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Section 3. Certificates Relating to Liens and Claims for Damages
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If |
Then |
there is reason to doubt the financial stability of an institution, |
reject the tender of the institution’s guaranteed draft. |
a guaranteed draft is not duly paid, |
the United States will have a lien on all assets of the drawee institution in the amount of the draft. |
payment is received to secure a release, certificate of discharge or subordination, |
use designated payment code 07 (DPC–07) when preparing the posting voucher. |
5.12.3.2.2 (02-02-1999)
Liability is Unenforceable
- The word "unenforceable" means unenforceable as a matter of law, and not merely uncollectible. See IRM 25.17.14.11 regarding the release of lien in bankruptcy cases.
- NFTL filed on forms revised 12/82 or later do not require that a separate certificate of release be issued when the statutory period for collection has expired unless the NFTL has been refiled or a request is made for a separate release.
- NFTL refiled on Form 668–F, Notice of Federal Tax Lien, are not self-releasing. A certificate of release must be filed when the liability becomes unenforceable.
5.12.3.2.3 (06-13-2005)
Acceptance of a Bond
- Issue a release of a NFTL within 30 days of accepting a bond based on the payment of the amount assessed (including any interest, addition to tax, assessable penalty, together with any accrued costs) within the time agreed to in the bond, but not later than six months before the expiration of the statutory period for collection. See IRC 6325(a)(2).
- The bond must be executed by a surety company holding a certificate of authority from the Secretary of the Treasury, or, in the discretion of the area director, collateral may be accepted within established limits (see IRC 7101 and 7102). The acceptability of a surety, other than a Treasury approved surety, will be determined on a case by case basis.
5.12.3.2.4 (06-13-2005)
Acceptance of an Offer
- When an offer in compromise, including a collateral agreement, is accepted, the NFTL will be released, when:
- the payment of offered amount, including any accrued interest, has been paid;
- all other terms and conditions of the offer are in compliance at the time the release is requested. This includes refund recoupment, collateral and future compliance issues.
- Requests for the issuance of a certificate of release may be made by those OIC Units with ALS access.
- OIC managers with access to ALS may approve the issuance of a certificate of release on the ALS system for a joint liability only when the OIC was granted for both taxpayers.
- OIC Units without ALS access will FAX a document to the centralized LPU containing the following information:
- Name of Taxpayer
- TIN
- Tax Period to be released
- Name and ID number of employee requesting the release
- OIC Unit managers may not issue a certificate of release when extenuating circumstances exist, e.g., innocent spouse, non-petitioning spouse, co-obligors, etc. See Exhibit 5.12.3–2. Use the procedures in (4) above for requesting the release.
5.12.3.2.4.1 (06-13-2005)
OIC Funded by Lending Institutions
- When the offered amount is paid by a lending institution, request that the certificate of release be prepared. The designated employee will sign the certificate of release. Do not date, the certificate will be dated upon receipt of payment.
Note:
The Lien Processing Unit must be instructed not to mail the certificate of release to the recording office.
- Forward the certificate of release to the assigned revenue officer at the time the taxpayer is informed that the offer is accepted.
- The revenue officer will secure the full offer amount and provide a copy of the release to the lending institution and the taxpayer.
- Provide the taxpayer Notice 48 that explains the process to have the certificate of release recorded.
- Forward a copy of the certificate of release to the Lien Processing Unit to update the ALS database.
5.12.3.2.5 (02-02-1999)
Trust Fund Recovery Penalty
- Issue a Certificate of Release of Federal Tax Lien to the nonpaying officer(s) on a trust fund recovery penalty assessment when one officer has fully paid the liability. This will be done even though the liability has not been abated pending the expiration of the statutory period within which a claim for refund by the paying officer may be made.
5.12.3.2.6 (07-15-2003)
Bankruptcy Discharge of One Party on a Jointly Filed Lien
- When one party of a jointly filed NFTL files bankruptcy and is discharged, a transaction code 400 will be used to adjust the joint account.
- The TC 400 will not cause the module to go to master file status 12 and therefore the module will not cause a notification of satisfaction to be passed to the Automated Lien System (ALS). The jointly filed NFTL will not be released.
- A Certificate of Release will be manually prepared. See Exhibit 5.12.3–1 and 5.12.3–2.
5.12.3.2.7 (07-15-2003)
Innocent Spouse Determinations
- IRC 6015 grants relief to a spouse when it is determined that he/she is not responsible for the liability.
- Issue a release for the taxpayer that is not responsible for the liability.
- Use the Automated Lien System to generate the release. Specific wording has been added to the database to clearly identify the innocent spouse.
5.12.3.3 (02-02-1999)
Request for Release of Lien by Taxpayer
- Procedures for preparing a certificate of release requested by the taxpayer are described in this section.
5.12.3.3.1 (06-13-2005)
Processing Taxpayer Requests for Lien Release
- Issue a certificate of release as soon as it is determined that the lien is satisfied, after receipt of a properly completed request, in the area where the NFTL is filed. Any request which is incorrect or incomplete will not trigger the release.
- Requests received by fax for a certificate of release may be accepted if contact has been made with the taxpayer by phone or in person and the taxpayer history file is documented with the date of contact and notation is made that the taxpayer will send the request by fax.
- Notify the taxpayer when additional information is needed to identify the NFTL to be released or give the reason why a certificate of release will not be issued.
- Timely release of the NFTL is essential. Under the Taxpayer Bill of Rights, Section 6240 (new IRC 7432), taxpayers are provided with the right to sue the Federal Government if the Service knowingly or negligently fails to release a NFTL. Recovery is limited to actual, direct economic damages sustained by the taxpayer which, but for the actions of the IRS, would not have been sustained, plus the costs of the action.
- Prior to being awarded damages, the taxpayer is required to request a release of NFTL in writing.
- Publication 1450, Request for Release of Federal Tax Lien, describes the conditions under which a Certificate of Release of Federal Tax Lien may be issued and the required content of the request.
- An immediate or expedite release is one requested when the liability has been satisfied for a period beyond 30 days from the date of satisfaction or when the taxpayer wants to pay the liability to secure a release for such things as the transfer of property or the completion of other financial transactions. See IRM 5.12.3.2.1(4) for acceptable payments.
- Occasionally, the Service may erroneously file a duplicate NFTL and the taxpayer may request the release of the duplicate. If the liability has not been satisfied, respond to the taxpayer using Pattern Letter P–2411. This pattern letter will act as a release and filing will be at the option of the taxpayer. See Exhibit 5.12.3–3.
5.12.3.3.2 (06-13-2005)
Satisfied or Unenforceable Taxpayer Accounts
- Follow these procedures:
If |
Then |
|
the taxpayer states that the liability is satisfied or unenforceable |
check ALS to determine if a release has been issued. |
|
a release has not been issued, the liability satisfied and the last date for refile or CSED has not passed |
check IDRS to determine if the modules on the notice of lien are in status 12 and 30 days (45 days for personal checks) have elapsed from the date of payment. |
|
|
1. |
Prepare a manual release. |
|
2. |
Forward a copy to the LPU to update the database. |
the module is unenforceable, |
1. |
Prepare a manual release. |
|
2. |
Forward a copy to the LPU to update the database. |
there is no record that the NFTL has been satisfied on ALS or IDRS |
1. |
Request that the taxpayer submit a written request to the attention of the Lien Processing Unit Manager in the area where the NFTL was filed. |
|
2. |
Provide the taxpayer with Publication 1450, Request for Release of Federal Tax Lien. |
5.12.3.3.3 (06-13-2005)
Full Payment in Exchange for Immediate Lien Release
- When a taxpayer wants to pay the liability in full to secure immediate release, do the following:
- Ensure that payment is made by a method described in IRM 5.12.3.2.1(4).
