Statute of Limitations and other Tax Deadlines

SUMMARY OF STATUTES AND OTHER LIMITATIONS

http://uscode.house.gov/search/criteria.shtml (WEB SITE)

STATUTE OF LIMITATIONS

30-DAY LETTER § 6212 - A LETTER EXPLAINING THAT THE IRS DOES NOT AGREE WITH THE TAXPAYER’S POSITION AND IT NOTIFIES THE TAXPAYER THAT THE TAXPAYER HAS THIRTY (30) DAYS TO START THE APPEAL PROCESS.
(NOTE THIS IS AFTER AN EXAMINATION AND IS PRIOR TO THE ASSESSMENT OF TAX)

90-DAY LETTER § 6213 - TAXPAYER HAS 90 DAYS FROM THE DATE ON THE 90-DAY LETTER TO PETITION THE U.S. TAX COURT FOR RELIEF. THE 90 DAY PERIOD CANNOT END ON A WEEKEND OR A LEGAL HOLIDAY; IF IT DOES YOU SIMPLY DO NOT COUNT THAT DAY.
(NOTE THIS IS AFTER AN EXAMINATION AND IS PRIOR TO THE ASSESSMENT OF TAX)

NOTICE AND DEMAND § 6303 - IRS MUST NOTIFY THE TAXPAYER WITH 60 DAYS OF MAKING AN ASSESSMENT. NOTICE MUST CLEARLY STATE THE AMOUNT OWED AND DEMAND PAYMENT. IF THE IRS FAILS TO COMPLY WITH § 6303 THE ASSESSMENT WILL REMAIN VALID BUT THE IRS WILL BE BARRED FROM UTILIZING ITS LIEN AND LEVY COLLECTION POWERS.
(NOTE THIS IS IN THE CASE OF AN ORIGINAL OR AMENDED RETURN)

NOTICE OF LIEN § 6320 - IRS MUST NOTIFY TAXPAYER OF THE FILING OF
A FEDERAL TAX LIEN WITHIN 5 BUSINESS DAYS AFTER
THE FILING ON THE NOTICE OF LIEN. AFTER THIS 5 DAY
PERIOD THE TAXPAYER HAS 30 DAYS TO APPEAL THE
FILING OF THE LIEN. IF THE IRS DETERMINES THAT IT
FAILED TO PROPERLY PROVIDE A TAXPAYER WITH
NOTICE, IT WILL PROMPTLY PROVIDE THE TAXPAYER
WITH A SUBSTITUTE NOTICE AND PROVIDE THE
TAXPAYER WITH AN OPPORTUNITY TO REQUEST A
HEARING.

NOTICE OF LEVY § 6330 - IRS MUST NOTIFY TAX PAYER OF INTENT TO LEVY AT LEAST 30 DAYS PRIOR TO THE DATE OF THE FIRST LEVY. TAXPAYER CAN REQUEST AN APPEALS HEARING DURING THIS 30 DAY WINDOW (AN APPEALS HEARING WILL TOLL THE STATUTE OF LIMITATIONS ON LEVY ACTIONS, COLLECTIONS, PROSECUTION OF CRIMINAL MATTERS, AND ALL SUITS UNDER § 6532 FOR THE PERIOD OF THE APPEAL).

INNOCENT SPOUSE § 6015 - A CLAIM FOR RELIEF UNDER THE INNOCENT SPOUSE RULES MUST BE MADE WITHIN 2 YEARS FROM THE DATE THE IRS HAS COMMENCED COLLECTION PROCEEDINGS. JUDICIAL REVIEW OF A DENIED INNOCENT SPOUSE IS APPROPRIATE IF REQUESTED AT ANYTIME AFTER THE EARLIER OF 1) NOTICE OF THE IRS’S FINAL DETERMINATION OF RELIEF, OR 2) 6 MONTHS AFTER THE DATE THE ELECTION FOR RELIEF WAS FILED WITH THE IRS.

BANKRUPTCY § 6503 - DURING THE AUTOMATIC STAY AND FOR 60 DAYS THEREAFTER, THE STATUTE OF LIMITATIONS ON MAKING ASSESSMENTS IS TOLLED, AND THE STATUTE OF LIMITATIONS ON COLLECTIONS IS TOLLED FOR THE PERIOD OF THE AUTOMATIC STAY AND FOR 6 MONTHS THEREAFTER.

OFFERS IN COMPROMISE § 7122 - AN OFFER CAN BE MADE AFTER RECEIVING AN ASSESSMENT FROM THE IRS. THE IRS CANNOT ENGAGE IN COLLECTION ACTIVITIES WHILE AN OFFER IS BEING CONSIDERED.

CREDITS OR REFUNDS § 6511 - A CLAIM FOR A CREDIT OR REFUND MUST BE FILED WITHIN 3 YEARS FROM THE DATE THE ORIGINAL RETURN WAS FILED OR WITHIN 2 YEARS FROM THE DATE THE TAX WAS PAID, IF LATER. IF NO RETURN WAS FILED, THE CLAIM MUST BE FILED WITHIN 2 YEARS FROM THE DATE THE TAX WAS PAID. IF A CLAIM FOR REFUND IS DENIED BY THE IRS, THE TAXPAYER CAN FILE A SUIT FOR REFUND WITHIN 2 YEARS AFTER THE DENIAL OF THE CLAIM FOR REFUND.

I. § 6213 30– 90-DAY LETTERS

AFTER AN AUDIT HAS CONCLUDED AND, UNFORTUNATELY FOR THE TAXPAYER, THE INTERNAL REVENUE SERVICE (“IRS”) HAS DETERMINED THAT THERE IS A DEFICIENCY AND THAT THE TAXPAYER OWES ADDITIONAL MONEY TO THE IRS, THE TAXPAYER WILL RECEIVE A 30-DAY LETTER. THE 30-DAY LETTER IS A FORMAL NOTICE SENT BY THE IRS EXPLAINING THAT THE IRS DOES NOT AGREE WITH THE TAXPAYER’S POSITION AND IT NOTIFIES THE TAXPAYER THAT THE TAXPAYER HAS THIRTY (30) DAYS TO START AN APPEAL. UPON RECEIVING THE 30-DAY LETTER, THE TAXPAYER BASICALLY HAS THREE OPTIONS, FIRST THE TAXPAYER CAN AGREE WITH THE PROPOSED DEFICIENCY AND SUBMIT THE SIGNED CONSENT FORMED ENCLOSED, OR THE TAXPAYER CAN PREPARE A PROTEST IN RESPONSE TO THE 30-DAY LETTER, OR THE TAXPAYER CAN SIMPLY IGNORE THE 30-DAY LETTER.

THE LAST COURSE OF ACTION IS MOST LIKELY THE COURSE THAT THE CLIENT HAS TAKEN PRIOR TO COMING TO THE US FOR TAX HELP. AFTER THE TAXPAYER HAS FAILED TO RESPOND TO THE 30-DAY LETTER, THE IRS WILL AUTOMATICALLY ISSUE A STATUTORY NOTICE OF DEFICIENCY, COMMONLY REFERRED TO AS A 90-DAY LETTER. THE 90-DAY LETTER MAY NOT COME FOR SEVERAL MONTHS AFTER THE AUDIT HAS ENDED AND IT MUST BE SENT TO THE TAXPAYER BY CERTIFIED MAIL.

THE 90-DAY LETTER PROVIDES THE TAXPAYER WITH AN OPPORTUNITY TO FILE A PETITION WITH THE TAX COURT FOR A REDETERMINATION OF THE DEFICIENCY. (THIS ACTION WILL AUTOMATICALLY TRIGGER AN AUDIT AND PRIOR TO THE TAX COURT HEARING DATE AN APPEALS OFFICER (IF REQUESTED) WILL NAME TO SIGNATURE AUDIT THE RETURN)

AFTER RECEIVING THE 90-DAY LETTER THE TAXPAYER AGAIN HAS THREE OPTIONS; FIRSTLY, THE TAXPAYER CAN FILE A PETITION TO THE TAX COURT (THIS IS THE COURSE OF ACTION MOST OFTEN TAKEN). THE SECOND OPTION IS TO PAY THE AMOUNT IN DISPUTE AND FILE A LAWSUIT FOR REFUND IN THE U.S. DISTRICT COURT OR THE U.S. COURT OF FEDERAL CLAIMS THIS OPTION IS NOT AVAILABLE TO MOST CLIENTS SIMPLY BECAUSE THEY ARE NOT LIKELY TO BE IN A POSITION TO PAY THE DEFICIENCY UPFRONT. (ALL TAX, PENALTIES AND INTEREST MUST BE PAID TO FILE SUIT IN COURTS OTHER THAN TAX COURT BECAUSE OF THE TAX IS NOT PAID THERE IS NO HARM YET TO THE PETITIONER)

FURTHERMORE, THE FACT WE DO NOT HANDLE REFUND SUITS. THIRDLY, THE TAXPAYER CAN AGAIN DO NOTHING AND THE MATTER WILL MOVE INTO THE COLLECTIONS PROCESS. (BEST OPTION IF THERE IS NO CASE AND THE TAXPAYER IS SIMPLY BUSTED)

ASSUMING THAT THE CLIENT COMES TO THE TAX PRACTIONER SOON ENOUGH, THEN MOST LIKELY YOU WILL FILE A PETITION WITH THE TAX COURT, IF CAUSE IS FOUND AND THERE IS A MORE LIKELY THAN NOT THE CASE WILL WIN IN IT’S MERITS. THE ONLY COST ASSOCIATED WITH THE FILING OF THE PETITION IS A SIXTY DOLLAR ($60.00) FILING FEE, (THE CLIENT CAN FILE ON HIS/HER OWN BEHALF) AND IF NECESSARY THE CLIENT CAN REQUEST THAT THIS FEE BE WAIVED, AND IT WILL BE WAIVED IF IT IS SHOWN THAT THE TAXPAYER CANNOT AFFORD THE FILING FEE. WHEN THE CLIENT COMES TO YOU THE FIRST ACTION IS TO NOTICE THE DATE ON THE 90-DAY LETTER, BECAUSE THE TAXPAYER HAS NINTY DAYS FROM THE DATE ON THE FACE ON THE 90-DAY LETTER TO FILE A PETITION IN THE TAX COURT (150 DAYS IF THE TAXPAYER RESIDES
OUTSIDE THE UNITED STATES). THIS NINTY DAY STATUTE OF LIMITATIONS IS OF UTMOST IMPORTANCE IN PRESERVING THE CLIENT’S RIGHTS. IF THE TAXPAYER DOES NOT RESPOND TO THE 90-DAY LETTER, THE ASSESSMENT AMOUNT WILL BE ASSUMED AS CORRECT AND TURNED OVER TO THE COLLECTIONS DIVISION.

