4. Uniform asset disposal mechanism

Present Law

The IRS must sell property seized by levy either by public auction or by public sale under sealed bids (Sec. 6335(e)(2)(A)). These are often conducted by the revenue officer charged with collecting the tax liability.

Description of Proposal

The proposal would require the IRS to implement a uniform asset disposal mechanism for sales of seized property. The disposal mechanism should be designed to remove any participation in the sale of seized assets by revenue officers. The proposal would authorize the consideration of outsourcing of the disposal mechanism.

Effective Date

The proposal would require a uniform asset disposal system to be implemented within two years from the date of enactment.

5. Increase exempt amounts for personal effects and tools

Present Law

The Code authorizes the IRS to levy on all non-exempt property of the taxpayer. Property exempt from levy is described in section 6334. Section 6334(a)(2) exempts from levy up to $2,500 in value of fuel, provisions, furniture, and personal effects in the taxpayer's household. Section 6334(a)(3) exempts from levy up to $1,250 in value of books and tools necessary for the trade, business or profession of the taxpayer.

Description of Proposal

The proposal would increase the value of personal effects exempt from levy to $10,000 and the value of books and tools exempt from levy to $5,000. These amounts would be indexed for inflation.

Effective Date

The proposal would be effective for collection actions taken after the date of enactment.

6. Require IRS to immediately release levy upon agreement that amount is not collectible

Present Law

Some have contended that the IRS does not release a wage levy immediately upon receipt of proof that the taxpayer is unable to pay the tax, but instead, the IRS levies on one period's wage payment before releasing the levy.

Description of Proposal

The IRS would be required to immediately release a wage levy upon agreement with the taxpayer that the tax is not collectible.

Effective Date

The proposal would be effective for levies imposed after date of enactment.

7. Codify IRS administrative procedures for seizure of taxpayer's property

Present Law

The IRS provides guidelines for revenue officers engaged in the collection of unpaid tax liabilities. The Internal Revenue Manual (IRM) 56(12)5.1 provides general guidelines for seizure actions: (1) the revenue officer must first verify the taxpayer's liability; (2) no levy may be made if the estimated expenses of levy and sale will exceed the fair market value of the property to be sized (Sec. 6331(f)); (3) no levy may be made on the date of an appearance in response to an administrative summons, unless jeopardy exists (Sec. 6331(g)); (4) if the property to be seized is located on private premises, consent or a writ of entry is required (G.M. Leasing Corp. v. United States, 429 U.S. 338 (1977); IRS Policy Statement P-5-38); (5) the taxpayer should have an opportunity to read the levy form; (6) the revenue officer must attach a sufficient number of warning notices on the property to clearly identify the property to be seized; (7) the revenue officer must inventory the property to be seized; and (8) a revenue officer may not use force in the seizure of property.

Prior to the levy action, the revenue officer must determine that there is sufficient equity in the property to be seized to yield net proceeds from the sale to apply to unpaid tax liabilities. If it is determined after seizure that the taxpayer's equity is insufficient to yield net proceeds from sale to apply to the unpaid tax, the revenue officer will immediately release the seized property. See IRM 56(12)2.1.

IRS Policy Statement P-5-34 states that the facts of a case and alternative collection methods must be thoroughly considered before deciding to seize the assets of a going business. IRS Policy Statement P-5-16 advises reasonable forbearance on collection activity when the taxpayer's business has been affected by a major disaster such as flood, hurricane, drought, fire, etc., and whose ability to pay has been impaired by such disaster.

Description of Proposal

The proposal would codify the IRS administrative procedures which require the IRS to investigate the status of property prior to levy. The Treasury Inspector General would be required to review IRS compliance with seizure procedures and report annually to Congress.

Effective Date

The provision would be effective as of date of enactment.

8. Suspend collection by levy during refund suit

Present Law

The IRS is prohibited from making a tax assessment (and thus prohibited from collecting payment) with respect to a tax liability while it is being contested in Tax Court. However, under present law, the IRS is permitted to assess and collect tax liabilities during the pendency of a refund suit relating to such tax liabilities, under the circumstances described below.

Generally, full payment of the tax at issue is a prerequisite to a refund suit. However, if the tax is divisible (such as employment taxes or the trust fund penalty under Code section 6672), the taxpayer need only pay the tax for the applicable period before filing a refund claim. Most divisible taxes are not within the Tax Court's jurisdiction; accordingly, the taxpayer has no pre-payment forum for contesting such taxes. In the case of divisible taxes, it is possible that the taxpayer could be properly under the refund jurisdiction of the District Court or the U.S. Court of Federal Claims and still be subject to collection by levy with respect to the entire amount of the tax at issue. The IRS's policy is generally to exercise forbearance with respect to collection while the refund suit is pending, so long as the interests of the Government are adequately protected (e.g., by the filing of a notice of Federal tax lien) and collection is not in jeopardy. Any refunds due the taxpayer may be credited to the unpaid portion of the liability pending the outcome of the suit.