- Prepare a manual release.
- Forward a copy to the LPU to update the database;
- Provide Notice 48 to the taxpayer.
- Advise the taxpayer that he/she will have to file the certificate and pay a recording fee, if the release needs to be recorded immediately.
5.12.3.3.4 (06-13-2005)
Electronic and Credit Card Payments
- DO NOT issue an immediate release when credit or debit cards are used to full pay the tax liability. Credit and a debit cards are barred for immediate release of lien because of the possibility of chargeback of such payments over a period of months. It is unlikely that a release will be requested from a credit or debit card payment because the Service may accept such payments only within three years after assessment. See IRM 5.14.10.5. However, if a debit or credit card is accepted to satisfy a tax year and a request for release is received, the lien may not be released until the period for chargeback has run. The maximum period for chargeback is 120 days for payment by credit card under 15 U.S.C. Section1666, and 100 days for payment by credit card under 15 U.S.C. Section 1693f.
- Issue a certificate of release when full payment of the liability is made by electronic funds transfer (EFT) . These payments become irrevocable in a short period of time.
5.12.3.4 (06-13-2005)
Request for Release
- Area offices are notified by the Service Campus that accounts have been satisfied by means of a module satisfied notice. These notices are generated for all full paid modules that were in balance due or suspended status and a Lien Filed Indicator (LFI) input to the module. The majority of NFTL releases are generated by the systemic processing of the module satisfied notice.
- The ALS systemic release module is used to enter lien release information not covered by a module satisfied notice. Basic audit trail data as well as how the lien was satisfied, the requesting employee, and the approving official is also displayed using the program. The lien release is assigned to the manager’s queue for electronic signature and is produced when it has been approved.
- If a liability is satisfied by cash, certified or cashiers check, an immediate release of the NFTL is required, provide the satisfying information to the Lien Processing Manager where the release will be prepared without waiting for the module satisfied notice to be received.
- The need to request immediate release of liens should be restricted to:
- taxpayer requests, or
- pending property transactions that would be delayed by normal processing.
- When the LFI is not present on a module, provide a copy of the Form 668(Y) to the Lien Processing Unit with supporting documentation, to generate the release.
- Provide sufficient documentation to identify periods to be released on a NFTL with multiple periods listed where one or more of the periods were satisfied prior to January 1988. A module satisfied notice will be issued to set the satisfied indicator in the lien database to systemically release the NFTL when the last period is satisfied.
5.12.3.4.1 (06-13-2005)
Request for Release in Another Area
- An out-of-area release will be generated by a module satisfied tape or file sent to each area office that had previously requested input of a TC 582. A systemic release will be generated automatically and forwarded to the proper recording office.
- A telephone call will be made to the Lien Processing Unit when immediate release is needed.
- The receiving area will generate the release through the automated system and forward it to the proper recording office.
5.12.3.5 (06-13-2005)
Erroneously Filed Notice of Federal Tax Lien
- The definition of an erroneously filed NFTL (IRC 6326) is a NFTL filed during the presence of one of the following conditions:
- the liability was satisfied prior to the NFTL filing;
- any tax liability which was assessed in violation of deficiency procedures in IRC 6213;
- the statute of limitations for collection expired prior to filing of the NFTL.
- When an erroneous filing situation is identified, a Form 668Z, Certificate of Release of Federal Tax Lien and Letter 544, (Exhibit 5.12.2-4) must be issued by Technical Services within 14 days, where practical. A memorandum outlining the facts should be prepared immediately and forwarded to Technical Services.
- When circumstances dictate immediate action, the facts of the case should be given to Technical Services by telephone for preparation of the letter. The memorandum must still be prepared and forwarded to Technical Services.
- The letter should be signed by the Technical Services Group Manager or other persons authorized to sign on his/her behalf.
- At the taxpayer’s written request a copy of the release and letter of apology may be furnished to creditors or credit bureaus. Instruct the taxpayer to provide names, mailing addresses, and authority to disclose the information.
- Filing and release fees will be abated on erroneously filed NFTLs.
5.12.3.6 (06-13-2005)
Certificate of Release
- Issue a Certificate of Release only after all assessments covered by the NFTL meet the criteria for release even though a certificate could be issued when each assessment is satisfied or becomes unenforceable.
- If a specific request is received from a taxpayer for the issuance of a release of satisfied or unenforceable modules on NFTLs recorded with multiple modules, forward the request to the LPU for a partial release of the NFTL.
5.12.3.7 (07-15-2003)
Disposition of Certificate of Release
- Form 668(Z) will be mailed or presented to the proper recording office.
- Attach Form 3915, Processing Notices and Releases of Federal Tax Lien and Other Related Certificates, and mark the appropriate block on the form, when certificates are mailed and a transmittal document is necessary.
- A self-addressed, postage and fee paid envelope will accompany certificates of release if a receipt is requested.
- In some instances the taxpayer may insist upon personally recording the release. In those cases, the fee for filing the certificate of release of lien will not be collected from the taxpayer. Notice 48 is provided for transmitting certificates to taxpayers.
- The payment of release fees should be handled in the same manner as filing fees.
5.12.3.8 (07-15-2003)
Partial Lien Release
- There is no provision in the Code or the Regulations for the issuance of a partial release. However, circumstances sometimes dictate that a partial release of the NFTL is necessary.
- When one taxpayer on a jointly filed return is determined not to be liable for the tax debt a certificate of release for that taxpayer must be issued. For example, a partial release is issued when there is a discharge in bankruptcy and only one person petitioned the court, an offer-in-compromise is requested by one party and the offered amount is accepted, or there is an innocent spouse determination
- Issue the certificate of release in the name of the taxpayer that is not liable for the tax debt.
- A partial lien release may be generated when there are multiple tax periods and the taxpayer requests a release for a specific tax period.
- The partial lien release can be prepared using ALS. The ALS allows the user to select a paragraph, clearly identifying the non-liable taxpayer, to be printed on the front of Form 668(Z).
- Do not post TC 583 to the still liable taxpayer’s master file account.
5.12.3.9 (07-15-2003)
Authority to Execute Certificate of Release of Lien
- The Secretary may redelegate (IRC 6325) the authority to issue Certificates of Release of Federal Tax Liens.
- Authority may be redelegated to the following officers. See Delegation Order 5-4 for a complete list.
- Field Territory Manager,
- Field Group managers,
- Technical Services Group Managers,
- Revenue officers Grade 9 and above,
- Advisors Grade 11 and above,
- Campus Offer in Compromise Managers.
- Facsimile signature stamps may be used for large volumes of releases.