ANY PETITION FILED WITH THE TAX COURT ON OR BEFORE THE LAST DAY OF THE NINETY DAY PERIOD SHALL BE TREATED AS TIMELY. HAVING SAID THAT, THERE ARE SOME NUISANCES WITH THE NINETY DAY STATUTORY PERIOD THAT YOU SHOULD BE AWARE OF. ONE OF THE MOST SHOCKING RULES GOVERNING THE NINETY DAY STATUTORY PERIOD, IS THAT THE TAXPAYER DOES NOT EVEN HAVE TO HAVE ACTUALLY RECEIVED THE 90-DAY LETTER. THAT IS, THE 90-DAY LETTER IS TREATED AS IF IT WAS RECEIVED BY THE TAXPAYER SO LONG AS THE IRS SENT IT TO THE TAXPAYER’S LAST KNOWN ADDRESS. SO UNDER ALL CIRCUMSTANCES, THE NINETY DAYS STARTS RUNNING FROM THE DATE ON THE 90-DAY LETTER. ANOTHER QUIRK IS THAT THE NINETY DAY PERIOD CANNOT END ON A SATURDAY, SUNDAY, OR A LEGAL HOLIDAY OBSERVED IN THE DISTRICT OF COLUMBIA, IF IT DOES YOU SIMPLY DO NOT COUNT THAT DAY. (THE LAST KNOWN ADDRESS RULE APPLIES TO ALL IRS CORESPONDENCE)

ANOTHER IMPORTANT NOTE, IS THAT THE ISSUANCE OF THE 90-DAY LETTER IN CONJUNCTION WITH THE FILING OF A PETITION TO THE U.S. TAX COURT BY THE TAXPAYER TRIGGERS SECTION 6212(C)(1) OF THE INTERNAL REVENUE CODE (“IRC”), WHICH PROHIBITS THE IRS FROM DETERMINING ANY ADDITIONAL DEFICIENCY OF INCOME TAX FOR THE SAME TAXABLE YEAR, OF GIFT TAX FOR THE SAME CALENDAR YEAR, OR

OF ESTATE TAX IN RESPECT OF THE TAXABLE ESTATE OF THE SAME DECEDENT. ADDITIONALLY, SECTION 6503 (A)(1) OF THE IRC IS TRIGGERED UPON THE MAILING OF THE 90-DAY LETTER BY THE IRS. THIS SECTION PROVIDES THAT DURING THAT NINETY DAY PERIOD, THE STATUTE OF LIMITATIONS ON THE MAKING OF ASSESSMENTS OR THE COLLECTION BY LEVY OR A PROCEEDING IN COURT, IN RESPECT OF ANY DEFICIENCY SHALL BE SUSPENDED UNTIL SIXTY DAYS AFTER THE TAXPAYER HAS A FINAL DECISION ON THE APPEAL. (AS WITH COLLECTION DUE PROCESS HEARING FILINGS) THEREFORE, IF YOUR CLIENT HAS ANY OTHER MATTERS PENDING, OR TAX RETURNS WHERE THE COLLECTIONS STATUTE HAS NOT EXPIRED, IT IS A GOOD IDEA FOR YOU TO EVALUATE THE EFFECT OF SECTION 6503(A)(1) ON THE CLIENT’S OTHER MATTERS. (WILL IT STOP THE STATUTE ON OTHER TAX DUE WHICH MAY BE EXPIRING)

FINALLY, IF THE 30 DAYS AND 90 DAYS ARE BOTH GONE WHAT CAN BE DONE. AN OFFER IN COMPROMISE CAN BE FILED REQUESTING DOUBT AS TO LIABILITY. MAKE SURE WHEN CHOOSING THIS OPTION THAT YOU HAVE PROOF OF INCOME AND DEDUCTIONS CLAIMED AND THESE CASES TRIGGER A NAME TO SIGNATURE AUDIT.

II. § 6303 – NOTICE AND DEMAND

SECTION 6303 OF THE IRC SETS FORTH THAT THE SECRETARY SHALL, AS SOON AS PRACTICABLE, AND WITHIN SIXTY DAYS, AFTER THE MAKING OF AN ASSESSMENT OF A TAX PURSUANT TO SECTION 6203, GIVE NOTICE TO EACH PERSON LIABLE FOR THE UNPAID TAX, STATING THE AMOUNT OF TAX OWED AND DEMANDING PAYMENT THEREOF. FURTHERMORE, IT STATES THAT SUCH NOTICE SHALL BE LEFT AT THE DWELLING OR USUAL PLACE OF BUSINESS OF SUCH PERSON, OR SHALL BE SENT BY MAIL TO SUCH PERSON'S LAST KNOWN ADDRESS. IT IS IMPORTANT FOR YOU TO MAKE SURE THE IRS HAS COMPLIED WITH THE NOTICE AND DEMAND REQUIREMENTS. HOWEVER, THE FAILURE OF THE IRS TO SEND TIMELY NOTICE AND DEMAND AFTER THE ASSESSMENT OF THE TAX WILL NOT RENDER THE ASSESSMENT VOID ALTOGETHER, BUT RATHER THE ASSESSMENT WILL REMAIN VALID BUT IRS WILL BE BARRED FROM UTILIZING ITS LIEN AND LEVY COLLECTION POWERS. BLACKSTON V. U.S., 778 F.SUPP. 244 (D.MD.1991); SEE ALSO BREWER V. U.S., 764 F.SUPP. 309 (S.D.N.Y.1991) (STATING THAT IN ORDER TO PLACE A LIEN AGAINST PROPERTY, THE IRS MUST MAKE VALID ASSESSMENT OF TAXES, PROVIDE NOTICE OF DEFICIENCY TO TAXPAYER, AND PROVIDE NOTICE AND DEMAND FOR PAYMENT OF ASSESSED TAX). SO IN SUM THE TAXPAYER WILL STILL OWE THE TAXES IF THE IRS FAILED TO GIVE PROPER NOTICE AND DEMAND,

THAT IS BECAUSE THE TAXPAYER IS STILL RESPONSIBLE FOR THE DEFICIENCY; HOWEVER, THE IRS WILL BE UNABLE TO USE ITS LEVY OR LIEN POWERS.

UNDER THE COLLECTION POWER OF THE IRS ESTABLISHED BY THE CODE, ONCE A TAX HAS BEEN ASSESSED, THE TAXPAYER IS SUBJECT TO THE SUMMARY NONJUDICIAL PROCEDURES AVAILABLE TO THE IRS TO COLLECT THE ASSESSED TAX, IN PARTICULAR THE LIEN AND LEVY POWERS. BLACKSTON V. U.S., 778 F.SUPP. 244 (D.MD.1991). THE NOTICE AND DEMAND PROVIDED BY SECTION 6303 PUTS IN PLACE A PROCEDURE WHEREBY THE IRS HAS TO GIVE THE TAXPAYER WARNING (I.E., NOTICE) THAT THE TAXPAYER MUST TAKE SOME ACTION TO RESOLVE THE DEFICIENCY OR ELSE THE IRS WILL RELY ON ITS COLLECTION POWERS OF LEVY AND/OR LIEN WHICH COULD POTENTIALLY HAVE DEVASTATING EFFECTS ON THE TAXPAYER.

