LEVIES AND SEIZURES
IRC §6331(b) states that levy includes the power of distraint and seizure by any means. Generally, the term levy is used to refer to the forcible taking of funds or intangible assets belonging to the taxpayer in the possession of a third party. Seizure is the forced taking of real property or tangible personal property whether in the possession of the taxpayer or a third party.
The same three events that give rise to the creation of a federal tax lien are the same three events that must occur before the IRS can issue a Notice of Intent to Levy. Once these three events occur, but prior to the actual levy or seizure, the IRS must issue a Notice of Intent to Levy, which includes information about the relevant statutory provisions and procedures, administrative appeals, alternatives to prevent levy, and procedures regarding redemption. IRC §6331(d)(4). Pursuant to IRC §6331(d)(2) the IRS must serve the Notice of Intent to Levy by one of three ways.
- Serve the notice on the taxpayer personally.
- Leave the notice at the taxpayer’s residence or usual place of abode.
- Mail the notice by registered or certified mail to the taxpayer’s last known address.
Generally, the Notice of Intent to Levy is the “final bill” mailed by the Service Center prior to forwarding the case to ACS or the District. Although the IRS is prohibited from proceeding with a levy or seizure within the 30 days immediately following the issuance of the Notice, the IRS usually waits longer before proceeding with forced collection. The IRS is not required to issue a Notice of Levy in a jeopardy case.
Notice of Levy
The IRS effectuates a levy of a taxpayer’s funds or intangible assets in the possession of a third party by serving the third party with a Form 668-C, Notice of Levy, or a Form 668-W, Notice of Levy on Wages, Salary, or Other Income. There are no specific requirements imposed on the IRS when serving a Notice of Levy on a third party. The notice can be delivered personally, by ordinary mail, or by facsimile.
Several days after a Notice of Levy is served on the third party, the IRS policy is to send a courtesy copy to the taxpayer. IRM 5369.2 (12-5-90). However, the Internal Revenue Code does not require the IRS to provide the taxpayer with a copy. Lastly, pursuant to IRM 56(12)1.2 (6-20-95), it is the IRS’ policy to file the Notice of Federal Tax Lien prior to issuing the Notice of Levy to prevent the taxpayer from transferring property or interests in property prior to the effective date of the levy. Generally, the effective date of the levy is the date the Notice of Levy is received by the third party. IRC §301.6331-1(c).
Unless specifically exempt from levy, all of the taxpayer’s property and rights to property are subject to levy. The rules governing the determination of “property or rights to property” as they relate to federal tax liens are the same in relation to levies. Unlike a federal tax lien, however, generally a levy does not reach after acquired property unless it is a levy on wages, salary, or other income. See U.S. v. Jefferson-Pilot Life Ins., Co., 95-1 USTC ¶50,263 (4th Cir. 1995).
Property Exempt From Levy
Property exempt from levy includes the following:
- Clothing and school books necessary for the taxpayer and family.
- Fuel, provisions, furniture and personal effects not exceeding $6,250.00.
- Books and tools necessary for taxpayer’s trade not exceeding $3,125.00 in value.
- Undelivered mail.
- The taxpayer’s principal residence (Following the IRS Restructuring and Reform Act of 1998, administrative seizure of a personal residence by the IRS is prohibited for any liability under $5,000.00. For all liabilities of $5,000.00 or more, the Service must obtain approval from a US District Court Judge or Magistrate prior to seizing a personal residence).
- Certain business assets (unless approved by the District Director or Assistant District Director in writing after a determination that the taxpayer has no other assets, or if the Secretary finds that the collection of the tax is in jeopardy).
- Certain sources of income.
See IRC §6334(a)(1)-(13).
The IRS Restructuring and Reform Act of 1998 amended IRC §6334(a) to
Personal Liability of Third Parties
A party that is served with a levy by the IRS has only two defenses to not honor the levy:
- The party does not have possession of, or is not obligated with respect to, any property or property rights of the taxpayer.
- The property is already subject to an attachment or execution under judicial process.
A party in receipt of an IRS levy who does not have one of the above stated defenses can be held personally liable for the value of the property not surrendered together with costs and interest pursuant to IRC §6332(d)(1). Moreover, if the failure to surrender the property was without reasonable cause, such person can be liable for a penalty equal to 50% of the aforementioned amount pursuant to IRC §6332(d)(2).
Seizures
Generally, the IRS seizes real property or tangible personal property. Different from the Notice of Levy procedure discussed previously, to effectuate a seizure the IRS need only take actual possession of the property subject to the lien. The IRS uses a Form 668-B, Levy, to seize property. Part 3 of the Form 668-B is given to the taxpayer or left at the taxpayer’s residence or usual place of abode if the taxpayer resides within the district, or if the taxpayer cannot be readily located or resides outside of the district, by certified mail to the taxpayer’s last known address. See IRM 56(12)5.1 (6-3-91). If the property is seized from a third party, Part 4 of the Form 668-B is left with the third party.
IRC §6335(a) requires the IRS to provide notice of a seizure to the owner of real property or to the possessor of personal property as soon as practicable after the seizure. But see Kaggen v. U.S., 57 F.3d 163 (2nd Cir. 1995). The IRS must serve the notice in person, or leave it at the owner’s or possessor’s residence or usual place of abode if either is located within the district where the property was seized, or mailed to the last known address of the owner or possessor if he/she cannot be located or has no dwelling or place of business within the district. See IRC §301.6335-1(a) and Goodwin v. U.S., 935 F.2d 1061 (9th Cir. 1991).
Generally, a revenue agent who seizes property from a public area, can do so without obtaining a warrant or writ of entry from a court of competent jurisdiction. This is because the right of privacy protected by the Fourth Amendment to the United States Constitution is not invoked where the property is located in a public place where the taxpayer could have no reasonable expectation of privacy. However, when a revenue agent seizes property located on a private premises where the taxpayer has a reasonable expectation of privacy, the Fourth Amendment is invoked and requires the revenue agent to either obtain the consent of the owner or occupant, or a warrant or writ of entry. See G.M. Leasing Corp. v. U.S., 429 U.S. 338 (1977).
The IRS Restructuring and Reform Act of 1998 prohibited no equity seizures by requiring the revenue officer to determine that there will be sufficient net proceeds from the sale to apply to unpaid liabilities. As a practical matter the Service did not perform no equity seizures, except to prevent the pyramiding of employment taxes. No equity seizures of all types are now prohibited.
Bluestein & Muhlbauer, P.C.
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Williamsville, NY 14221
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