The federal tax lien, sometimes referred to as the statutory or general lien, is the legal basis for all administratively-enforced collection actions. The lien attaches to all of a taxpayer's property and any property rights presently owned or acquired during the life of the lien. Even though the lien attaches to all property, it can be enforced only for the amount of the indebtedness. The federal tax lien is most comparable to a court-ordered judgment. Code section 6321, "Lien for Taxes" states: "If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount ... shall be a lien in a favor of the United States upon all property and rights to property, whether real or personal, belonging to such person."

The three requirements for establishing the lien are:

• an assessment must have been made;
• a demand for payment must have been made; and
• the taxpayer must have neglected or refused to pay.

Code Section 6331(a) gives the IRS power to levy on and distrain property. A levy or a seizure of a delinquent taxpayer's property is an enforcement of the government's lien rights. Unless collection of the tax is considered to be in jeopardy, enforcement action cannot be taken within the 10 day notice and demand period.

Levy is defined by Code Section 6331(b) to include "the power of distraint and seizure by any means." Except for code provisions concerning a continuous levy upon salary and wages, a levy extends only to property possessed or obligations existing at the time of the levy. Section 6331(a) states:

    If any person liable to pay any tax neglects or refuses to pay
    the same within 10 days after notice and demand, it shall be
    lawful for the Secretary to collect such tax (and such further
    sum as shall be sufficient to cover the expenses of the levy) by
    levy upon all property and rights to property (except such
    property as is exempt under section 6334) belonging to such
    person or on which there is a lien provided in this chapter for
    the payment of such tax ... If the Secretary makes a finding
    that the collection of such tax is in jeopardy, notice and
    demand for immediate payment of such tax may be made by the
    Secretary and upon failure or refusal to pay such tax,
    collection thereof by levy shall be lawful without regard to the
    10 day period provided in this section.

LIEN FILING DECISIONS

Revenue officers are also required to make a lien filing determination on each TDA. Internal Revenue Manual (IRM) section 5424 requires the revenue officer to safeguard the government's interests through timely filing of lien notices. The revenue officer is directed to exercise his "best judgment in deciding whether a notice of lien should in fact be filed" and is informed that "a notice of lien need not be filed if it serves no useful purpose."

Having enumerated the revenue officer's discretionary authority, the IRM then requires that a lien filing determination must be made within 30 days of receipt of a TDA by a revenue officer. While the IRM does not require the revenue officer to file a notice of lien, most group managers interpret the IRM instructions to require the filing of a lien notice unless the provisions of IRM 5426, Nonfiling of Notice of Lien, apply.

IRM 5426 also allows the revenue officer some discretion. It states, "If the person with the TDA determines that the filing of a notice of lien would hamper collection, a written explanation of the reasons for such determination should be made a part of the TDA file when the outstanding liability is $2,000 or more." Approval for a nonfiling is required on accounts over $5,000.

Filing the notice of lien is necessary to establish certain priority rights against various classes of creditors. Usually the government is not the only creditor to whom the taxpayer owes money. Other creditors may also hold liens or secured rights against a taxpayer's assets in the amount of nontax indebtedness. These creditors' liens compete against the government's tax lien for priority against the taxpayer's property. Failing to file a lien notice may jeopardize the government's priority right against other creditors, so few managers are willing to approve a request for nonfiling for longer than one or two weeks.

POTENTIAL FOR ABUSE

The lien filing determination procedure is one area where there is potential for abuse. For instance:

• The revenue of officer must document the TDA history file if he decides not to file a notice of lien and the outstanding liability is over $2,000. The IRM clearly gives the revenue officer this discretion, but some group managers impose their own restrictions by requiring the revenue officer to obtain supervisory approval first. The trick, then, after imposing the arbitrary approval requirement, is to refuse approval of the nonfiling, thereby robbing the revenue officer of his discretionary authority and possibly jeopardizing the taxpayer's chances of borrowing money. Usually it is the revenue officer who knows better than the manager if a lien filing would hamper collection.
  
• The IRM requires either a group manager or a branch chief approval when the outstanding liability is in excess of $5,000. Some branch chiefs believe that a case in excess of $5,000 must have a lien filed and therefore will refuse to approve any requests for nonfiling on cases exceeding that amount, even if the revenue officer can fully justify why the notice of lien should not be filed.