THEREFORE, YOU SHOULD BE CERTAIN TO MAKE SURE THAT THE IRS HAS SENT NOTICE TO EACH PERSON LIABLE FOR THE TAXES WITHIN SIXTY DAYS OF THE IRS MAKING THE ASSESSMENT. IF THE IRS HAS FAILED TO DO SO YOU NEED TO RAISE THE ISSUE.
FINALLY YOU HAVE TO PROVE THE CLIENT DID NOT RECEIVE THE PROPER 60 DAY NOTICE, GOOD LUCK UNLESS YOUR CLIENT CAN ESTABLISH THERE WHEREABOUTS AND A MAIL GLITCH

III. § 6320 – NOTICE OF LIEN

SECTION 6321 OF THE IRC ALLOWS THE IRS TO FILE A LIEN IN FAVOR OF THE UNITED STATES UPON ALL PROPERTY, AND RIGHTS TO PROPERTY, BELONGING TO THE TAXPAYER IF, AFTER NOTICE AND DEMAND, THE TAXPAYER NEGLECTS OR REFUSES TO PAY THE TAX FOR WHICH THE TAXPAYER IS LIABLE. (THIS INCLUDES THE IRS STATUTORY LIEN POWERS INCLUDING LIENS ON PROPERTY DURING CURRENT YEAR INCURRED LIABILITIES)
THIS IS OFFICIALLY CALLED A NOTICE OF FEDERAL TAX LIEN. IN MANY CASES THE IRS WILL RECORD THE LIEN IN THE PUBLIC RECORDS OFFICE IN THE COUNTY WHERE THE TAXPAYER LIVES OR IN THE COUNTY WHERE THE TAXPAYER OWNS PROPERTY. IF THE STATE DOES NOT HAVE A COUNTY RECORDING SYSTEM, THE IRS SENDS THE NOTICE TO THE SECRETARY OF THE STATE. (IT ALSO GOES ON YOUR CREDIT REPORT) A TRAP FOR THE UNWARY THAT THE TAXPAYER NEEDS TO BE AWARE OF, IS THAT EVEN IF THE TAXPAYER DOES NOT CURRENTLY OWN PROPERTY, THE TAX LIEN WILL ATTACH TO ANY PROPERTY THAT THE TAXPAYER MAY OWN IN THE FUTURE, IF IN FACT A TAX LIEN HAS BEEN RECORDED; ADDITIONALLY THE IRS COULD RECORD ONE LATER. THEREFORE,

IT IS IMPORTANT FOR YOU TO ADVISE THE TAXPAYER THAT SIMPLY BECAUSE THE TAXPAYER MAY NOT HAVE PROPERTY AT THE CURRENT TIME THAT DOES NOT MEAN THAT A TAX LIEN COULD NEVER ADVERSELY AFFECT THE TAXPAYER.
ONCE THE IRS HAS FILED A NOTICE FOR LIEN, SECTION 6320 PROVIDES THAT THE IRS SHALL NOTIFY IN WRITING ANY PERSON RESPONSIBLE FOR THE TAX DEFICIENCY. THE NOTICE REQUIRED UNDER SECTION 6320 SHALL BE 1) GIVEN IN PERSON; LEFT AT THE DWELLING OR USUAL PLACE OF BUSINESS OF SUCH PERSON; OR SENT BY CERTIFIED OR REGISTERED MAIL TO SUCH PERSON'S LAST KNOWN ADDRESS, AND 2) SENT NOT MORE THAN 5 BUSINESS DAYS AFTER THE DAY OF THE FILING OF THE NOTICE OF LIEN. THE NOTICE MUST INCLUDE IN SIMPLE AND NONTECHNICAL TERMS THE AMOUNT OF UNPAID TAX; THE RIGHT OF THE PERSON TO REQUEST A HEARING DURING THE 30-DAY PERIOD BEGINNING ON THE DAY AFTER THE 5-DAY PERIOD DESCRIBED ABOVE; THE ADMINISTRATIVE APPEALS AVAILABLE TO THE TAXPAYER WITH RESPECT TO SUCH LIEN AND THE PROCEDURES RELATING TO SUCH APPEALS; AND THE PROVISIONS OF THIS TITLE AND PROCEDURES RELATING TO THE RELEASE OF LIENS ON PROPERTY.

IF THE IRS DETERMINES THAT IT FAILED TO PROPERLY PROVIDE THE TAXPAYER WITH THE NOTICE REQUIRED, THE IRS WILL PROMPTLY PROVIDE THE TAXPAYER WITH A SUBSTITUTE NOTICE AND THEN PROVIDE THE TAXPAYER WITH AN OPPORTUNITY TO REQUEST A HEARING. (IT DOES NOT REMOVE THE POWER IT JUST GIVES THE IRS AS MANY SHOTS AT YOU AS IT WANTS)
AFTER THE IRS HAS GIVEN THE TAXPAYER PROPER NOTICE OF THE LIEN (I.E., MAILED NOTICE TO THE TAXPAYER WITHIN 5 DAYS BUSINESS DAYS OF FILING THE LIEN), THE TAXPAYER CAN REQUEST, AND IS ENTITLED TO, ONE HEARING AT THE IRS OFFICE OF APPEALS BY AN IMPARTIAL APPEALS OFFICER. THIS REQUEST FOR AN APPEAL BY THE TAXPAYER MUST BE MADE WITHIN 30 DAYS, STARTING ON THE DAY AFTER THE FIFTH BUSINESS DAY AFTER THE FILING OF THE TAX LIEN. THIS IS A FAIRLY SHORT WINDOW OF OPPORTUNITY AND IF THE TAXPAYER HAS WAITED TOO LONG TO COME INTO THE HELP SYSTEM YOU MAY NOT BE ABLE TO PROCEED ALONG THESE GROUNDS.
PROVIDED THAT THE TAXPAYER DOES HIRE YOU IN TIME, AND YOU ARE ABLE TO TIMELY APPEAL, THE APPEAL PROCESS PROVIDES THE TAXPAYER WITH AN OPPORTUNITY TO APPEAL THE TAX LIEN. IF THE TAXPAYER WISHES TO PURSUE THIS RIGHT TO APPEAL, YOU SHOULD FIRST REQUEST A TELEPHONE CONFERENCE WITH THE MANAGER OF THE IRS UNIT FILING THE LIEN.

IF YOU ARE UNABLE TO SCHEDULE A CONFERENCE WITH THE MANAGER, YOU SHOULD THEN SEND BY CERTIFIED MAIL A COMPLETED FORM 9423 (COLLECTION APPEAL REQUEST) TO THE COLLECTION OFFICE. ANOTHER OPTION THAT SHOULD BE EXPLORED AT THIS TIME IS THE OPTION OF HAVING THE TAXPAYER PAY THE TAX, IF IT IS DETERMINED THAT PAYING THE TAX IS THE BEST COURSE OF ACTION FOR THE TAXPAYER, ONCE THE TAX IS PAID THE IRS MUST RECORD A RELEASE WITHIN THIRTY DAYS AFTER RECEIVING FULL PAYMENT. BE AWARE THAT ONLY DOUBT AS TO LIABILITY OR SEVERE ECONOMIC IMPACT WILL BE GROUNDS ENOUGH TO STOP A LIEN.
ASSUMING THAT THE TAXPAYER DECIDES NOT TO PAY THE TAX AND ONCE THE IRS HAS SATISFIED THE NOTICE OF LIEN REQUIREMENTS AND A LIEN HAS BEEN SUCCESSFULLY PLACED ON THE TAXPAYER’S PROPERTY, THE LIEN WILL ATTACH TO ALMOST EVERYTHING THE TAXPAYER OWNS. ADDITIONALLY, THE LIEN WILL COVER ANY INTEREST AND PENALTIES THE TAXPAYER OWES ON THE TAX. (NEW LIENS DO NOT HAVE TO BE FILED EACH TIME PENALTIES AND INTEREST ARE ASSESSED)
A RECORDED TAX LIEN CAN BE DEVASTATING. THE RECORDED TAX LIEN PUTS THE WORLD ON NOTICE THAT THE TAXPAYER OWES MONEY TO THE IRS, SO ANYONE WHO PULLS THE TAXPAYER’S CREDIT OR SEARCHES THE PUBLIC RECORDS WILL KNOW OF THE TAXPAYER’S

SITUATION. THIS COULD PREVENT THE TAXPAYER FROM BEING ABLE TO BORROW MONEY IN THE FUTURE, AT LEAST AT FAVORABLE RATES, FURTHERMORE, THE FILING OF BANKRUPTCY WILL NOT WIPE OUT A FEDERAL TAX LIEN; ANY PROPERTY OWNED GOING INTO THE BANKRUPTCY PROCEEDING IS STILL SUBJECT TO THE TAX LIEN.
LASTLY, TAX LIENS DO NOT RESULT, ON THEIR OWN, IN MONEY OR OTHER PROPERTY SEIZED. THE IRS EXECUTES ON THE LIEN THROUGH THE LEVY PROCESS, WHICH IS DISCUSSED IN THE NEXT SECTION.
ON THE FOLLOWING PAGE IS A FLOWCHART OF THE CRITERIA THE IRS USES IN DETERMINING WHETHER OR NOT TO FILE A NOTICE OF FEDERAL TAX LIEN. IT WOULD BE A GOOD IDEA FOR YOU WHO HAS A CLIENT WITH AN OUTSTANDING TAX LIABILITY TO REVIEW THE FLOWCHART TO DETERMINE THE LIKELIHOOD OF THE IRS FILING A TAX LIEN.

IV. § 6330 – NOTICE OF INTENT TO LEVY

SECTION 6330 OF THE IRC PROVIDES FOR NOTICE AND OPPORTUNITY FOR A HEARING BEFORE THE IRS CAN LEVY ON ANY OF THE TAXPAYER’S PROPERTY OR PERSONAL BELONGINGS. HOWEVER, THE NOTICE IS ONLY REQUIRED ONCE FOR THE TAX PERIOD IN WHICH THERE IS A DEFICIENCY (UNLIKE LIENS WHICH CAN BE WRITTEN OR STATUTORY IN NATURE) THIS NOTICE REQUIRED UNDER SECTION 6330 MUST BE 1) GIVEN IN PERSON, LEFT AT THE DWELLING OR USUAL PLACE OF BUSINESS OF THE TAXPAYER, OR SENT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO SUCH PERSON’S LAST KNOWN ADDRESS, AND 2) THE NOTICE MUST BE SENT AT LEAST THIRTY DAYS BEFORE THE DAY OF THE FIRST LEVY.