5.12.3.10 (06-13-2005)
Civil Cause for Action for Failure to Release Liens Under IRC 6325
- Taxpayers have the right to sue the Federal Government for damages in federal district court if any officer or employee of the Internal Revenue Service knowingly or by reason of negligence, fails to release a filed Notice of Federal Tax Lien. See IRC 7432.
- Taxpayers must exhaust all administrative remedies available within the IRS prior to initiating a civil action in federal district court.
- Taxpayers must:
- submit a written request for a release of the NFTL to the area office where the NFTL was filed; and
- submit an administrative claim for damages (IRC 7432).
5.12.3.10.1 (06-13-2005)
Administrative Claim Procedures
- Title 26, Part 301, Section 7432-1 of the Code of Federal Regulations (CFR) contains the administrative claim procedures of Internal Revenue Code Section 7432.
- Send the administrative claim to the Technical Services Group Manager in the area office where the taxpayer currently resides or the Technical Services Group Manager where the Notice of Federal Tax Lien was filed. There is no standard form used in preparing a claim. It must contain the following information:
- The name, current address, current home and work telephone numbers and any convenient times to be contacted and the taxpayer identification number of the taxpayer making the claim.
- A copy of the NFTL affecting the taxpayer’s property, if available.
- A copy of the request for the release of lien made in accordance with section 401.6325-1(f) of the Code of Federal Regulations.
- The grounds, in reasonable detail, for the claim (include copies of any available substantiating documentation or correspondence with the Internal Revenue Service);
- A description of the damages incurred by the taxpayer filing the claim (including copies of any available substantiating documentation or evidence);
- The dollar amount of the claim, including any damages that have not yet been incurred but that are reasonably foreseeable (including copies of any available substantiating documentation or evidence); and
- The signature of the taxpayer or the taxpayer’s duly authorized representative.
- Each claim will be reviewed by Technical Services to insure that it contains the required information.
- Within 14 days of receipt, notify the taxpayer in writing either of deficiencies or that the claim is not processable, when the claim does not contain the information required in (1) above.
Note:
This is not considered a rejection of the claim because a claim meeting the requirements of Treasury Regulation 301.7432-1 has not been filed.
- Use Letter 2730 (See Exhibit 5.12.3-18) to notify the taxpayer of any claim deficiencies.
- If the claim was for a NFTL filed in another area office, forward the claim and all supporting documentation to that area office.
- Notify the taxpayer that the claim is being forwarded to another area office using Letter 2731 (See Exhibit 5.12.3-19).
- Administrative review of the claim must be completed within 30 days of receipt of a processable claim.
Note:
The taxpayer may bring suit either upon:
- a decision on the claim, or
- 30-days after the filing of a processable claim.
- A taxpayer must file an action in federal district court within two years after the cause of action occurs. If the taxpayer files an administrative claim within the last 30 days of the two-year period of limitations, the taxpayer may file an action in federal district court any time after the administrative claim is filed.
- Use Letter 2732 (Exhibit 5.12.3-20) or Letter 2733 (Exhibit 5.12.3-21) to notify the taxpayer of the results of the administrative review of the claim. If only a portion of the claim is approved, both pattern letters will be sent to the taxpayer at the same time. Authority to sign these letters should be delegated no lower than the Technical Services Group Manager.
- There is no further administrative appeal of a claim for damages under this section is the claim if denied. The remedy provided by the statute is the institution of a suit.
5.12.3.10.2 (06-13-2005)
Evaluation of Claim for Damages Under IRC 7432
- Date stamp the claim upon receipt. Technical services should complete the review within 30 days of receipt.
- Open an OI on ICS under 101- Claim Other. Review the closed files for any prior claims.
- The statutory elements contained in IRC 7432 must be applied to each processable claim. Address the following issues in determining if a claim is administratively allowable:
- Should the IRS have released the NFTL under the provisions of IR Code section 6325?
- Did an outstanding NFTL against the taxpayer cause the taxpayer to sustain direct, economic damages?
- Are any damages reducible by any amount that could have reasonably been avoided or mitigated by the taxpayer?
- Has there been a finding under Section 6325(a)(1) that the liability for the amount assessed, together with all interest, has been fully satisfied or has become legally unenforceable. Such a finding is treated as made on the earlier of: the date the appropriate official makes this finding or the date on which the Service receives a request for a certificate of release of lien in accordance with Treasury Regulation 401.6325-2(f), together with any information that is reasonably necessary to conclude that the lien has been fully satisfied or is legally unenforceable.
- Evaluate the facts and circumstances of each case.
- If the claim is made without proof or proper substantiation of damages, the taxpayer should be contacted immediately and told of the requirement to provide verification that these damages have been incurred. The Technical Services employee charged with reviewing and making the initial determination should approach this task with the recognition that it is possible that actual economic damages can accrue as a result of untimely NFTL releases. When faced with issues that do not present a clear-cut solution, discuss with area counsel.
- The reviewer must determine if the IRS knowingly or negligently failed to release a NFTL under IRC section 6325 and whether the failure caused direct economic damages which the taxpayer could not avoid. The failure to release the lien is negligent.
Note:
Negligence means the appropriate IRS employee failed to use due diligence, or act as a reasonable person would, to release the lien.
- The reviewer must ascertain when, in time, the taxpayer became aware of the violation only for purposes of determining if the claim should be rejected for timeliness.
- Claims filed more than two years after the violation must receive special scrutiny. This means that the violation occurred more than two years before the filing date of the claim. The taxpayer has two years in which to file a claim.
- The taxpayer’s two-year limitation to bring suit begins at the point when the taxpayer has had a reasonable opportunity to discover all essential elements in a possible cause of action.
- The reviewer must determine when the taxpayer knew or should have known of IRS’ failure knowing or negligent failure to release the NFTL.
- Claims filed outside the two-year limitation will be rejected.
- Certain criteria guide the amount of an administrative settlement, if any authorized, under this section. For example:
- the amount of the award is to be reduced by the amount of such damages which could have reasonably been lessened by the taxpayer;
- only actual, direct economic damages are recoverable in an administrative claim. No litigation or administrative costs are recoverable in an administrative claim. To the extent that any costs are recoverable under section 7432, such costs are recoverable only in a court proceeding.
- The determination to accept or reject each claim will be reviewed by Area Counsel for agreement.
- Release the NFTL when it is determined the IRS knowingly or negligently failed to release the NFTL under IRC 6325.
- The reviewer will provide written notification to the taxpayer of the determination.
Note:
Your letter should not state any specific statute of limitations determination other than the claim was rejected because of timeliness. If the claim is rejected for any other reason, the letter should inform the taxpayer that a suit may be filed within the applicable limitations period found in IRC 7432(d).
5.12.3.10.3 (03-01-2004)
Reimbursement of Damages and Costs for Failure to Release Lien Under IRC 6325.
- If an administrative claim is submitted to the approving official, Compliance personnel involved with the filing of the NFTL may be asked to prepare a memo explaining the facts of the case. This should include any documentation which confirms or contradicts the taxpayer’s statements.
