I just finished reading a great article/Blog post from Christine Speidel and felt I should re-blog this it is well written and important to anyone who has collection issues open with the IRS. Christine Speidel is Assistant Professor and Director of the Federal Tax Clinic at Villanova University Charles Widger School of Law. Prior to her appointment at Villanova she practiced law at Vermont Legal Aid, Inc. Christine was the deputy editor of the 7th Edition of the ABA Tax Section publication, “Effectively Representing Your Client Before the IRS” and is co-editor of the forthcoming 8th Edition. She is the primary author of the Affordable Care Act chapter.
You can read her other blogs here
Will the IRS Take My Home? By
The government has two separate legal mechanisms to seize a taxpayer’s home in order to collect a tax debt. The National Taxpayer Advocate explains in her 2017 ARC Purple Book:
The IRS has two options, which cannot be used concurrently, to collect against the principal residence of a taxpayer or a residence that is owned by the taxpayer but occupied by the taxpayer’s spouse, former spouse, or minor child. One option is to obtain a court order allowing administrative seizure of a principal residence under IRC § 6334(e)(1). … The other option is a suit to foreclose the federal tax lien against a principal residence under IRC § 7403.
The IRS makes use of both options, by way of making a recommendation and referral to the Department of Justice Tax Division, which represents the IRS in Federal District Court. The IRM explains that :
[s]uits should still be brought to foreclose the federal tax lien and reduce the tax liability to judgment in lieu of bringing a section 6334(e)(1) proceeding whenever it is determined that such suits would be optimal. A lien foreclosure suit may be preferable to a section 6334(e)(1) proceeding when there are questions regarding title or lien priority that create an unfavorable market for administrative sale. See 35.6.3.2 for discussion of lien foreclosure suits. A lien foreclosure suit may also be a specific option when the collection statute of limitations is about to run.
34.6.2.5.1 (06-12-2012), Procedures for Instituting a 6334(e)(1) Proceeding. So, taxpayer representatives should be familiar with the requirements for both actions.
Administrative Seizure With Judicial Approval
In August of 2018, Keith blogged about an Eighth Circuit decision under section 6334, United States v. Brabant-Scribner, No. 17-2825 (8th Cir. Aug. 17, 2018). Keith explains:
The 1998 Restructuring and Reform Act added IRC 6334(e)(1)(A) to require that prior to seizing a taxpayer’s principal residence the IRS must obtain the approval of a federal district court judge or magistrate in writing. Before the passage of this provision, the IRS could seize a taxpayer’s home with the same amount of prior approval needed to seize any other asset owned by the taxpayer. No approval was necessary to seize any asset of the taxpayer.
The government has adopted Treasury Regulation 301.6334-1(d) incorporating additional procedures and standards. Keith summarizes:
To convince the court to allow the sale of a personal residence, the IRS must show compliance with all legal and procedural requirements, show the debt remains unpaid and show that “no reasonable alternative” for collection of the debt exists.
… the taxpayer has a right to object after the IRS makes its initial showing and “will be granted a hearing to rebut the Government’s prima facie case if the taxpayer … rais[es] a genuine issue of material fact demonstrating … other assets from which the liability can be satisfied.”
Also, the regulation provides for written notice to family members and occupants of the property.
Unfortunately for taxpayers, judicial approval may not be difficult for the IRS to obtain despite the above standards and procedures. In Brabant-Scribner, the court reasoned that an alternative “for collection” must provide for payment of the debt; therefore, it held that the IRS was not required to consider the taxpayer’s offer in compromise. Similar reasoning has been followed by other courts. E.g. United States v. Gower, No. 3:16-cv-01247 (M.D. Fla. Jul. 10, 2018). Nevertheless, the administrative collection statutes and regulations provide some procedural protections for the taxpayer and certain family members living in a home owned by the taxpayer. IRM procedures also provide significant safeguards, which the National Taxpayer Advocate has recommended that Congress codify in section 7403.
Suit to Foreclose Judgment Lien
The government’s second option, if it seeks to seize a taxpayer’s home, is to foreclose the federal tax lien by filing suit pursuant to section 7403. Les has discussed section 7403 previously, and I will borrow his summary:
Under Section 7403, a federal district court can “determine the merits of all claims to and liens upon the property, and, in all cases where a claim or interest of the United States therein is established, may decree a sale of such property,…, and a distribution of the proceeds of such sale according to the findings of the court.
Yet that power to force a sale and distribution of the proceeds is limited. In the 1983 case US v Rodgers the Supreme Court said that while the government has broad discretion to force a sale, “Section 7403 does not require a district court to authorize a forced sale under absolutely all circumstances, and that some limited room is left in the statute for the exercise of reasoned discretion.” Keith has discussed the application of Rodgers in prior posts here and here.
To assist courts in exercising that discretion, Rodgers identifies factors:
1) “the extent to which the Government’s financial interests would be prejudiced if it were relegated to a forced sale of the partial interest actually liable for the delinquent taxes[;]”
(2) “whether the third party with a nonliable separate interest in the property would, in the normal course of events (leaving aside § 7403 and eminent domain proceedings, of course), have a legally recognized expectation that that separate property would not be subject to forced sale by the delinquent taxpayer or his or her creditors[;]”
(3) “the likely prejudice to the third party, both in personal dislocation costs and … practical undercompensation [;]” and
(4) “the relative character and value of the nonliable and liable interests held in the property ….”
Once the government has decided to sue for foreclosure, the taxpayer and others hoping to prevent that outcome face an uphill battle. The government prevailed in 58 of the 60 cases identified by TAS in the 2017 Annual Report to Congress, and one case resulted in a split decision. The taxpayer prevailed in only one case. These lopsided statistics are consistent with prior years’ reports.
To read more on this subject and read