Filing a notice of lien can sometimes be contrary to the best interests of the government and self-defeating to the revenue officer's role of "protecting the revenue." Frequently a business taxpayer must resort to short term borrowing from a financial institution in order to raise the funds necessary to pay delinquent taxes. Filing the notice of lien publicizes the delinquency to all potential and standing creditors. An existing creditor may become alarmed and shut off additional credit or begin foreclosure proceedings against secured assets.

A potential creditor, who would otherwise engage in a loan to a taxpayer for the purpose of liquidating a delinquent tax debt, may be forced to refuse to advance the money if the creditor knows that the IRS has filed a Notice of Federal Tax Lien. Because of the various priority rights under the law, the creditor may feel that his security interest in the loan is jeopardized by the filing. Should the IRS proceed with seizure action to enforce the lien, then the creditor may never recover his loan. It should be noted that the mere filing of a notice of lien does not usually deprive a taxpayer of control over his assets. He may still use his bank and savings accounts, drive his automobile, live in his house, cash his paycheck, or operate his business.

The Internal Revenue Manual requires the revenue officer to "make a reasonable effort to personally contact the taxpayer, in the field if necessary, before filing a notice of lien" (IRM 5424.1 1:(3) and Policy Statement P-5-47). This is to give the taxpayer the opportunity to make payment and the revenue officer the opportunity to explain the effect that the filing may have on the taxpayer's credit rating or business operations.

In reality the revenue officer usually makes it a point to contact the taxpayer to demand payment and try to close the case. Many districts have policies which require the revenue officer to make personal contact within so many days (usually 30) of receipt of the case. But revenue officers are apt to get into more trouble with their managers for not following the lien filing requirements than they are for not making personal contact as soon as they should. When revenue officers are overburdened with too many case assignments, they are more likely to proceed with filing the tax lien on time even if they haven't contacted the taxpayer first. They know that a request for a nonfiling due to insufficient time to make a personal contact is liable to be returned, marked "make the time."

Most inexperienced revenue officers are not convinced that the lien filing really hampers the taxpayer's ability to borrow money. There appears to be too many cases where the banks made loans in spite of the lien, and in spite of the taxpayer's seemingly inability to make loan payments.

Thus, some revenue officers won't hesitate to violate the IRM provision requiring them to make a reasonable effort to contact the taxpayer first if it is in their interests to do so. They realize that the consequences of not filing the lien could result in a poor performance rating on a work review whereas there are no consequences for failing to make personal contact with the taxpayer prior to filing.

RELEASING THE LIEN

Internal Revenue Code section 6325 (a)(l) authorizes the release of a federal tax lien when the IRS finds that the liability for the amount assessed, together with all interests and penalty charges, has been fully satisfied or has become legally unenforceable. The word "unenforceable" means unenforceable as a matter of law, and not merely uncollectable or temporarily unenforceable in fact (e. g., the taxpayer temporarily does not have possession of the property). "Unenforceable" generally refers either to the full satisfaction of the tax or until the statutory period for collection expires (six years from the date of assessment).

Code section 6325(a)(2) authorizes the release of a federal tax lien upon the acceptance of a bond conditional upon the payment of the amount assessed and all additional charges, within the time period agreed to in the bond, but absolutely no later than six months before the statutory period for collection expires. The bond must be executed by a security company holding a certificate of authority from the Secretary of the Treasury as an acceptable security.

The IRS Notice of Federal Tax Lien, Form 668, is a five part assembly that contains the official Certificate of Release. Revenue officers are delegated the authority to sign certificates of release, but procedures usually require the accompanying signature of a group manager or the chief of the Special Procedures Staff. After the lien recording and release fees have been paid by the taxpayer, the certificate of release is mailed to the proper recording office.

CONTACT WITH THE TAXPAYER

If the taxpayer has not responded to IRS's four notices requesting payment, a notice of levy is issued to seize certain assets like wages, salaries and bank accounts. Usually the notice of levy convinces the taxpayer to either make full payment or communicate with the IRS why full payment can't be made.

Sometimes the taxpayer doesn't respond, and the IRS cannot locate a levy source. This could be due to a change in employment or a move out of state with no forwarding address. It is the revenue officer's responsibility to locate the taxpayer and/or his assets. Revenue officers are quite adept at locating taxpayers thanks to the numerous investigative tools at their disposal, including the power of summons.

A revenue officer's first contact with a delinquent taxpayer can either be by telephone or by a personal visit to the taxpayer's residence. Revenue officers are encouraged to make field trips to the taxpayer's residence and/or business to "size-up" the taxpayer's economic status. If the taxpayer isn't home the revenue officer will then leave a card requesting the taxpayer to call him during a designated time.