- When a claim is approved, prepare an original and three copies of:
- FMS Form 195 - Judgment Fund Payment Request (Admin. Award) (Exhibit 5.12.3-22)
- FMS Form 196 - Judgment Fund Award Data Sheet (Exhibit 5.12.3-23)
- FMS Form 197 - Voucher for Payment of Judgements, Compromise Settlements and Administrative Awards (Exhibit 5.12.3-24)
- FMS Form 198 - Judgment Fund Award Data Sheet - Additional Deductions (complete this form only if appropriate) (Exhibit 5.12.3-25)
- Forward the original voucher (FMS Form 197) to the taxpayer under cover of Letter 2733 (See Exhibit 5.12.3-24).
- When the form is signed by the taxpayer, the approving official will sign FMS Form 197.
- Mail a copy of the signed form to the taxpayer.
- Use Letter 2734 (Exhibit 5.12.3-15) to forward the original and three copies with the forms described in (2) above to the Judgment Fund Branch, Funds Management Division, Financial Management Service, Department of the Treasury, Room 6N34, US GAO Building, 441 G Street, NW, Washington, DC 20548.
- In cases where the taxpayer requests a check in lieu of electronic deposit, FMS will return the check to the contact person listed on Form 196 for reimbursement to the taxpayer.
- Mail the check to the taxpayer with a cover letter (locally designed) that specifies the date and the amount of the check.
5.12.3.11 (06-13-2005)
Other Certificates Relating to Liens (Overview)
- There are a number of certificates that relate to the lien. The distinction between the certificates are:
- Release—operates to completely extinguish the lien.
- Discharge—removes the tax lien from specific property.
- Subordination—elevates another creditor’s lien to the Service’s priority position and makes the Service’s lien junior to that creditor’s lien.
- Non-attachment—denotes that a person of like or similar name is not, in fact, the taxpayer.
- Revocation—removes the NFTL from public records abandoning the priority under IRC 6323(a) but does not disturb the underlying tax lien against the taxpayer under IRC 6321.
5.12.3.12 (06-13-2005)
Discharge of Property
- After the "discharge" of property from a Federal Tax Lien from certain specifically described realty or personalty the lien continues in full force and effect on all other property or rights to property of the taxpayer.
- When making discharge determinations in states that are " entireties" , the government’s interest will generally be determined to be one half of the value of the property.
- Types of discharges are:
- Internal Revenue Code (IRC) Section 6325(b)(1) permits discharge if the remaining property of the taxpayer has a fair market value double the sum of the amount of the FTL. Issue Form 669–A.
- The IRC 6325(b)(2)(A) permits discharge on partial satisfaction of the liability determined to be not less than the value of the government’s interest in the property. If a taxpayer applies for a discharge when entireties property is to be sold by the taxpayer, then the taxpayer generally must pay the Service one-half the proceeds of the sale in partial satisfaction of the liability secured by the FTL. To qualify the requesting taxpayer must be divested of all interest in the property after the sale. Issue Form 669–B.
- IRC 6325(b)(2)(B) permits discharge on evidence that the property of the taxpayer has no value. To qualify the taxpayer must be divested of all interest in the property. Issue Form 669–C.
- IRC 6325(b)(3) permits discharge on the proceeds of the sale being held as a fund subject to the liens and claims of the government in the same manner and priority as the property that was discharged. To qualify the taxpayer must be divested of all interest in the property after the sale. Issue Form 669-H.
- IRC 6325(b)(4) permits discharge after the third party owner, not the taxpayer, deposits the value of the government’s interest in the property in cash or an acceptable bond. In connection with an application for discharge of former entireties property under this provision, the Service will generally determine the value of the government’s interest to be one-half the value of the property. Issue Form 669-G.
- Because making an application and deposit (or providing a bond) under Section 6325(b)(4) provides a judicial remedy not available for an application and payment made under Section 6325(b)(2)(A), third party owners of property wishing to apply for a certificate of discharge under Section 6325(b)(2)(A) must waive, in writing, their rights to make a deposit allowed under Section 6325(b)(4) and to file suit for return of the deposit or accepted bond allowed under Section 7426(a)(4).
- Unless the waiver has been provided in writing, the Service will treat an application made by an owner of the property (other than the taxpayer) as an application made under Section 6325(b)(4), with all funds treated as a deposit. For the required waiver language, see IRM 5.12.3.12.2.2
5.12.3.12.1 (06-13-2005)
When to Issue a Certificate of Discharge
- There are several provisions for issuing a certificate of discharge. Those provisions are discussed below.
5.12.3.12.1.1 (06-13-2005)
Property Double the Amount of the Liability
- You may issue a certificate of discharge if you determine whether the property remaining subject to the lien has a fair market value of at least double the amount of the unsatisfied tax liability secured by the NFTL, plus double the amount of all other liens and encumbrances having priority over the Governments lien.
- Compute the amount necessary to issue a Form 669-A, Certificate of discharge under IRC 6325(b)(1) as follows:
EXAMPLE:
$1,000 Federal Tax Lien
$5,000 Prior Encumbrances (Senior to the Federal Tax Lien)
+100Real Estate Tax Lien (Superpriority)
$6,100
$12,200 Fair Market Value Necessary for Discharge Under IRC 6325(b)(1)
5.12.3.12.1.2 (06-13-2005)
Part Payment/No value
- Issue Form 669–B, Certificate of Discharge Under 6325(b)(2)(A), covering any part of the property subject to the federal tax lien if an amount is paid in part satisfaction of the liability secured by the lien. The amount should not be less than the value of the government’s interest in the property to be discharged and the taxpayer must be divested of all interest in the property.
Note:
Consider all facts and circumstances of the case when determining the amount to be paid, including all other liens and encumbrances with priority over the government’s lien.
- No value. Issue Form 669–C, when no equity determinations are made.
- Foreclosing mortgagees may use the administrative provisions rather than joining the United States as a party in a judicial foreclosure action. IRC 6325(b)(2)(A) or IRC 6325(b)(2)(B). Discharge of lien eliminates the government’s right of redemption if the United States were joined as a party defendant. See 28 U.S.C. 2410(c). Further, the United States need not become involved in unnecessary litigation.
Note:
The government has the discretion to issue a certificate of discharge under these subsections.
- In determining the value of the government’s interest in property to be discharged from a Federal tax lien under IRC 6325(b)(2), consideration will be given to the "forced value," as distinguished from the "fair market value" of the property. The Service will determine the value of the government’s interest to be one-half the value of the property. IRC 6325(b)(2)
5.12.3.12.1.3 (06-13-2005)
Substitution of Proceeds for Sale
- Issue a certificate of discharge under IRC 6325(b)(3) on any part of the property subject to a tax lien if the property is sold and, it’s agreed to by the Internal Revenue Service, that the proceeds of the sale are to be held, as a fund subject to the liens and claims of the United States, in the same manner and with the same priority as such liens and claims had with respect to the discharged property. IRC 6325(b)(3)
- If property has been sold pursuant to a substituted sales agreement with the Service, any third party who claims an interest to all or any part of the funds within nine months after the date of the agreement may bring suit in a district court of the United States under Section 74269(a)(3).
- Reasonable and necessary expenses incurred in connection with the sale of the property or administration of the sale proceeds will be paid from the proceeds of the sale before the satisfaction of any claims.