THE NOTICE REQUIRED BY SECTION 6330 MUST ALSO EXPLAIN IN SIMPLE AND NONTECHNICAL TERMS, 1) THE AMOUNT OF TAX OWNED BY THE TAXPAYER, 2) THE RIGHT OF THE TAXPAYER TO REQUEST A HEARING DURING THE THIRTY DAY PERIOD, 3) THE PROPOSED ACTION BY THE IRS, AND 4) THE RIGHTS OF THE TAXPAYER WITH RESPECT TO SUCH ACTION, INCLUDING A BRIEF STATEMENT SETTING FORTH A) THE PROVISIONS OF SECTION 6330, B) THE PROCEDURES APPLICABLE TO THE LEVY AND SALE OF PROPERTY, C) THE ADMINISTRATIVE APPEALS AVAILABLE TO THE TAXPAYER,

4) ANY ALTERNATIVES TO THE TAXPAYER THAT COULD PREVENT THE LEVY, AND D) THE PROVISIONS OF THE IRC THAT RELATE TO REDEMPTION OF PROPERTY AND RELEASE OF LIENS ON PROPERTY.

AS NOTED ABOVE THE TAXPAYER MAY REQUEST A HEARING BEFORE AN IMPARTIAL APPEALS OFFICER WITHIN THE THIRTY DAY PERIOD FROM THE NOTICE OF LEVY. YOU SHOULD BE SURE TO MAKE A NOTE OF THE DATE ON ANY NOTICE OF INTENT TO LEVY SENT TO THE TAXPAYER BY THE IRS.

PROVIDED A TIMELY APPEAL IS MADE, AT THE APPEALS CONFERENCE THERE ARE SEVERAL THINGS THAT WILL HAPPEN. FIRST OF ALL, THE APPEALS OFFICER WILL VERIFY THAT THE IRS HAS SATISFIED ALL THE REQUIREMENTS AND PROCEDURES REQUIRED BY LAW. THEN THE TAXPAYER WILL BE GIVEN THE OPPORTUNITY TO RAISE ANY RELEVANT ISSUE REGARDING THE UNPAID TAX, INCLUDING ANY DEFENSES OR CHALLENGES TO THE AMOUNT OR EXISTENCE OF THE UNPAID TAX. (LIKE AN AUDIT DEFENSE) AN ISSUE MAY NOT BE RAISED BY THE TAXPAYER IF THE ISSUE WAS RAISED AT A PREVIOUS HEARING (OR ANY OTHER ADMINISTRATIVE OR JUDICIAL PROCEEDING OR IF THE TAXPAYER PREVIOUSLY HAD ANY OTHER OPPORTUNITY TO RAISE THE ISSUE, (LIKE AT A EXAMINATION APPEAL), AND THE TAXPAYER PARTICIPATED MEANINGFULLY IN THAT PROCEEDING.

IF THE TAXPAYER LOSES THIS APPEAL, THE TAXPAYER CAN CONTINUE TO CHALLENGE THE UNPAID TAX IN THE U.S. TAX COURT OR ON A FEDERAL DISTRICT COURT. (REMEMBER OUTSIDE OF THE TAX SYSTEM (TAX COURT) ALL AMOUNTS HAVE TO BE PAID TO DATE TO FILE SUIT AGAINST THE GOVERNMENT)

YOU SHOULD BE AWARE OF THE EFFECT OF AN APPEAL BY THE TAXPAYER ON THE STATUTE OF LIMITATIONS. SECTION 6330(E) STATES THAT IF THE TAXPAYER REQUESTS A HEARING AS DESCRIBED ABOVE, THE RUNNING OF THE STATUTE OF LIMITATIONS ON ANY LEVY ACTIONS, WHICH ARE THE SUBJECT OF THE REQUESTED HEARING, SHALL BE TOLLED FOR THE PERIOD DURING WHICH THE HEARING AND ANY APPEAL FROM THE HEARING IS PENDING. FURTHERMORE, THE RUNNING OF THE STATUTE OF LIMITATIONS UNDER SECTION 6502 (WHICH GENERALLY PROVIDES FOR A TEN YEAR COLLECTION PERIOD FROM THE DATE OF ASSESSMENT), SECTION 6531 (DEALING WITH THE STATUTE OF LIMITATIONS FOR THE PROSECUTION OF CRIMINAL TAX MATTERS), AND 6532 (RELATING TO ALL OTHER SUITS) ARE ALSO TOLLED FOR THE PERIOD DURING WHICH THE HEARING AND ANY APPEAL FROM THE HEARING IS PENDING OF THE 6330(A)(3)(B) APPEAL.

MOREOVER, IN NO EVENT SHALL THE IRS COMMENCE THE LEVY PROCESS UNTIL THE NINETIETH DAY AFTER THE DAY ON WHICH THERE IS A FINAL DETERMINATION IN SUCH HEARING. IF THE IRS PROCEEDS DURING THIS TIME OF SUSPENSION, THE TAXPAYER CAN PETITION THE U.S. TAX COURT FOR AN INJUNCTION, ENJOINING THE IRS FROM PROCEEDING.

ONCE THE TAXPAYER HAS GONE THROUGH THE APPEALS PROCESS AND HAS EITHER PAID THE TAXES OR THE IRS HAS CONCEDED THAT THE TAXES ARE NOT OWED, THE IRS MUST THEN ISSUE A CERTIFICATE OF RELEASE OF LIEN WITHIN THIRTY DAYS AFTER EITHER THE TAXES HAVE BEEN PAID, SET ASIDE, OR THE STATUTE OF LIMITATIONS ON COLLECTIONS HAS EXPIRED. ONCE THE TAXPAYER RECEIVES A CERTIFICATE OF RELEASE OF LIEN, THE TAXPAYER SHOULD MAIL PHOTOCOPIES TO THE CREDIT BUREAUS.

IF A TAX LIEN HAS BEEN FILED IN ERROR, EITHER BECAUSE THE TAXPAYER NEVER OWNED ANYTHING, OR MORE LIKELY, THE TAX BILL HAS PREVIOUSLY BEEN PAID, THE TAXPAYER HAS RECOURSE UNDER THE TAXPAYERS’ BILL OF RIGHTS. IF THIS HAPPENS YOU SHOULD NOTIFY THE IRS THAT THE LIEN HAS BEEN FILED IN ERROR AND REQUEST A CERTIFICATE OF RELEASE OF LIEN.

IF AFTER THIRTY DAYS THE IRS HAS NOT SENT A CERTIFICATE OF RELEASE OF LIEN, YOU SHOULD WRITE TO THE CHIEF OF SPECIAL PROCEDURES AT THE IRS OFFICE WHERE THE LIEN WAS FILED EXPLAINING THE CIRCUMSTANCES.

FINALLY YOU SHOULD BE AWARE THAT CERTAIN PROPERTY IS EXEMPT FROM A LEVY PROCEEDING, THE EXEMPT PROPERTY IS DESCRIBED IN SECTION 6334.
TITLE 26 - INTERNAL REVENUE CODE
Subtitle F - Procedure and Administration
CHAPTER 64 - COLLECTION
Subchapter D - Seizure of Property for Collection of Taxes
PART II - LEVY
Sec. 6334. Property exempt from levy
-STATUTE-
(a) Enumeration
There shall be exempt from levy -
(1) Wearing apparel and school books
Such items of wearing apparel and such school books
as are necessary for the taxpayer or for members of
his family;

2) Fuel, provisions, furniture, and personal effects
So much of the fuel, provisions, furniture, and
Personal effects in the taxpayer's household, and
of the arms for personal use, livestock, and
poultry of the taxpayer, as does not exceed $6,250
in value;

(3) Books and tools of a trade, business, or profession
So many of the books and tools necessary for the
trade, business, or profession of the taxpayer as
do not exceed in the aggregate $3,125 in value.

(4) Unemployment benefits
Any amount payable to an individual with respect to
his unemployment (including any portion thereof
payable with respect to dependents) under an
unemployment compensation law of he United States,
of any State, or of the District of Columbia or
of the Commonwealth of Puerto Rico.

(5) Undelivered mail
Mail, addressed to any person, which has not been
delivered t the addressee.

(6) Certain annuity and pension payments
Annuity or pension payments under the Railroad
Retirement Act, benefits under the Railroad
Unemployment Insurance Act, special pension payments
received by a person whose name has been
entered on the Army, Navy, Air Force, and Coast
Guard Medal of Honor roll (38 U.S.C. 1562), and
annuities based on retired or retainer pay under
chapter 73 of title 10 of the United States Code.

(7) Workmen's compensation
Any amount payable to an individual as workmen's
Compensation (including any portion thereof payable
with respect to dependents) under a workmen's
compensation law of the United States, any State, the
District of Columbia, or the Commonwealth
of Puerto Rico.

(8) Judgments for support of minor children
If the taxpayer is required by judgment of a court of
Competent jurisdiction, entered prior to the date of
levy, to contribute to the support of his minor
children, so much of his salary, wages,

or other income as is necessary to comply with such
judgment.