Description of Proposal

The proposal would require the IRS to withhold collection by levy of liabilities that are the subject of a refund suit during the pendency of the litigation. This would only apply when refund suits can be brought without the full payment of the tax, i.e., in the case of divisible taxes. Collection by levy would be withheld unless jeopardy exists or the taxpayer waives the suspension of collection in writing (because collection will stop the running of interest and penalties on the tax liability). This proposal would not affect the IRS's ability to collect other assessments that are not the subject of the refund suit, to offset refunds, or to file a notice of Federal tax lien. The statute of limitations on collection would be stayed for the period during which the IRS is prohibited from collecting by levy.

Effective Date

The proposal would be effective for refund suits brought with respect to tax years beginning after December 31, 1998.

9. Require district counsel review of jeopardy and termination assessments and jeopardy levies

Present Law

In general, a 30 day waiting period is imposed after assessment of all types of taxes. In certain circumstances, the waiting period puts the collection of taxes at risk. The Code provides special procedures that allow the IRS to make jeopardy assessments or termination assessments in certain extraordinary circumstances, such as if the taxpayer is leaving or removing property from the United States (Sec. 6851), or if assessment or collection would be jeopardized by delay (Secs. 6861 and 6862). In jeopardy or termination situations, a levy may be made without the 30 days' notice of intent to levy that is ordinarily required by section 6331(d)(2). Jeopardy assessments apply when the tax year is over. Termination assessments apply to the current taxable year or the immediately preceding taxable year if the filing date has not yet passed. A termination assessment serves to terminate the taxable year for the purpose of computing the tax to be assessed and collected under the termination assessment procedure. Under both the jeopardy and termination assessment procedures, the IRS can assess the tax and immediately begin collection if any one of the following situations exists: (1) the taxpayer is or appears to be planning to depart the United States or to go into hiding; (2) the taxpayer is or appears to be planning to place property beyond the reach of the IRS by removing it from the country, hiding it, dissipating it, or by transferring it to other persons; or (3) the taxpayer's financial solvency is or appears to be imperiled. Because the same criteria apply to jeopardy and termination assessments, jeopardy and termination assessments are often entered at the same time against the same taxpayer.

The Code and regulations do not presently require District Counsel to review jeopardy assessments, termination assessments, or jeopardy levies, although the Internal Revenue Manual does require District Counsel review before such actions and it is current practice to make such a review. The IRS bears the burden of proof with respect to the reasonableness of a jeopardy or termination assessment or a jeopardy levy (Sec. 7429(g)).

Description of Proposal

The proposal would require IRS District Counsel review and approval before the IRS could make a jeopardy assessment, a termination assessment, or a jeopardy levy. If District Counsel's approval was not obtained, the taxpayer would be entitled to obtain abatement of the assessment or release of the levy, and, if the IRS failed to offer such relief, to appeal first to IRS Appeals under the new due process procedure for IRS collections (described in E. 1 above) and then to the U.S. District Court.

Effective Date

The proposal would be effective with respect to taxes assessed after the date of enactment.

10. Codify certain fair debt collection practices

Present Law

The Fair Debt Collection Practices Act provides a number of rules relating to debt collection practices. Among these are restrictions on communication with the consumer, such as a general prohibition on telephone calls outside the hours of 8:00 a.m. to 9:00 p.m. local time, and prohibitions on harassing or abusing the consumer. In general, these provisions do not apply to the Federal Government. These provisions relating to communication with the consumer and prohibiting harassing or abusing the consumer have been applied to the IRS through the appropriations process.

Description of Proposal

The proposal would make the restrictions relating to communication with the taxpayer/debtor and the prohibitions on harassing or abusing the debtor applicable to the IRS by incorporating these provisions into the Internal Revenue Code.

Effective Date

The proposal would be effective on the date of enactment.

11. Ensure availability of installment agreements

Present Law

Section 6159 of the Code authorizes the IRS to enter into written agreements with any taxpayer under which the taxpayer is allowed to pay taxes owed, as well as interest and penalties, in installment payments if the IRS determines that doing so will facilitate collection of the amounts owed. An installment agreement does not reduce the amount of taxes, interest, or penalties owed. However, it does provide for a longer period during which payments may be made during which other IRS enforcement actions (such as levies or seizures) are held in abeyance. Many taxpayers can request an installment agreement by filing form 9465. This form is relatively simple and does not require the submission of detailed financial statements. The IRS in most instances readily approves these requests if the amounts involved are not large (in general, below $10,000) and if the taxpayer has filed tax returns on time in the past. Some taxpayers are required to submit background information to the IRS substantiating their application. If the request for an installment agreement is approved by the IRS, a user fee of $43 is charged. This user fee is in addition to the tax, interest, and penalties that are owed.

Description of Proposal

The proposal would require the Secretary to enter an installment agreement, at the taxpayer's option, if:

(1) the liability is $10,000, or less;

(2) within the previous 5 years, the taxpayer has not failed to file or to pay, nor entered an installment agreement under this provision;

(3) if requested by the Secretary, the taxpayer submits financial statements that demonstrate an inability to pay the tax due in full;

(4) the installment agreement provides for full payment of the liability within 3 years; and

(5) the taxpayer agrees to continue to comply with the tax laws and the terms of the agreement for the period (up to 3 years) that the agreement is in place.

Effective Date

The proposal would be effective on the date of enactment.