- Refer to IRM 5.12.3.14.3 if taxpayers request consideration of "relocation expenses" as part of their discharge application under IRC 6325(b)(2)(A) and 6325(b)(3).
5.12.3.12.2 (06-13-2005)
Right of Substitution of Value
- The third party owner has the right under IRC 6325(b)(4), to receive a certificate of discharge on any property subject to a lien if the third party owner:
- deposits an amount equal to the value of the government’s interest in the property, or,
- furnishes an acceptable bond in a like amount sufficient to cover the government’s interest in the property.
- All amounts received based on third-party applications for the issuance of a discharge will be treated as deposits under IRC 6325(b)(4), unless a written waiver is received.
- Follow established procedures for processing and disposition of the bond (IRM 5.6.1.2.1). Technical Services procedures are found in IRM 5.6.1.5.
- The third party owner may request the return of the deposit or a release of the bond on the grounds that the Service’s determination of value is incorrect.
- If the third party owner makes such a request, he should be requested to provide specific reasons why he disagrees with the Service’s determination.
- If a request is made, the Service’s determination should be reconsidered in light of any arguments or proof presented by the third party.
- If the Service determines that the actual value is less than the prior determination of value, then the deposit should be returned or the bond released in accordance with the reconsidered determination, provided the redetermination is made before the Service applies the amount deposited to the tax liability or collects on the bond.
- Third party owners have 120 days after the day the certificate of discharge is issued to file a civil suit. If suit is not filed, the Service has 60 days to apply the deposit, collect on the bond, or refund any excess amount. See IRM 5.12.3.12.3.1.
Note:
The applicant should be advised that the provisions of IRC 7426(a)(4) are the exclusive remedy for seeking the return of funds deposited under IRC 6325(b)(4). The administrative refund claim or refund suit filed in district court is not available to seek return of the deposit.
- If you receive a cashier’s check, cash, or other type of certified funds:
- Prepare a memo detailing circumstances of the case.
- Prepare posting document and deposit money into Account 4730, Miscellaneous Deposit Fund Account.
- Transmit all of the above to the Campus attached to Form 3210.
- Retain a copy of all documents in Technical Services for follow-up.
- A control number will be assigned by the Campus. Associate receipted copy of Form 3210 with Technical Services file for future follow-up.
- When the case is resolved prepare necessary documentation to either have the money refunded to the third party or applied to the taxpayer’s account.
5.12.3.12.2.1 (03-22-2000)
Area Counsel Approval
- Area Counsel must approve all third-party requests for discharge prior to issuance of the certificate.
5.12.3.12.2.2 (06-13-2005)
Applications for Discharge
- Follow procedures outlined in 5.12.3.13 and Publication 783, How to Apply for a Certificate of Discharge from Federal Tax Lien, when providing information regarding applications for discharge of property under IRC 6325(b)(4).
- Inform third-party property owners of the requirement of a written waiver of their rights under Sections 6325(b)(4) and 7426(a)(4) if they elect to request a discharge under Section 6325(b)(2)(A), The signed and dated waiver must state:
- "I understand that an application and payment made under Section 6325(b)(2)(A) does not provide the remedy available under Section 7426(a)(4). In making such an application/payment, I waive the option to have the payment treated as a deposit under Section 6325(b)(4) and waive the right to request the return of funds and to bring an action under Section 7426(a)(4). "
5.12.3.12.2.3 (03-22-2000)
Refund Deposit with Interest
- The government will refund the difference between the Service’s estimated value and the actual value of that interest (at the overpayment rate) and will release the bond if it is determined that:
- the unsatisfied liability giving rise to the lien can be satisfied from a source other than such property, or
- the value of the government’s interest in the property is less than the Secretary’s prior determination.
5.12.3.12.2.4 (03-22-2000)
Processing the Refund
- Use established procedures for processing overpayments.
- Interest must be paid at the prevailing overpayment rate on any amount refunded.
5.12.3.12.2.5 (02-02-1999)
Use of Deposit If Action to Contest Lien Not Filed
- If no action is taken within 120 days after the certificate is issued under IRC 7426(a)(4) to contest the filing of the lien, within 60 days after the end of the 120 day period:
- Apply the amount deposited or collect on the bond, the amount necessary to satisfy the liability secured by the lien.
- Refund with interest at the overpayment rate, any amount that is not used to satisfy the liability.
Exception:
If the property is owned by the person with the unsatisfied liability on which the lien is based then the right for substitution does not apply.
5.12.3.12.2.6 (06-13-2005)
Discharge of Property Involving a Claim of Equitable Subrogation
- Applications for discharge under IRC 6325(b)(2)(A) or IRC 6325(b)(2)(B) are sometimes submitted by third parties who either purchased property without having discovered a previously recorded NFTL or who purchased property at a foreclosure sale without the government having been properly noticed under IRC 7425. These buyers will claim a right of equitable subrogation to the extent of encumbrances they paid that had priority over the NFTL prior to the sale.
- The doctrine of equitable subrogation is expressly recognized by IRC 6323(I)(2), to the extent it exists under State law. Since subrogation laws vary from state to state, Advisors must be familiar with the applicable state laws and consult with Area Counsel in order to determine the government’s interest in property when a claim of equitable subrogation is made.
- Few third parties in the above situations would meet the definition of a party entitled to rights of subrogation as defined by any state’s law. However, courts are highly inclined to expand the definition if it can be shown that a failure to do so will result in the unjust enrichment of one party at the expense of another. Therefore, unless the facts do not support an argument for equitable subrogation, or where such argument is clearly not supported by state law, claims of equitable subrogation in these cases will be recognized when calculating the government’s lien interest, unless, based on local law, Area Counsel advises otherwise.
- In determining the government’s lien interest, the following general guidelines apply:
- Third party purchased property without recognizing the existence of the NFTL - Calculate the amount that would have been required for a discharge had an application been submitted prior to sale. Then, using forced sale value, deduct the amount of the prior encumbrance(s) paid by the purchaser. Do not deduct expenses of sale. The calculation that results in the higher amount, if any, will be the government’s interest that must be paid in order for a discharge to be issued. Accepting a lesser amount for the certificate then would have been required had the application been made prior to the sale, would unacceptably reward the applicant for not taking action to obtain a discharge certificate until after the property was sold.
EXAMPLE:One month after the sale of property the purchaser discovers that a NFTL in the amount of $50,000 against the seller was recorded prior to the sale and applies for a discharge. The property sold for its fair market value of $100,000. Prior encumbrances and reasonable expenses of sale totaled $70,000 and $10,000 respectively. If the application for discharge had been made at the time of the sale, a payment of $20,000 ($100,000 - $80,000 = $20,000) would have been required in order for a certificate of discharge to be issued. If the government forecloses the lien, and assuming the property would be sold for its forced sale value of $80,000, and if Counsel advises that the purchaser would likely be granted subrogation rights equal to the $70,000 prior mortgage that was paid when the property was purchased, $10,000 will be realized from a lien foreclosure ($80,000 - $70,000 = $10,000). Nonetheless, a payment of $20,000 must be paid in order for a discharge certificate to be issued.