(9) Minimum exemption for wages, salary, and other income
Any amount payable to or received by an individual
as wages or salary for personal services, or as
income derived from other sources, during any
period, to the extent that the total of such amounts
payable to or received by him during such period
does not exceed the applicable exempt amount
determined under subsection(d).

(10) Certain service-connected disability payments
Any amount payable to an individual as a service-
Connected (within the meaning of section 101(16) of
title 38, United States Code) disability benefit
under -
(A) subchapter II, III, IV, V,,(!1) or VI of
chapter 11 of such title 38, or
(B) chapter 13, 21, 23, 31, 32, 34, 35, 37, or
39 of such title 38.

(11) Certain public assistance payments
Any amount payable to an individual as a recipient
of public assistance under -
(A) title IV or title XVI (relating to supplement
a security income for the aged, blind, and
disabled) of the Social Security Act, or
(B) State or local government public assistance or
public welfare programs for which eligibility
Is determined by a needs or income test.

(12) Assistance under Job Training Partnership Act
Any amount payable to a participant under the
Job Training Partnership Act (29 U.S.C. 1501 et
seq.) from funds Appropriated pursuant to such
Act.

(13) Residences exempt in small deficiency cases and
principal
residences and certain business assets exempt in
absence of certain approval or jeopardy
(A) Residences in small deficiency cases If the amount of the levy does not exceed $5,000 –

(i) any real property used as a residence by the taxpayer;

Or
(ii) any real property of the taxpayer
(other than real
property which is rented) used by any
other individual as a residence.

(B) Principal residences and certain business
Assets Except to the extent provided in
subsection (e)
(i) the principal residence of the taxpayer
(within the meaning of section 121); and
tangible personal property or real
property (other than real property which
is rented) used in the trade or business
of an individual taxpayer.

PLEASE REFER TO THE FOLLOWING WEB SITES RELATING TO A REVENUE OFFICERS RULES AND PROCEDURES IN THE COLLECTION PROCESS
http://www.irs.gov/irm/part5/index.html
(COLLECTIONS)
http://www.irs.gov/irm/index.html (IRM)INDEX)

5.11.2.2.1 (01-01-2006)
Legal Basis for Releasing Levies
1. IRC 6343(a)(1) requires levies to be released in the following circumstances.
• The liability is no longer owed
• The statutory collection period has run out
Note:
Generally, a levy served prior to the expiration of the collection period is good and should not be released. In addition, a levy served after reducing a tax liability to judgment is valid.
Example:
One week before the statutory collection period runs out, a notice of levy is served at the taxpayer's bank. The bank does not have to send the levy proceeds until the 21 day holding period on bank levies expires, and this will be after the period for collection runs out. This levy does not have to be released when the collection period runs out, because it was served timely.
Exception:
A continuous wage levy served before the expiration of the collection statute should be released after the expiration of the collection statute.
Example:
When a notice of levy is served on a taxpayer's right to property, sometimes that includes the right to receive future payments. If there is a fixed and determinable right to receive those future payments, the levy will attach them when they would have been paid to the taxpayer, even though it is not actually a "continuous" levy. As long as the right to property has been levied before the period for collection runs out, the notice of levy does not have to be released.

• The release will facilitate collection of the amount that is owed.

Example:
A notice of levy is served on the taxpayer's broker. The broker is holding a certain amount of the taxpayer's cash but not enough to pay the tax liability. In addition, the broker is holding the taxpayer's stock options. The stock is worth more than when the option price was set. The cash held by the broker is enough to exercise the option on shares worth more than the tax liability. We arrange to meet the taxpayer and the broker. The release of levy is served, the taxpayer gives the broker an order to use the cash held by the broker to exercise the stock options and to immediately sell the shares. A new notice of levy is served on the broker, so the proceeds of selling the shares will be attached and pay the tax liability.
Example:
A notice of levy is served on the taxpayer's bank. The amount in the bank is less than the tax liability. The taxpayer needs the Notice of Federal Tax Lien released and wants to post a bond to do so. The bank has a bond department, and the amount on deposit at the bank is enough to pay for the bond to get the lien released. A collateral agreement is submitted and approved. We meet the taxpayer at the bank. The notice of levy is released, and the taxpayer has the funds in the bank immediately turned over to the bond department, so the bond that assures payment of the amount owed can be issued and the lien can be released.
• The levy is creating an economic hardship, i.e., the levy will cause the individual to be unable to pay their necessary living expenses
• The fair market value of the levied property is much more than the amount owed. A portion can be released without risking collection.
• The taxpayer makes an installment agreement, unless the agreement allows for the levy
Example:
In response to a bank levy, the taxpayer contacts the assigned revenue officer for an installment agreement. If the revenue officer extends the taxpayer an installment agreement, but, using the same judgment required in considering any levy release, determines the levy will not be released, then the installment agreement must be noted accordingly.
2. Release the notice of levy as soon as one of the circumstances in (1) is identified to prevent payments from being received after the notice of levy should have been released. This will avoid the need to return levied property and the inconvenience this may cause for the taxpayer.

Example:
After a notice of levy has been sent to a taxpayer's employer, the taxpayer responds and shows that the notice of levy prevents her from paying for basic necessities for her family. Because the levy is causing an economic hardship, release it immediately, so the employer will not send a levy payment on the next pay day.
3. Section 362(a) of the Bankruptcy Code (Title 11) prohibits levy on the property of a taxpayer in bankruptcy. A levy on this property is generally illegal and must be released. Contact Technical Services for advice if you inadvertently levy on property of a taxpayer in bankruptcy.
4. Any notice of levy that violates the Internal Revenue Code or regulations must also be released.
5.11.2.2.2 (01-01-2006)
Wrongful and Erroneous Levies
1. A wrongful levy is one that attaches property to which the taxpayer has no rights. IRC 6343(b) authorizes release of wrongful levies. When a claim is received from the wrongfully levied party, contact Technical Services-Advisory (TS-ADV) about the taxpayer's rights to the levied property.
2. If the proceeds have already been forwarded, and it has been determined that returning the proceeds is appropriate, complete and process Form 5792, Request for IDRS Generated Refund.
3. If a notice of levy is served erroneously, release it immediately. Send Pattern Letter P–548 to the taxpayer. See Exhibit 5.11.2–1. The taxpayer can give this to people who received levies. See IRM 5.11.4.8,Reimbursing Bank Charges Because of Erroneous Levy, about reimbursing bank charges for erroneous levies.
Example:
A notice of levy is served.. The taxpayer shows a canceled check used to full pay the tax liability. When IDRS is researched, the check is found among unidentified remittances. Release the levy. Any related bank charges may be reimbursed.

5.11.2.2.3 (05-05-1998)
Serving Releases of Levy
1. Generally, levy releases are mailed to save resources. Sometimes, though, they may be served in person.
2. When a levy must be released quickly, it can be faxed. Confirm that the person has a FAX machine and is willing to accept the release this way.
5.11.2.2.4 (01-01-2006)
Forms Used to Release Levies
1. Use Form 668–D, Release of Levy/Release of Property from Levy, to release a levy served on Form 668–A or 668–W. Use Form 668–E, Release of Levy, to release seized property when Form 2433, Notice of Seizure, cannot be used.
2. Form 668–D can be used to release the levy in part or in full.
Example:
A taxpayer who has defaulted on an installment agreement, ultimately has his wages levied. The amount being levied creates a hardship, but a smaller amount would not. A release of wages less than $X allows the taxpayer to receive an amount that will not cause a hardship. Anything earned more than that amount is sent as levy proceeds each pay day.
Example:
After failing to respond to the CDP notice, a taxpayer's wages are levied. The taxpayer contacts the revenue officer assigned the case and a monthly payment amount is agreed to. A payroll deduction agreement to avoid default is the preferred disposition of the case, but the employer is reluctant to agree. A partial release of wages more than $X, sets a fixed amount that will be sent as levy proceeds each pay day. Anything more is paid to the taxpayer.
5.11.2.3 (08-01-2004)
Returning Levied Property to the Taxpayer
1. Before July 30, 1996, once levy proceeds were deposited, there was no authority to return the money regardless of the circumstances.

