report regarding such account to the Secretary and the account beneficiary setting forth --
"(A) the name, address, and identifying number of the account beneficiary, and
"(B) the amount paid or distributed out of such account for the preceding calendar year not substantiated in accordance with subsection (f)(1).".
(c) Effective Date. --The amendments made by this section shall apply with respect to amounts paid or distributed out of health savings accounts after December 31, 2008.
SEC. 18. INCREASE IN INFORMATION RETURN PENALTIES.
(a) Failure To File Correct Information Returns. --
(1) In general. --Subsections (a)(1), (b)(1)(A), and (b)(2)(A) of section 6721 are each amended by striking "$50" and inserting "$100".
(2) Aggregate annual limitation. --Subsections (a)(1), (d)(1)(A), and (e)(3)(A) of section 6721 are each amended by striking "$250,000" and inserting "$1,500,000".
(b) Reduction Where Correction Within 30 Days. --
(1) In general. --Subparagraph (A) of section 6721(b)(1) is amended by striking "$15" and inserting "$25".
(2) Aggregate annual limitation. --Subsections (b)(1)(B) and (d)(1)(B) of section 6721 are each amended by striking "$75,000" and inserting "$250,000".
(c) Reduction Where Correction on or Before August 1. --
(1) In general. --Subparagraph (A) of section 6721(b)(2) is amended by striking "$30" and inserting "$60".
(2) Aggregate annual limitation. --Subsections (b)(2)(B) and (d)(1)(C) of section 6721 are each amended by striking "$150,000" and inserting "$500,000".
(d) Aggregate Annual Limitations for Persons With Gross Receipts of Not More Than $5,000,000. --Paragraph (1) of section 6721(d) is amended --
(1) by striking "$100,000" in subparagraph (A) and inserting "$500,000",
(2) by striking "$25,000" in subparagraph (B) and inserting "$75,000", and
(3) by striking "$50,000" in subparagraph (C) and inserting "$200,000".
(e) Penalty in Case of Intentional Disregard. --Paragraph (2) of section 6721(e) is amended by striking "$100" and inserting "$250".
(f) Failure To Furnish Correct Payee Statements. --
(1) In general. --Subsection (a) of section 6722 is amended by striking "$50" and inserting "$100".
(2) Aggregate annual limitation. --Subsections (a) and (c)(2)(A) of section 6722 are each amended by striking "$100,000" and inserting "$1,500,000".
(3) Penalty in case of intentional disregard. --Paragraph (1) of section 6722(c) is amended by striking "$100" and inserting "$250".
(g) Failure To Comply With Other Information Reporting Requirements. --Section 6723 is amended --
(1) by striking "$50" and inserting "$100", and
(2) by striking "$100,000" and inserting "$1,500,000".
(h) Effective Date. --The amendments made by this section shall apply with respect to information returns required to be filed after December 31, 2008.
SEC. 19. INCREASE IN PENALTY FOR FAILURE TO FILE PARTNERSHIP RETURNS.
Section 6698 is amended by adding at the end the following new subsection:
"(e) Modifications. --In the case of any return required to be filed after December 31, 2008, the dollar amount in effect under subsection (b)(1) shall be increased by $15.".
SEC. 20. INCREASE IN PENALTY FOR FAILURE TO FILE S CORPORATION RETURN.
Section 6699 is amended by adding at the end the following new subsection:
"(e) Modifications. --In the case of any return required to be filed after December 31, 2008, the dollar amount in effect under subsection (b)(1) shall be increased by $15.".
SEC. 21. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAX.
The percentage under subparagraph (C) of section 401(1) of the Tax Increase Prevention and Reconciliation Act of 2005 in effect on the date of the enactment of this Act is increased by 0.25 percentage points.
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