EXAMPLE: Same facts as the above example, but the seller does not apply for a discharge until 2 years after the sale. The value of the property has risen and the forced sale value of the property is now $100,000. If the government forecloses the lien $30,000 will be realized from the foreclosure ($100,000 - $70,000 = $30,000). Therefore, a payment of $30,000 must be paid in order for a discharge certificate to be issued.
- Third party purchased property at a foreclosure sale without the government having been properly noticed under IRC 7425 - Using the forced sale value, deduct the amount of the prior encumbrance(s) paid by the purchaser. The result is the amount of the government’s interest that must be paid in order for a discharge to be issued.
EXAMPLE: At its own foreclosure sale a bank bid $95,000 (the amount of the delinquent mortgage) and purchases property with a fair market value of $100,000 and a forced sale value of $80,000. The bank then discovers that proper notice of the foreclosure was not given to the government leaving a NFTL undisturbed. The bank applies for a discharge. Since the forced sale value of the property is less then the amount of the mortgage that had priority over the NFTL, a discharge certificate may be issued without requiring any payment.
EXAMPLE: Same facts as the above example but the delinquent mortgage was $70,000 and that is the amount paid for the property at the foreclosure sale. A payment of $10,000 ($80,000 - $70,000 = $10,000) must be made in order for a discharge certificate to be issued.
- See IRM 5.17.2.6.3.1 for additional information regarding issues of subrogation.
5.12.3.12.3 (03-22-2000)
Civil Action --Substitution of Value
- If a certificate of discharge is issued (IRC 6325(b)(4)) to any person for any property, then within 120 days of the certificate being issued, the person may bring civil action against the government in a district court of the United States, for a determination of whether the value of the governments interest in the property is less than the value determined by the Secretary.
- No other action may be used for this determination.
5.12.3.12.3.1 (02-02-1999)
Form of Relief—Substitution for Value
- If the court determines that the Secretary’s determination of the value in the property under IRM 5.12.3.12.2, exceeds the actual value of the governments interest in the property under IRC 6325(b)(4), then the court will grant a judgment ordering:
- A refund of the amount deposited,
- A release of a bond to the extent that the aggregate amount exceeds the value determined by the court.
5.12.3.12.3.2 (02-02-1999)
Interest Allowed on Refund of Deposit
- In the case of a judgment which orders a refund of any amount, the Secretary will pay interest from the date the amount was received to the date of payment of the judgment.
5.12.3.12.3.3 (02-02-1999)
Suspension of Running of the Statute
- Suspend the collection statute of limitations where any assessment has been made for which a lien has been filed on any property. IRC 6503(f) states that the running of the period of limitations under IRC 6502 will be suspended for a period equal to the period beginning on the date the person becomes entitled to a certificate of discharge and ending on the date that is 30 days after the earlier of:
- the earliest date on which the Secretary no longer holds any amount as a deposit or bond under section 6325(b)(4) by reason of such deposit or bond being used to satisfy the unpaid tax or is being refunded or released, or
- the date the judgment secured under IRC 7426(b)(5) becomes final.
- The running of the statute of limitations will be suspended only with respect to the amount of the assessment equal to the value of the interest of the government in the property plus interest, penalties, additions to tax and any additional associated amount.
5.12.3.13 (06-13-2005)
Subordination of Lien
- IRC 6325(d)(1) and (2) provides for the subordination of any NFTL on any part of the property subject to the NFTL. This includes subordination of IRC 6324A liens.
- These three criteria are as follows:
If |
Then |
there is paid over to the Service an amount, on a dollar for dollar basis, equal to the amount of the NFTL or interest to be subordinated, |
issue Certificate of Subordination (Form 669–D). The typical situation would be the subordination of the lien to one who would furnish private financing on a part of the property. |
it is determined that the interest of the United States in any part of the property covered by the NFTL will ultimately be increased by the subordination and ultimate collection of the outstanding liability will thereby be facilitated, |
issue Certificate of Subordination of Federal Tax Lien (Form 669–E). It is intended that this authority will be used by the Service under conditions similar to those under which an ordinary, prudent businessman would subordinate rights in a debtors property in order to secure additional long run benefits. |
it is determined that the United States will be adequately secured after subordination of a lien imposed by IRC 6324B liens only. |
issue Certificate of Subordination of Federal Estate Tax Lien (Form 669–F) in the case of any lien imposed by Section 6324B. |
- IRC 6325(d)(3) provides a more liberalized criteria for subordinating IRC 6324B liens only.
- Taxpayers will seek subordination of the federal tax lien in connection with refinancing mortgages on entireties property. If the requested subordination is for the purpose of securing a loan to refinance a senior lien, the Service will apply section 6325(d)(2). The Service will generally issue a certificate of subordination if the terms of the refinance loan, as compared to the terms of the loan secured by the senior lien, ultimately will enhance the taxpayer’s equity or facilitate collection of the tax from other property or income of the taxpayer.
- If a taxpayer seeks a certificate of subordination for the purpose of obtaining cash or paying other debts not secured by a senior lien on the property (for example, in the case of a home equity loan), the Service will apply 6325(d)(1). The Service generally will treat the value of the taxpayer’s interest as one-half of the value of the entireties property. The Service would issue a certificate of subordination upon payment of one-half of the amount of the lien or interest to which the federal tax lien will be subordinated.
5.12.3.14 (07-15-2003)
Applications for Certificates
- Any person desiring a certificate will submit to the Technical Services Group Manager, where the property is located, a written application in duplicate, executed under penalties of perjury. The form and content of the applications are contained in the following Publications:
- Discharge—Pub. 783
- Subordination—Pub. 784
- Subordination of Estate Tax Lien—Pub. 1153
- Non-attachment—Pub. 1024
5.12.3.14.1 (07-15-2003)
Submission of Applications
- Applications for certificates, together with all necessary evidence, will be submitted directly to the Technical Services Group Manager.
- Examine each application for completeness. Publication 1153, How to Prepare Application for Certificate of Subordination of Federal Estate Tax Lien Under Section 6325(d)(3) of the Internal Revenue Code, requires two appraisals or estimates be submitted.
- one of the estimated value of the property to be subordinated
- one of the estimated value of the property remaining subject to the estate tax lien.
- The Technical Services Group Manager may waive the appraisal requirement.
- If the application is incomplete or improper, the applicant should be promptly advised.
- Do not reject applications for incompleteness unless the missing information will not allow for a thorough investigation. Every effort should be made to accept the application, provided the information submitted would enable a proper investigation to be conducted.
- Any request for discharge of property subject to the lien imposed by IRC 6324A or 6324B received by Technical Services will be forwarded immediately to the Estate and Gift tax group manager for review and approval. If the request is approved, the Estate and Gift tax manager will advise Technical Services by memorandum. The memorandum shall contain sufficient information to enable preparation of Pattern Letter 1886(P).
- Use the ICS to control and monitor the case.
5.12.3.14.2 (07-15-2003)
Investigation of Applications
- Technical Services will use all available resources to determine whether to issue a certificate of discharge or subordination. Unless there is evidence the process might not involve an arms length transaction, the appraisals submitted will normally be accepted and a separate investigation to determine the value of the property need not be conducted.
