Tax News

CCH (cch.taxgroup.com) reports:

The IRS has issued proposed regulations related to the release-of-lien and discharge-of -property rules for third-party owners under Code Secs. 6325, 6503 and 7426. The proposed regulations incorporate changes made by the IRS Restructuring and Reform Act of 1998 (P.L. 105-206) that provide a statutory mechanism for (1) a person other than the person against whom the underlying tax was assessed (i.e., a third-party owner) to obtain a discharge of a federal tax lien upon the furnishing of a deposit or bond, and (2) the IRS or the courts to determine the disposition of the deposit or bond amount. The proposed regulations contain procedures for processing a request for a certificate of discharge of a federal tax lien under Code Sec. 6325(b)(4). Additionally, the proposed regulations clarify the effect of these procedures on the collections limitations period tolling provisions of Code Sec. 6503(f)(2), and on the judicial remedy provisions of Code Sec. 7426(a)(4) and Code Sec. 7426(b)(5). The regulations are proposed to be effective for any release of lien or discharge of property that is requested after the date the regulations are published as final in the Federal Register.
The proposed regulations address the release of liens, the discharge of property, suspension of the running of the limitations period, civil actions, and the IRS's use of a deposit or bond if judicial action not filed.
Release of Lien
Under existing final regulations, the IRS "may" issue a certificate of release of lien within 30 days of the satisfaction of certain conditions. In keeping with the language of Code Sec. 6325(a), the proposed regulations change "may" to "shall."
Discharge of Property
The proposed regulations provide that a certificate of discharge must be issued if the third-party owner submits a proper request and either deposits an appropriate amount or furnishes an acceptable bond. The person seeking a certificate of discharge must submit an application in writing to the local IRS official responsible for collection of the tax at issue, and the application must contain any information the official may require.
Under the proposed regulations, a request for a certificate of discharge made by a third-party owner will be viewed as a request under Code Sec. 6325(b)(4), rather than Code Sec. 6325(b)(2), and any amount the IRS receives from a third-party owner following a discharge request will be viewed as a deposit made under Code Sec. 6325(b)(4), unless the owner requests otherwise. The advantage to the third-party owner if the certificate of discharged is granted under Code Sec. 6325(b)(4) is that the amount is treated as a deposit rather than a payment to be immediately credited to the taxpayer's account. Also, the third-party owner will have the right to pursue a civil action regarding the IRS's determination of the value of the lien to the United States.
The proposed regulations provide that, in valuing the interest of the United States, the appropriate official of the IRS may give consideration to the forced sale value of the property in appropriate cases.
Under Code Sec. 6325(b)(4)(, the IRS is to refund the amount deposited, with interest at the overpayment rate, and release the bond, to the extent the IRS determines that either: (1) the unsatisfied tax liability giving rise to the lien can be satisfied from a source other than the third-party owner's property; or (2) the value of the United States' interest in the property is less than the IRS' prior determination of such value. The proposed regulations specify that any request for a refund of a deposit or release of a bond must be in writing and must contain the information required by the appropriate IRS publication. The proposed regulations clarify that the phrase "unsatisfied tax liability giving rise to the lien" refers to the entire tax liability listed on the notice of federal tax lien, not just the portion of the liability equal to the value of the United States' interest in the third-party owner's property.
Civil Actions
Code Sec. 7426(a)(4) provides that a person to whom a certificate of discharge has been issued under Code Sec. 6325(b)(4) with respect to any property, may within 120 days after the day the certificate is issued, bring a civil action in federal district court for a determination of whether the value of the interest of the United States in such property is less than the value determined by the IRS. The proposed regulations clarify that the only allowable basis for a judicial determination is that the value of the interest of the United State in the property is less than the value as determined by the IRS. The proposed regulations emphasize that this is the exclusive judicial remedy available to a third-party owner. Further, the proposals provide that an administrative request for refund of a deposit or release of a bond made under Code Sec. 6325(b)(4)( does not affect the running of the 120-day period for bringing a civil suit.
Deposit of Bond
Under Code Sec. 6325(b)(4)(C), the IRS has 60 days after expiration of the 120-day limitation period for bringing a civil suit to apply the amount deposited (or collect on the bond furnished) to the extent necessary to satisfy the unsatisfied liability secured by the lien, and refund with interest any portion of the amount deposited that is not used to satisfy such liability. The proposed regulations enable the IRS to take these actions after this maximum time period has expired, although failure to act within the statutory timeframe results in the IRS not being able to charge the taxpayer interest and penalties on the amount, and the IRS will pay the third-party owner interest on any refund that should have been paid within the timeframe until it is paid.
Limitations Period
Under Code Sec. 6503(f)(2), in the case of any assessment for which a lien was filed on any property, the running of the period for collecting the assessed tax liability is suspended from the day any person becomes entitled to a certificate of discharge under Code Sec. 6325(b)(4), until the date that is 30 days after the earlier of the earliest date on which the IRS no longer holds any amount as a deposit or bond because the deposit or bond either has been used or refunded, or the date that a judgment obtained under Code Sec. 7426(b)(f) becomes final. The proposed regulations provide that, for these purposes, the deposit or bond is deemed processed no later than 60 days after the expiration of the 180-day period after the issuance of a certificate of discharge. Accordingly, if the deposit or bond is not processed within the 180-day period, the running of the collection statue ceases to be suspended as of 90 days (60 days, plus the 30 days afforded by Code Sec. 6503(f)(2) after the 120-day period ends). Thus, the period for collection resumes running 31 days after the 180 days have passed.
Comments and Hearing
Written or electronic comments and requests for a public hearing must be received by April 11, 2007. The IRS and Treasury Department request comments on the clarity or the proposed rules and how they may be made easier to understand. Send submissions to: CC: PA: LPD: PR (REG-159444-04), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044. They may also be delivered Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m. to CC: PA: LPD: PR (REG-159444-04), courier's desk, Internal Revenue Service, 1111 Constitution Ave. NW., Washington, D.C. Comments can be sent electronically, via the IRS Internet site at http://www.irs.gov/regs or via the Federal eRulemaking Portal at http://www.regulations.gov.
Proposed Regulations, NPRM REG-159444-04, 2007FED ¶49,728
Proposed Regulations, NPRM REG-159444-04, FINH ¶41,122
Other References:
Code Sec. 6325
CCH Reference - 2007FED ¶38,166C
CCH Reference - FINH ¶21,127
Code Sec. 6503
CCH Reference - 2007FED ¶39,036C
CCH Reference - FINH ¶21,487
Code Sec. 7426
CCH Reference - 2007FED ¶41,712A
CCH Reference - FINH ¶22,347
Tax Research Consultant
CCH Reference - TRC IRS: 48,200