Overview Practice Tip: Aside from understanding the distinction between an FTL and NFTL, the other concept that many have trouble grasping relates to the manner of filing the NFTL Practitioner s frequently say The IRS filed a lien against my client s house. This statement displays a fundamental misunderstanding of the FTL and NFTL The FTL has broad reach and does attach to a taxpayer s house; however, the IRS does not file the NFTL against a house or any other specific piece of property. It is filed in the name of the individual taxpayer The correct way of expressing the same sentiment is to say: The IRS filed an NFTL against my client in the jurisdiction in which his house is located. This statement demonstrates that the NFTL was correctly filed and defeats all creditors who file thereafter (except as noted later in this module)
Lien Acquisition Assessment Assessing taxes simply describes the process of recording a liability and creating the necessary record against which to apply payments remitted by the taxpayer Vast majority of taxpayers have payments or credits sitting in their account for a tax period at the time an assessment occurs Assessment is a necessary predicate to issuance of a refund Once the refund issues, the account for that tax year essentially closes, unless it is reopened by the IRS through an audit or by the taxpayer with a claim for refund Making an assessment requires permission Most common permission to assess derives from the filing of a tax return Through the filing of the return (taxpayer) grants permission to the Service to assess the tax recorded on the return Copyright 2013, 2014 R. A. Michael & Associates, Inc.
Scope of Lien Drye Taxpayer s property interest in inherited property Taxpayer, pursuant to state law, renounced property he had inherited from his mother Service argued that its lien attached to the inheritance despite the renunciation While the renunciation cut off other creditors of the taxpayer under state law, the Court agreed with the IRS that the FTL did reach the taxpayer s interest in the inherited property The taxpayer s right to an inheritance under the will was a property interest that existed under state law Because of the existence of a property interest under state law in the right to inherit property, federal tax lien law then took over to determine the relative priorities of persons claiming an interest in the inherited property State law provisions that deny creditors access to property renounced as the taxpayer did in Drye are ineffective to destroy the federal lien Copyright Copyright 2013, 2013, 2014, 2014 2015 R. R.A. Michael & Associates, Inc.
Perfection of Lien Who(m) - Prior to concerns about identity theft, the Service placed the entire social security number on the NFTL Now it only uses the last four digits, making it more difficult to identify the named individual If the taxpayer s name appears incorrectly on the NFTL, your response will differ depending on whether you represent the taxpayer or someone competing against the lien The taxpayer will want to remain silent in many instances Bringing the mistake to the attention of the IRS will simply cause the IRS to file a correct NFTL which it can do at any time Competing parties will raise the issue as soon as pointing out the mistake benefits their interest in the property at issue The best place to start is with the local lien unit in an attempt to exhaust administrative remedies. If the lien unit agrees that the NFTL is wrong and the IRS lacks a priority position, the case will go no further
Perfection of Lien Where (cont d) Practice Tip: The Service does not always file in the correct location. Sometimes a locality might share a zip code with another jurisdiction and the Service picks the jurisdiction sharing the zip code rather than the jurisdiction in which the property sits. Sometimes the Service may file an NFTL in the jurisdiction of one of the pieces of real property owned by a taxpayer but miss the other locations in which real property owned by the taxpayer sits. Whatever the reason for the mistake, the practitioner must review the filing records with care to determine if the filing of the NFTL attaches to the property at issue. If the NFTL filing misses one or more pieces of real property, the taxpayer has the opportunity to sell or encumber those pieces of real property without the burden of the NFTL
Overview For some taxpayers the levy finally gets them interested in working with the Service to resolve their tax problems (cont d) Whether your client has diligently worked to solve the problem prior to issuance of the levy or whether the levy triggers activity, you need to know what to do to stop the Service from continuing to levy your client s assets or income stream In this chapter we will discuss the levy process, the power of a levy and ways for moving past the levy The first thing the Service will want in response to a request to remove a levy is the client s financial statement Be prepared for that request
The Levy Itself Duty of Levy Recipient Upon receipt of the levy, the party receiving the levy has a duty to surrender the property subject to the levy The statute does not provide a set time frame within which compliance must occur and a reasonable time frame for compliance could vary wildly depending on the asset subject to the levy The statute contains an exception for property subject to attachment pursuant to a judicial process, life insurance endowment contracts, and banks
The Levy Itself Wage Levy Practitioner Best Practices (cont d) You must explain to them how the case is going to proceed and reassure them that you will get the levy released (hopefully before the next paycheck) Be realistic when explaining the installment agreement to them Many clients come in with unrealistic perceptions that you can just make the problem go away Set their expectations about the 433 s. Cheating is not allowed, and the IRS is going to expect a monthly payment that is appropriate The I/A actually protects them from future levies, as long as the monthly payments are made timely You can t yet determine if they re on OIC candidate because you haven t seen their 433 s and don t know enough about them yet False promises and unrealistic expectations about whether the client is an OIC candidate only sets everybody up for disappointment This is one of the leading causes of clients suing for malpractice and reporting complaints to the OPR By properly only proposing truly qualified OIC cases to the IRS, you keep your success rate up and you reputation with the IRS in good standing
The Levy Itself Bank Levies Section 6332(c) requires banks to hold the proceeds subject to a levy for 21 days The purpose of the 21 day holding period is to give joint account holders time to come in during that period and prove to the Service that some or all of the money in the bank account belongs to them rather than to the taxpayer The notice of levy only reaches the amount on deposit when the levy is received Money deposited later is not surrendered, including deposits made during the holding period. Another levy must be served to reach this money The levy only reaches deposits that have cleared and are available for the taxpayer to withdraw The bank may not reduce the amount it pays to the Service by a bank processing fee or any other fee Click here to review: IRS Reg 301.6332-3
Levy Seizure and Sale Overview The terms levy and seizure for federal tax purposes are mostly interchangeable To the extent a distinction exists, the term levy covers a broader field Levy describes not only the taking of intangible property but also the taking of tangible property Seizure generally describes the taking of tangible property In this discussion the taking of tangible property will be described as seizure to designate the more specific action