- Verify the information submitted in the application by contacting the:
- Service employee assigned the delinquent account
- applicant,
- applicants representative,
- taxpayer,
- taxpayers representative,
- real estate firms, title companies,
- holders of encumbrances, or
- any other person or entity that might have relevant information.
If |
Then |
it is determined that a Field investigation is required before a final decision can be made to discharge the property or to subordinate the lien, |
Form 2209, will be initiated. Technical Services will complete Form 3033, Investigation of Discharge or Subordination, on each investigation completed in Technical Services. |
the assessment was made in a foreign area, |
promptly notify the Technical Services Group Manager for the area with the assessment that an investigation has been initiated and request the status of the NFTL(s) from which the discharge is sought. |
the application is under IRC 6325(b)(2) and relates to a foreclosure proceeding, |
the application should be flagged to indicate that the revenue officers report must be returned to the Technical Services within 7 days. |
- Applications which require a field investigation will be investigated promptly by a revenue officer. The revenue officer assigned the investigation of the application will investigate and verify each item contained in the application, or which should have been contained in the application.
- Escrow funds, a potential payment source, should be considered and accounted for when working discharge investigations. However, if, during the course of the investigation, it is disclosed that the first encumbrance(s) exceeds the value of the property, it will not be necessary for the revenue officer to investigate and verify subsequent encumbrances, even though they were recorded prior to the filing of the NFTL.
- With the creation of the Home Equity Line of Credit it is now advisable to investigate the facts of the case to determine the specific use of the mortgage funds when determining the priority of the Federal Tax Lien against the Home Equity Line of Credit.
- In cases where the credit line is drawn down after the Notice of Federal Tax Lien is filed, it is necessary to determine if the mortgagee/lender has a security interest in the real property in question. Often, a credit line is approved for a specific amount, but that entire amount is not turned over to the taxpayer. The taxpayer may draw against this amount as he wants. Also, the credit line may be approved for a specific amount and the entire amount was passed onto the taxpayer, but was done so some time ago and the taxpayer has paid down the amount owed. In these cases, the mortgage is recorded showing the encumbrance as the approved amount of the credit line, not the amount actually borrowed.
- The amount of money or money’s worth that changed hands should always be verified. To be a holder of a security interest the mortgagee must first meet the two-pronged test of IRC section 6323(h)(1). (See IRM 5.17 for further explanation.) A possible exception to the above is when the funds are specifically earmarked for construction or improvement of real property and the agreement was entered into prior to the NFTL filing.
- If any payment is received while working the investigation, use designated payment code 07 (DPC–07) when preparing the posting voucher.
5.12.3.14.3 (07-15-2003)
Request for Relocation Expense Allowance
- In certain situations, when selling a principal residence, taxpayers will be allowed limited funds from sale proceeds to pay relocation costs. Payment of these costs will be considered if the taxpayer demonstrates a need for this relief. Allowance of the expense would reduce taxpayer burden, increase the amount realized by the United States, facilitate the collection of the tax.
Note:
It is important to remember that funds received under the relocation expense allowance provision will not reduce the taxpayer’s tax liability.
- The relocation allowance will be deducted from the Service’s interest in the property. Junior lien holders are not impacted and have no entitlement to the funds.
- Use the following criteria when considering the relocation expenses allowance:
- Property is limited to principal residences only,
- Taxpayers owning multiple pieces of real property generally will not be considered,
- Taxpayers must demonstrate an "inability to pay" relocation costs and provide documentation for specific expenses on Form 12451, Request for Relocation Expense Allowance. Relocation expenses are subject to limitations based on the local standard "cost of living" locality tables, for the location of the new residence,
- IRS must receive a partial payment of the tax liability that will increase the amount realized and facilitate the collection of the liability. "No value" discharges will not be considered for relocation allowance.
5.12.3.14.3.1 (03-22-2000)
Procedures for Consideration of Relocation Expense Allowance
- To receive consideration, taxpayers must provide supporting documentation for expenses as an attachment to Form 12451, Request for Relocation Expense Allowance. Supporting documentation may consist of:
- Proposed rental agreement,
- Estimates from moving companies,
- Truck rental estimates,
- Utility hook-ups, etc.
- Reviewers will examine Form 12451 and attached documentation for completeness and contact taxpayers for any additional information.
- A determination will be made to ascertain if the taxpayer has sufficient funds available to pay reasonable relocation expenses. Information such as financial statements, recent bank statements, and last filed return could be used in this determination. Generally, cases in hardship 53 status (excluding closing codes 03 and 12) would not require another "hardship " determination.
- The relocation allowance should be calculated by multiplying the National Standard for the new residence locale and family size times a factor of 2.5. (See IRM Exhibit 5.1, National Standards).
Note:
As a general rule, this will be the maximum allowance considered.
Example:
$1,000 |
Amount allowed for " Family of 3" from National Standards Table |
x 2.5 |
Established Factor |
$2,500 |
Maximum relocation allowance |
- The relocation allowance will be the lesser of actual relocation expenses approved or the National Standard amount determined by the formula above. Adjustments in the maximum allowance may be considered on a case-by-case basis if extenuating circumstances exist, i.e., age, health, disability, etc.
- If the taxpayer is moving within the same locale, the 2.5 factor still would apply.
- In all instances, there must be net proceeds available to apply to the tax liability.
5.12.3.14.4 (07-01-2005)
Report of Investigation
- All revenue officer reports of investigation will be prepared on Form 3033, Investigation of Request for Certificate of Discharge or Subordination, promptly upon completion of the investigation. The application should be carefully examined to make certain that the property is adequately and properly described.
- The revenue officer will submit the report, together with the copy of the application and all exhibits, to the Technical Services Group Manager, for review and approval.
- All reports will be submitted promptly upon completion. In the case of an application relating to a foreclosure proceeding, the report shall be completed within 7 days after receipt of the investigation and, in all other cases, within 30 days.
- Technical Services will either complete Form 3033 or summarize the computations of the government’s interest in the ICS history, supported by documentation in the paper file.
5.12.3.15 (02-02-1999)
Preparation of Certificates
- Prepare Forms 669–A (Exhibit 5.12.3–5) through F in duplicate. The unused area in the description portion of the form will be blocked or lined out so as to prevent the insertion of description of other property.
- Deliver the original of executed Forms 669 to applicants.
- If Forms 669–B or D are prepared, they should not be issued until the specified amount is received in the same form required for an immediate lien release.
- Post payments using Designated Payment Code 07 (DPC–07) when preparing the posting voucher.
- If the assessment is in an area other than that from which the certificate is issued, Forms 669 will be prepared in triplicate. The triplicate copy will be sent to the area with the assessment to be associated with the lien file.
5.12.3.15.1 (02-02-1999)
Certificate of Discharge in Bankruptcy Court Sales
- The bankruptcy court has inherent power to sell property within its jurisdiction free and clear of liens. Therefore, when a sale is made by a bankruptcy court, its purchaser takes the property unencumbered by the Federal tax lien, and the Federal tax lien should be considered transferred to the proceeds of the sale.
- When property is sold by a bankruptcy court, and the purchaser desires to obtain a certificate of discharge of Federal tax lien, the purchaser, or other interested party will be advised to submit an affidavit to Technical Services containing:
- a statement of the facts concerning the sale,
- a legal description of the property, and
- attach a properly certified copy of the court order.