5.11.2.3.1 (01-01-2006)
Authority for Returning Levied Property
1. On July 30, 1996, Taxpayer Bill of Rights 2 (TBOR2) was enacted. This added subsection (d) to IRC 6343.
2. Now levy proceeds can be returned at the discretion of the service if:
• The levy is premature
• IRS procedures were not followed
Example:
Some companies notify the Service of an address for serving notices of levy. See IRM 5.11.2.1.5. A levy is sent to another address by mistake. The company forwards it to the correct address, and a levy payment is sent. The taxpayer may claim the payment must be returned, because procedures were not followed. This is not the case. The error is trivial, and returning the payment is unwarranted
• An installment agreement is made for a liability included on the levy, unless the agreement provides otherwise
Example:
Subsequent to the levy, the taxpayer enters into an installment agreement that will full pay the entire outstanding liability. The revenue officer verifies the taxpayer is financially able to meet all the terms of the agreement. An amount of money equal to the amount of money levied and applied toward the taxpayer's liability may be returned to the taxpayer.
• Returning the payment facilitates collection
• With the consent of the taxpayer or the Taxpayer Advocate, returning the payment is in the best interest of the taxpayer (as determined by the National Taxpayer Advocate [NTA]) and the government
Example:
Taxpayer owes income tax for 2000 and 2001. Levy issued to attach social security benefits. Taxpayer responds to levy and a collection information statement is completed that reflects a hardship. The levy on the social security benefits is released. After the levy is released, but before the Social Security Administration receives it, additional levy payments are received and applied to the liability. The taxpayer can file a request for

return of an amount equal to the amount applied to the liability after the levy was released. That amount may be returned by the Commissioner unless it is determined the return of property is not in the best interest of the government. Generally, after the IRS releases a levy due to hardship and receives post-release payments because of a delay in receiving the release, it may be in the best interest of the government to return such payments.
If Then
IRS makes a determination that return of property is in the best interest of the United States AND in the best interest of the taxpayer with taxpayer consent (no NTA involvement) IRS will return the levied property.
IRS makes a determination that return of property is in the best interest of the United States and the NTA also determines that return of the property is in the best interest of the taxpayer IRS will return the levied property.
IRS makes a determination that return of the property in NOT in the best interests of the United States (regardless of NTA determination or taxpayer consent) IRS will NOT return the levied property.
3. The taxpayer can file a request for the return of property up to nine months after the levy. Requests made after nine months cannot be considered.
Note:
The Service can refund levy proceeds without a request from the taxpayer. If the taxpayer requests the return of money within nine months of the levy, the Service may return the money after the nine month period ends if time is needed to investigate and process the request. The money can, then, be refunded after nine months.
5.11.2.3.2 (07-26-2002)
Factors to Consider Before Returning a Levy Payment
1. Except for a levy in violation of the law ( See IRM 5.11.2.3.1), there are no rigid rules for deciding whether to return a levy payment. The decision is made on a case-by-case basis. At least one of the conditions in IRM 5.11.2.3.1(2) must exist. Some things to consider include:
• How significant is a procedural error? In the first example in IRM 5.11.2.3.1(3), the error is harmless and insignificant.
• Did the person who received the levy get bad instructions about how much to send?
• Is there an error that affects whether the levy should have been issued?
• Is there an inequity in keeping the payment?

• Would the levy have been released if all facts were known before the payment was received?
• Is the taxpayer a pyramiding, delinquent trust fund repeater?
5.11.2.3.3 (01-01-2006)
Rejecting Requests for Return of Levied Property
1. When a written request is rejected, give the taxpayer Letter 3975, Rejection of Request for Return of Levied Property, signed by the group manager.
2. A written rejection is not required, unless a written request is made.
3. The taxpayer may appeal the rejection using Collection Appeal Program (CAP) procedures, or, if Collection Due Process (CDP) rights were not previously exercised, by requesting a CDP hearing or an equivalency hearing, whichever may be applicable.
5.11.2.3.4 (08-01-2004)
Delegation of Authority to Return Levy Payments
1. See Delegation Order 191 to determine who can approve returning levy proceeds.
5.11.2.3.5 (08-01-2004)
Getting the Money Refunded
1. See IRM 5.1.15.7,Requests for Manual Refunds, for general instructions for issuing a manual refund.
Note:
Although IRM 5.1.15.7.2 mentions only the Territory Manager, returning levy proceeds can be approved by the people listed in Delegation Order 191 under the delegated authority to return levy payments.
2. Unlike money that has been wrongfully levied, no interest is paid on the refund.
5.11.2.3.6 (07-26-2002)
Effect on Penalty & Interest
1. When levy proceeds are returned, the delinquent tax is not forgiven. The taxpayer is still obligated to pay the amount owed, and the Service is obligated to collect it.

2. However, the taxpayer will not be charged failure to pay penalty and interest during the period that the Service held the money. After the payment is returned to the taxpayer, penalty and interest start to accrue again.
3. The taxpayer owed $10,000.
On April 10, 1998, $2,500 was collected as levy proceeds.
On May 4, 2000, the $2,500 was returned.
A. Compute accrued interest on $10,000 through April 10, 1998. Then, compute interest on $7,500 for the period April 11, 1998, though May 4, 2000. Assess the total interest from these two steps using transaction code (TC) 340. Have the TC 340 input with the COMP-INT-AMT and INT-TO-DT fields complete. The COMP-INT-AMT is the amount still owed, so IDRS and master file should continue computing interest on this. In this example, it would be the amount still owed on May 4, 2000. The INT-TO-DATE is the date that the interest has been computed through, i.e. in this example, May 4. This will allow IDRS and master file to compute interest after that, so it will not have to be done manually.
B. Compute the failure to pay penalty that accrued from April 11, 1998, through May 4, 2000, on $2,500. Input this amount using TC 271 with Reason Code 62. This will allow IDRS and master file to compute the penalty after that, so it will not have to be done manually.
5.11.2.4 (07-26-2002)
Returning Levied Property to Someone Other Than the Taxpayer
1. Generally, if levied property must be returned, it is given back to the taxpayer(s) who owed the tax that was credited with the payment. Typically, if a levy payment is applied to a liability owed by John and Mary Smith, and it must be returned later, the refund check would be in the names John and Mary Smith.
2. Sometimes the name(s) on the check can not be the same as the name(s) on the delinquent account because the money must be retuned to the third party who was wrongfully levied upon.
Example:
Fred Jones owes delinquent tax for tax year 1997, when his filing status was single. In addition, Fred and Mary Jones owe delinquent tax for returns they filed jointly for tax years 1998 and 1999. One notice of levy is mistakenly issued for all three tax years showing Fred and Mary Jones as the taxpayers. This results in money from Mary's bank account being used to pay all three liabilities. The payment that is applied to tax year 1997 is for a liability owed by Fred Jones, but the refund check for that payment must be issued in the name Mary Jones. This example assumes the bank account is not community property.

Example:
Sam Wilson's Social Security benefits are levied. After five levy payments have been sent, the Social Security Administration finds out that Sam had died and was only eligible for benefits during the first three months. The other two months' levy payments must be returned to the Social Security Administration.
3. See IRM 5.1.15.7,Requests for Manual Refunds, for instructions about how to get the manual refund check issued.
4. A wrongful levy is one in which the levy proceeds are money that belonged to someone other than the delinquent taxpayer, such as in the first example in (2), above or when the levy destroyed the interest of a lien senior to the federal tax lien. In these cases, the person the money is returned to is entitled to interest. Using the overpayment rate in IRC 6621, interest runs from the date the levy payment was received to the refund schedule date. The date the interest runs through can be no earlier than thirty days before the money is actually returned.
5. When a wrongful levy is not involved, as in the second example in (2), above, no interest is paid.
5.11.2.5 (01-01-2006)
Disposing of Surplus Proceeds
1. Every reasonable effort will be made to release a notice of levy timely. However, sometimes surplus levy proceeds are received. Surplus proceeds are payments greater than the amount still owed for the liabilities listed on the notice of levy.
Example:
A refund posts after the levy source has already sent payment for the levy
2. The payment should be returned to the levy source when there is no remaining balance due.
3. If surplus proceeds are received, and taxes are owed that were not listed on the notice of levy, the surplus can be offset to those taxes. However, use levy proceeds to pay the taxes listed on the levy, first. The surplus may be offset to taxes not listed on the notice of levy, even if all the notices in IRM 5.11.1.2.1 have not been given to the taxpayer for those taxes.

Exhibit 5.11.2-1 (05-05-1998)
Pattern Letter P–548
(Reference 5.11.2.2.2)

Person to Contact:
Employee Identification Number:
Contact Telephone Number:
Date:

Dear (Name of Taxpayer):

We apologize for the concern   and inconvenience we caused you by the erroneous serving of a notice of levy, dated ______ , that attached assets, belonging to you, in the possession or control of
______ , at ______ .

We are enclosing a copy of   this letter, since you may want to furnish it to your employer, bank, or other individual or organization.

If you have any questions,   please contact the person whose name and telephone number are shown above.

Sincerely yours,

Area Director
By

(Signature and title)   

Enclosures:
Copy of this letter
Copy of Release of Levy

V. § 6015 – INNOCENT SPOUSE RELIEF

SECTION 6015 OF THE IRC PROVIDES FOR RELIEF FROM JOINT AND SEVERAL LIABILITY ON JOINT RETURNS. THIS LESSENS THE HARSHNESS OF THE GENERAL RULE THAT IF A HUSBAND AND WIFE FILE A JOINT RETURN BOTH ARE JOINTLY AND SEVERALLY LIABLE. SECTION 6015(B) OF THE CODE PROVIDES THAT AN INNOCENT SPOUSE MAY SEEK RELIEF FROM LIABILITY WHEN 1) A JOINT RETURN HAS BEEN FILED, 2) ON SUCH RETURN THERE WAS AN UNDERSTATEMENT OF TAX ATTRIBUTABLE TO ERRONEOUS ITEMS OF ONE INDIVIDUAL FILING THE JOINT RETURN, 3) THE OTHER INDIVIDUAL (I.E., THE INNOCENT SPOUSE) ESTABLISHES THAT IN SIGNING THE RETURN THE TAXPAYER DID NOT KNOW, OR HAVE REASON TO KNOW, THAT THERE WAS AN UNDERSTATEMENT, 4) TAKING INTO ACCOUNT ALL THE FACTS AND CIRCUMSTANCES IT WOULD BE INEQUITABLE TO HOLD THE INNOCENT SPOUSE LIABLE, AND 5) THE INNOCENT SPOUSE MUST ELECT THE BENEFITS OF THIS SECTION WITHIN TWO YEARS FROM THE DATE THE IRS COMMENCED THE COLLECTION PROCEEDINGS.