One group manager, who instructed his revenue officers in the fine art of taxpayer harassment, saw the taxpayer's return phone call as an opportunity to berate him. The calling call read:

    You were not in when I called. It is important that you visit me
    or phone me between the hours of _____ and_____ or contact me at
    the address or phone number shown on the attached card.
    Date_______

The revenue officers in this particular group manager's employ were expected to record in their history sheets when they had directed their taxpayer to contact them. If the taxpayer did not call them between the hours when the revenue officer had directed him to call, the revenue officer was told to admonish the taxpayer for violating his instructions. The revenue officer was then expected to record in the history sheet the exact time the taxpayer called and if the taxpayer was admonished for calling late. The group manager perceived the relationship between the IRS and the delinquent taxpayer as an adversarial one that required the revenue officer to immediately establish his dominance over the taxpayer. In order to re-enforce his philosophy, he would stalk through the work area listening to the conversations of his revenue officers and criticize them when he discovered that they were not admonishing their taxpayers.

Revenue officers are taught that the first thing they must do in any interview situation is to demand payment. This demand can take many forms; there is no stock way of requesting full payment. In fact, the IRM even omits the procedure entirely.

A typical way of making a demand is by starting off with an introduction, followed by a statement that the purpose of the visit or call is to collect a stated amount in back taxes and that payment is due immediately. Usually the taxpayer will acknowledge the debt and proceed to explain why it hasn't been paid and/or why it can't be paid immediately. The next line of questioning is related to the taxpayer's borrowing ability. The revenue officer will usually ask the taxpayer if he has tried to borrow the money. If the taxpayer says no, the revenue officer may then direct him to attempt to borrow. Some districts even have unwritten policies that the taxpayer must try to borrow the money before there can be any discussion of an installment arrangement.

Some revenue officers who tend to be less aggressive begin the interview procedure almost apologetically. Instead of making a demand for payment, they will ask the taxpayer if the debt is valid.This type of posture leads the taxpayer to suspect that the revenue officer doesn't know what he's doing if he assumes the debt to be invalid. The taxpayer then seizes the opportunity to explain how he thinks it's already been paid and will even proceed to drag out volumes of cancelled checks challenging the revenue officer to explain how they were applied to his accounts. Some small business owners get so far behind in their withholding taxes and keep such poor records that they are often confused about the validity of their debts.

Other revenue officers tend to be overly aggressive in their attempts to impress the taxpayer with their authority. Many years ago one revenue officer used to initiate every interview with a thunderous slap on the table, point a finger at the taxpayer, and with a belligerent scowl, say: "Now, let's talk about the money you stole from the government."

Several years ago many districts had a policy called "one call does it all" (OCDIA). The thrust of the policy was to impress upon the revenue officer that if he was any good at all in his job, he'd get the taxpayer straightened out quickly. The implication was that a case that resulted in multiple taxpayer contacts reflected poorly upon the revenue officer's judgment and abilities. So most revenue officers would use the initial taxpayer interview as an opportunity to "encourage" compliance by whatever techniques that worked. Even though the "one call does it all" policy has theoretically been abolished, there are old-timers around in managerial positions who remember the policy and still believe in it. (They now call it the "effective contact" policy. ) These are the managers who are most likely to exert inordinate pressure on their revenue officers to behave and perform according to their standards of behavior and performance, and not the IRS's.

For example, one chief of a district collection division had a notorious reputation for his nasty treatment of taxpayers and for making many seizures. It is said that he had a siren and a blinking red light installed on the top of his car, which he would turn on as he came within close proximity to his delinquent taxpayer's house. His post of duty was in a rural area where people were easily frightened and intimidated by this tactic, so he thought it was an effective approach to collecting taxes. It is also alleged that he once seized an automobile while it was in a funeral procession. These kinds of stories, whether they are true or not, are usually passed down from the group managers to their"troops" to imply certain marching orders.

One revenue officer in the same district as the above mentioned chief had a part-time job at night in the security detail of a local department store. Because of the nature of his duties he was issued a badge, a gun and a set of handcuffs. During the day, while performing as a revenue of officer, he kept his badge and handcuffs in his government issued briefcase. (Revenue officers clearly are not allowed to carry guns.) Whenever he visited a taxpayer, he would make a point of opening his briefcase, thereby exposing his badge pinned to the upper part of his briefcase and his handcuffs. It doesn't take a genius to understand the kind of effect that had.