- If it is determined that the application is sufficient, a certificate should be issued on the appropriate form.
5.12.3.16 (07-15-2003)
Certificate of Discharge in Foreclosure Proceedings
- Foreclosing mortgagees should be encouraged to request discharges under IRC 6335(b)(2) rather than join the United States in a judicial proceeding. It would be to their advantage to eliminate the governments right of redemption and would eliminate costly litigation proceedings for the government.
- Advise the foreclosing parties that they will be furnished a commitment letter within 30 days of receipt of their application.
- Issue the certificate upon receipt of proof that the taxpayer has been removed of right, title or interest in the property.
- Do not issue a certificate of discharge during the pendency of a suit. Notify the U.S. attorney of the request for a certificate.
- Normally, a commitment letter should not be issued to parties who are nonjudicially foreclosing and have given adequate notice to the Technical Services Group Manager under IRC 7425. If they wish to eliminate the governments right of redemption, they should be advised of the procedures for obtaining a release of that right. Instructions for application are in Publication 487.
- Issue a discharge if a federal agency has foreclosed nonjudicially and given adequate notice when the agency feels that the lien remains a cloud on the title.
5.12.3.17 (03-22-2000)
Certain Government Agency Discharges
- To reduce litigation costs and make property readily marketable, the Veterans Administration (VA), Small Business Administration (SBA), and Federal Housing Administration (FHA) have agreed to accept title to property subject to a junior federal tax lien, provided the payment (if any) required to secure a discharge of property from the tax lien does not exceed the increased cost which would be incurred by them if a mortgagee elected to foreclose by a judicial, rather than by a nonjudicial, proceeding.
- Upon receipt of such requests, the Service will cooperate in discharging from junior federal tax liens, property acquired by these agencies in connection with their Loan Guaranty or Direct Loan Salvage operations.
- The procedures described in this section apply only to applications received from VA, SBA, or FHA requesting discharge from a junior federal tax lien on property which has been or is to be acquired by one of those agencies.
- These procedures do not apply where the United States has already been joined as a party to a judicial foreclosure proceeding or when the insured mortgagee forecloses and has not assigned the mortgage or deed of trust to the VA, SBA or FHA.
5.12.3.18 (02-02-1999)
Applications for Discharge (VA, SBA, or FHA)
- Applications for certificates of discharge submitted by the VA, SBA, or FHA will be submitted in duplicate, when they have been notified that the mortgagee has acquired the property and has conveyed it or elected to convey it to the VA, SBA or FHA.
- The property will have been appraised by a designated or staff appraiser of the appropriate agency based on the market value of the property at the time of foreclosure. The appraisal will be accepted as the fair market value of the property in determining the governments interest under the federal tax lien. Field investigation will not be required.
- The amount shown in the concluding paragraph of the application serves only to place a ceiling on the amount the particular agency may pay for the issuance of a discharge. If it is determined that the federal tax lien interest has value in excess of the amount which the agency is legally permitted to pay, they should be advised and the discharge application file closed.
- In accordance with an agreement with VA or FHA, when it has been determined that a notice of lien had been filed more than 30 days prior to a nonjudicial sale, an application for the discharge of the property will be made. No notice will be given under IRC 7425 in these cases.
5.12.3.19 (07-15-2003)
Issuance of Certificate of Discharge (VA, SBA, FHA)
- Form 669–C shall be delivered to the VA, SBA or FHA and the duplicate associated with the application, if it is found that the federal tax lien is valueless.
- If it is determined that the federal tax lien interest has value, Technical Services will prepare in quadruplicate a statement stating the exact amount required for the requested discharge. The original and two copies of the statement will be sent to the VA, SBA, or FHA.
- When a statement signed by the responsible agency official is received, stating that the amount required for the issuance of the discharge is satisfactory, deliver Form 669–B. No payment will be made at the time of delivery, but will be deferred until the certificate is filed with the proper recording official.
- When the certificate is properly filed, the VA, SBA , or FHA will forward payment, in the form of a U.S. Treasury Check, to the Technical Services Group Manager.
- If payment is not received within (60) sixty days after the date the certificate was delivered, a follow up will be made to determine the approximate time payment will be received.
- In the event the VA, SBA, or FHA does not acquire the property or agree to accept it from the mortgagee, the certificate will be returned to the area director for cancellation. The canceled certificate will be associated with the application for discharge.
5.12.3.20 (07-15-2003)
Issuance of Certificate of Discharge or Subordination
- Technical Services will review the revenue officer’s report to determine the priority of the Federal tax lien and ensure that the information furnished is sufficient to issue a certificate of discharge.
- Issuance of the certificate is conditioned upon the taxpayer’s agreement that payments be applied in the best interest of the government as determined by the Service (Exhibit 5.12.3–6 or 5.12.3-7).
- Issue certificates after approval of the revenue officers report.
- Retain a copy of the application, revenue officer’s report, and other related documents in Technical Services.
- Reports will be forwarded to Area Counsel only when an advisory legal opinion is needed on a specific issue. When the advisory legal opinion is received from Area Counsel, the Technical Services Group Manager, will advise the applicant of the decision.
5.12.3.21 (02-02-1999)
Revocation of Certificates
- Revocation of a certificate of release or non-attachment and the reinstatement of the NFTL to which the certificate relates is provided by law. See IRC 6325(f)(2). (Exhibit 5.12.3-6)
- A certificate of revocation may be issued when it has been determined that either the release of FTL was issued:
- Erroneously,
- Improvidently, or
- In connection with a collateral agreement entered into in connection with a compromise under IRC 7122 which has been breached, and if the period of limitation on collection after assessment has not expired.
- Issue a Certificate of Revocation to revoke a self-releasing NFTL in those instances when a new NFTL has been filed late.
- Use Form 12474, Revocation of Certificate of Release of Federal Tax Lien (Exhibit 5.12.3-8) to revoke the release when the lien was not self-releasing.
- Use Form 12474A, Revocation of Certificate of Release of Federal Tax Lien (Exhibit 5.12.3-27) to revoke a lien that self-released.
- File a new Notice of Federal Tax Lien to protect the priority of the lien after the Certificate of Revocation is filed. See IRC 6323(a).
- When revocation is in order, a request will be sent to Technical Services to have the Lien Processing Unit, prepare the certificate and to file a new NFTL.
5.12.3 Certificates Relating to Liens and Claims for Damages (Cont. 1)
- 5.12.3.22 Non-attachment of Lien
- 5.12.3.23 Reinstatement of Lien
- 5.12.3.24 Filing of Certificates and Notices
- 5.12.3.25 Withdrawal of the Filed Notice of Federal Tax Lien (Overview)
- 5.12.3.26 Filing of the Notice Was Premature
- 5.12.3.27 Installment Agreements and the Notice of Withdrawal
- 5.12.3.28 Notice of Lien Withdrawal Will Facilitate Collection
- 5.12.3.29 Best Interest Withdrawal Provisions
- 5.12.3.30 Taxpayer Requests
- 5.12.3.31 Recommending Withdrawal of the NFTL
- 5.12.3.32 Approving the Withdrawal Reque