IF ALL THE ABOVE CONDITIONS ARE MET THE INNOCENT SPOUSE WILL BE RELIEVED FROM THE LIABILITY TO THE EXTENT THE LIABILITY IS ATTRIBUTABLE TO THE UNDERSTATEMENT.

IN ORDER TO PRESERVE THE RIGHT OF THE INNOCENT SPOUSE TO CLAIM RELIEF UNDER THIS PROVISION, IT IS IMPORTANT THAT SECTION 6015(B) IS INVOKED WITHIN THE TWO YEAR PERIOD PROVIDED FOR IN THE STATUTE, OTHERWISE EVEN IF ALL THE OTHER ELEMENTS ARE MET, THE INNOCENT SPOUSE MAY NOT BE ABLE TO AVOID LIABILITY.

SO BASICALLY, UNDER SECTION 6015(B) AN INNOCENT SPOUSE CAN REQUEST RELIEF FROM LIABILITY WHEN THE OTHER SPOUSE MADE AN ERRONEOUS UNDERSTATEMENT OF ITEMS AND THE INNOCENT SPOUSE WAS UNAWARE OF THE UNDERSTATEMENT AND THE TWO ARE NO LONGER MARRIED OR EQUITABLE RELIEF WOULD OTHERWISE BE JUSTIFIED.

SECTION 6015(C) PROVIDES A SECOND FORM OF RELIEF ALSO AVAILABLE TO AN INNOCENT SPOUSE. THIS SECTION IS INTENDED FOR THE SITUATION WHERE A DEFICIENCY HAS BEEN ASSESSED AND THE SPOUSES ARE NO LONGER TOGETHER (E.G., THEY ARE NOW DIVORCED OR ONE HAS DECEASED). THE INNOCENT SPOUSE IN THIS CASE HAS THE BURDEN OF SHOWING THAT 1) THE INNOCENT SPOUSE IS NO LONGER MARRIED TO, OR IS LEGALLY SEPARATED FROM THE OTHER SPOUSE ON THE JOINT RETURN, OR

2) THE INNOCENT PERSON WAS NOT A MEMBER OF THE SAME HOUSEHOLD AS THE PERSON WHO FILED THE JOINT RETURN WITHIN THE PAST TWELVE MONTHS, ENDING ON THE DATE THE INNOCENT SPOUSE ELECTION WAS FILED. IF THIS BURDEN OF PROOF IS SATISFIED THE IRS WILL TREAT THE JOINT RETURN AS TWO SEPARATE INDIVIDUAL RETURNS WITH EACH SPOUSE REPORTING THEIR AMOUNT OF INCOME SEPARATELY.

IN ORDER TO PRESERVE THE TAXPAYER’S RIGHT TO THIS INNOCENT SPOUSE ELECTION, YOU MUST MAKE AN ELECTION TO USE THIS SUBSECTION, THAT IS SECTION 6015(C). THE ELECTION CAN BE MADE ANY TIME AFTER A DEFICIENCY HAS BEEN ASSERTED, BUT NOT LATER THAN TWO YEARS AFTER THE DATE ON WHICH THE IRS HAS COMMENCED COLLECTION ACTIVITIES, SUCH AS THE MAILING OF A 30-DAY OR 90-DAY LETTER, OR OTHER FORMAL NOTICE . THIS DEADLINE, AS ALL OF THE IRS DEADLINES, IS STRICTLY ENFORCED AND YOU NEED TO QUESTION THE CLIENT ADEQUATELY DURING THE INITIAL INTERVIEW TO DETERMINE IF THIS TYPE OF RELIEF MAY BE APPROPRIATE.

SUBSECTION 6015(F) PROVIDES A THIRD FORM OF RELIEF FOR AN INNOCENT SPOUSE. THIS PROVISION IS INVOKED WHERE THE OTHER TWO FORMS OF RELIEF ARE UNAVAILABLE TO THE INNOCENT SPOUSE;

HOWEVER, IT WOULD BE INEQUITABLE TO HOLD THE INNOCENT SPOUSE LIABLE FOR THE DEFICIENCY. IF AN INNOCENT SPOUSE QUALIFIES FOR RELIEF UNDER SUBSECTION 6015(F) THE IRS HAS THE AUTHORITY TO PROVIDE PROCEDURES FOR THIS TYPE OF RELIEF. RELIEF MUST BE REQUESTED WITHIN 2 YEARS OF THE FIRST COLLECTION ACTIVITY AGAINST THE REQUESTING SPOUSE.

THE FOLLOWING IS A PARTIAL LIST OF THE FACTORS THAT WILL BE TAKEN INTO ACCOUNT IN DETERMINING WHETHER TO GRANT EQUITABLE RELIEF, NO SINGLE FACTOR WILL BE DETERMINATIVE OF WHETHER EQUITABLE RELIEF WILL OR WILL NOT BE GRANTED IN ANY PARTICULAR CASE. THE FACTORS WEIGHING IN FAVOR OF RELIEF INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING:

(A) MARITAL STATUS. THE REQUESTING SPOUSE IS SEPARATED (WHETHER LEGALLY SEPARATED OR LIVING APART) OR DIVORCED FROM THE NONREQUESTING SPOUSE.
(B) ECONOMIC HARDSHIP. THE REQUESTING SPOUSE WOULD SUFFER ECONOMIC HARDSHIP IF RELIEF FROM THE LIABILITY IS NOT GRANTED.

(C) ABUSE. THE REQUESTING SPOUSE WAS ABUSED BY THE NONREQUESTING SPOUSE, BUT SUCH ABUSE DID NOT AMOUNT TO DURESS.
(D) NO KNOWLEDGE OR REASON TO KNOW. IN THE CASE OF A LIABILITY THAT WAS PROPERLY REPORTED BUT NOT PAID, THE REQUESTING SPOUSE DID NOT KNOW AND HAD NO REASON TO KNOW THAT THE LIABILITY WOULD NOT BE PAID. IN THE CASE OF A LIABILITY THAT AROSE FROM A DEFICIENCY, THE REQUESTING SPOUSE DID NOT KNOW AND HAD NO REASON TO KNOW OF THE ITEMS GIVING RISE TO THE DEFICIENCY.
(E) NON REQUESTING SPOUSE'S LEGAL OBLIGATION. THE NONREQUESTING SPOUSE HAS A LEGAL OBLIGATION PURSUANT TO A DIVORCE DECREE OR AGREEMENT TO PAY THE OUTSTANDING LIABILITY. THIS WILL NOT BE A FACTOR WEIGHING IN FAVOR OF RELIEF IF THE REQUESTING SPOUSE KNEW OR HAD REASON TO KNOW, AT THE TIME THE DIVORCE DECREE OR AGREEMENT WAS ENTERED INTO, THAT THE NONREQUESTING SPOUSE WOULD NOT PAY THE LIABILITY ATTRIBUTABLE TO NON REQUESTING SPOUSE. THE LIABILITY FOR WHICH RELIEF IS SOUGHT IS SOLELY ATTRIBUTABLE TO THE

NON REQUESTING SPOUSE;
(F) FACTORS WEIGHING AGAINST RELIEF.THE FACTORS
WEIGHING AGAINST RELIEF INCLUDE, BUT ARE NOT
LIMITED TO, THE FOLLOWING:
(A) ATTRIBUTABLE TO THE REQUESTING SPOUSE. THE
UNPAID LIABILITY OR ITEM GIVING RISE TO THE DEFICIENCY
IS ATTRIBUTABLE TO THE REQUESTING SPOUSE.
(B) KNOWLEDGE, OR REASON TO KNOW. A REQUESTING
SPOUSE KNEW OR HAD REASON TO KNOW OF THE ITEM
GIVING RISE TO
A DEFICIENCY OR THAT THE REPORTED LIABILITY WOULD BE
UNPAID AT THE TIME THE RETURN WAS SIGNED. THIS IS A
STRONG FACTOR WEIGHING AGAINST RELIEF.
(C) SIGNIFICANT BENEFIT. THE REQUESTING SPOUSE HAS
SIGNIFICANTLY BENEFITED (BEYOND NORMAL SUPPORT)
FROM THE UNPAID LIABILITY OR ITEMS GIVING RISE TO THE
DEFICIENCY. SEE § 1.6013-5(B).
(D) LACK OF ECONOMIC HARDSHIP. THE REQUESTING SPOUSE
WILL NOT EXPERIENCE ECONOMIC HARDSHIP IF RELIEF FROM
THE LIABILITY IS NOT GRANTED.
(E) NONCOMPLIANCE WITH FEDERAL INCOME TAX LAWS. THE
REQUESTING SPOUSE HAS NOT MADE A GOOD FAITH EFFORT TO

COMPLY WITH FEDERAL INCOME TAX LAWS IN THE TAX YEARS
FOLLOWING THE TAX YEAR OR YEARS TO WHICH THE REQUEST
FOR RELIEF RELATES.
(F) REQUESTING SPOUSE'S LEGAL OBLIGATION. THE REQUESTING
SPOUSE HAS A LEGAL OBLIGATION PURSUANT TO A DIVORCE
DECREE OR AGREEMENT TO PAY THE LIABILITY.

VI. JUDICIAL REVIEW OF INNOCENT SPOUSE ELECTIONS

IF YOU HAVE A CLIENT THAT IS ELIGIBLE FOR

INNOCENT SPOUSE RELIEF UNDER 6015(B) OR 6015(C) THERE IS A CERTAIN

PROCEDURE THAT NEEDS TO BE FOLLOWED IN ORDER TO PRESERVE THE

JURISDICTION OF THE U.S. TAX COURT TO ENSURE THE APPROPRIATENESS

OF RELIEF.

IF THE TAXPAYER DOES NOT AGREE WITH THE RELIEF OFFERED BY THE

IRS, IN ORDER FOR THE U.S TAX COURT TO HAVE JURISDICTION AND

DETERMINE THE APPROPRIATE RELIEF AVAILABLE, THE CLIENT OR THOSE

LICENSED WITH THE TAX COURT NEED

TO FILE A PETITION WITH THE U.S. TAX COURT AT ANY

TIME AFTER THE EARLIER OF 1) THE DATE THE IRS MAILS, BY CERTIFIED

OR REGISTERED MAIL TO THE TAXPAYER’S LAST KNOWN ADDRESS,

NOTICE OF THE IRS’S FINAL DETERMINATION OF RELIEF AVAILABLE TO

THE INDIVIDUALS, OR 2) THE DATE WHICH IS 6 MONTHS AFTER THE DATE

THE ELECTION FOR RELIEF UNDER SECTION 6015(B) OR 6015(C) IS FILED

WITH THE IRS.

HOWEVER, IT IS IMPORTANT FOR YOU TO BE AWARE THAT UNDER NO CIRCUMSTANCE, CAN A PETITION BE FILED WITH THE U.S. TAX COURT LATER THAN THE CLOSE OF THE NINETIETH DAY AFTER THE DATE ON WHICH THE TAXPAYER RECEIVED NOTICE OF THE FINAL DETERMINATION OF THE AMOUNT OF RELIEF ALLOWABLE FOR THE INNOCENT SPOUSE BY THE IRS.

IT IS ALSO NOTEWORTHY THAT RELIEF UNDER §6015(F) IS ADMINISTRATIVE, AND IS NOT SUBJECT TO JUDICIAL REVIEW.

VII. THE EFFECT OF BANKRUPTCY AND/OR AN OFFER IN COMPROMISE ON THE STATUTE OF LIMITATIONS

THE RUNNING OF THE STATUTE OF LIMITATIONS CAN, AND OFTEN IS, A GOOD THING FOR THE TAXPAYER, AND CAN RESULT IN A FAVORABLE OUTCOME FOR SOME CLIENTS. HOWEVER, THERE ARE SEVERAL EVENTS THAT YOU SHOULD BE AWARE OF THAT CAN SUSPEND THE RUNNING OF THE STATUTORY PERIOD. THEY ARE FIRST, THE FILING OF BANKRUPTCY BY THE TAXPAYER,

SECOND, THE FILING OF AN OFFER IN COMPROMISE BY THE TAXPAYER,

AND THIRD THE FILING OF A PETITION. (TAX COURT, COLLECTION DUE PROCESS HEARING)

THE FILING OF A BANKRUPTCY PETITION UNDER ANY CHAPTER OF THE BANKRUPTCY CODE INVOKES AN AUTOMATIC STAY OF SPECIFIC ACTIONS AGAINST THE ESTATE IN BANKRUPTCY. THE AUTOMATIC STAY SPECIFICALLY PROHIBITS THE FOLLOWING ACTION THAT RELATE TO THE IRS, 1) ANY ACT TO COLLECT, ASSESS, OR RECOVER A CLAIM AGAINST THE DEBTOR THAT AROSE BEFORE THE COMMENCEMENT OF THE CASE, INCLUDING TAX CLAIMS AND TAX COLLECTION ACTIVITIES; 2) ANY ACT TO OBTAIN POSSESSION OF PROPERTY OF THE ESTATE OR PROPERTY FROM THE ESTATE; 3) ANY ACT TO CREATE, PERFECT, OR ENFORCE ANY LIEN AGAINST PROPERTY OF THE ESTATE, INCLUDING FEDERAL TAX LIENS; AND 4) THE COMMENCEMENT OR CONTINUATION OF A PROCEEDING BEFORE THE UNITED STATES TAX COURT CONCERNING THE DEBTOR. THIS AUTOMATIC STAY CONTINUES TO BE IN EFFECT UNTIL THE PROPERTY IS NO LONGER PROPERTY OF THE ESTATE OR THE BANKRUPTCY PROCEEDING IS CLOSED.
IF THE TAXPAYER HAS ALREADY FILED FOR BANKRUPTCY OR IS CONTEMPLATING FILING FOR BANKRUPTCY, YOU SHOULD NOTIFY THE

REVENUE OFFICER ASSIGNED TO THE CASE AND SEND THE REVENUE OFFICER A COPY OF THE BANKRUPTCY PETITION. ONCE THE TAXPAYER HAS FILED A BANKRUPTCY PETITION, THE IRS IS REQUIRED TO TURN OVER TO THE BANKRUPTCY ESTATE ANY PROPERTY THAT IT HAS SEIZED AND TO RELINQUISH WHATEVER RIGHTS IT MAY HAVE AS A SECURED PARTY IN THE PROPERTY. FURTHERMORE, IF THE IRS HAS YET TO FILE A NOTICE OF FEDERAL TAX LIEN, THE IRS CANNOT FILE A NOTICE OF FEDERAL TAX LIEN WHILE THE AUTOMATIC STAY IS IN PLACE.
THE AUTOMATIC STAY ALSO HAS AN EFFECT ON SOME IMPORTANT STATUTES OF LIMITATIONS PERTAINING TO THE IRS AND TO THE TAXPAYER. SECTION 6503(I) PROVIDES THAT THE RUNNING OF THE STATUTE OF LIMITATIONS ON THE MAKING OF ASSESSMENTS BY THE IRS IS SUSPENDED DURING THE AUTOMATIC STAY AND FOR SIXTY DAYS THEREAFTER, WHICH IS PRO TAXPAYER. HOWEVER, THE FLIP SIDE OF THAT COIN IS THAT SECTION 6502 STATES THAT THE RUNNING OF THE STATUTE OF LIMITATIONS ON THE COLLECTIONS IS TOLLED DURING THE AUTOMATIC STAY AND FOR SIX MONTHS THEREAFTER, THIS IS PRO IRS.
AN EXAMPLE OF THE POTENTIAL EFFECT ON THE TAXPAYER IS ILLUSTRATED HERE, FOR EXAMPLE, SECTION 6502 OF THE IRC PROVIDES FOR A TEN YEAR PERIOD IN WHICH THE IRS HAS TO COLLECT TAXES FROM THE DATE OF AN ASSESSMENT. IF THE IRS DOES NOT COLLECT THE

MONEY OWNED DURING THIS TEN YEAR PERIOD THEY WILL FOREVER BE BARRED FROM DOING SO, UNLESS THE IRS REDUCES THE TAX CLAIM TO A CIVIL JUDGMENT. ONCE THE TEN YEAR PERIOD HAS RUN, YOU CAN DEMAND THAT THE IRS REMOVE ANY AND ALL RECORDED TAX LIENS THAT HAVE BEEN IN EXISTENCE FOR A PERIOD OF TEN YEARS OR LONGER. HOWEVER, IF THE TAXPAYER HAS FILED FOR BANKRUPTCY DURING THIS TEN YEAR PERIOD, THE TIME PERIOD THAT THE BANKRUPTCY PROCEEDING IS PENDING THE STATUTE OF LIMITATIONS FOR COLLECTIONS IS TOLLED AND THUS EXTENDED BEYOND THE TEN YEAR MARK.
THE SECOND ITEM THAT CAN AFFECT THE STATUTE OF LIMITATIONS IS AN OFFER IN COMPROMISE. AN OFFER IN COMPROMISE CAN BE FILED AT ANYTIME AFTER RECEIVING A NOTICE OF ASSESSMENT BY THE IRS. THE FILING OF AN OFFER IN COMPROMISE WILL HAVE A SIMILAR EFFECT ON THE STATUTE OF LIMITATIONS AS DID THE FILING OF BANKRUPTCY. ONCE AN OFFER IN COMPROMISE IS FILED, IT TOO WILL TOLL THE STATUTE OF LIMITATIONS UNTIL A DECISION HAS BEEN REACHED ON THE OFFER IN COMPROMISE.
IRC 6331(K)(1) AND 6331(K)(2) PROHIBITS THE IRS FROM ENGAGING IN SEIZURES, LEVIES, OR WAGE GARNISHMENTS DURING THE TIME PERIOD IN WHICH AN OFFER IN COMPROMISE IS BEING CONSIDERED BY THE IRS.

IF THE IRS VIOLATES THIS PROHIBITION OF COLLECTION ACTIVITIES WHILE AN OFFER IN COMPROMISE IS PENDING, THE TAXPAYER MAY BE ABLE TO SUE THE UNITED STATES UNDER IRC 7433 FOR UNAUTHORIZED COLLECTION ACTIVITY.
LASTLY, IF AN OFFER IN COMPROMISE IS FILED BY THE TAXPAYER PRIOR TO FILING FOR BANKRUPTCY, THEN THE TAXPAYER ALSO FILES FOR BANKRUPTCY, THE TRUSTEE IN THE BANKRUPTCY PROCEEDING IS GIVEN THE POWER TO ACCEPT OR REJECT THE OFFER IN COMPROMISE. IF THE TAXPAYER HAS FILED FOR A CHAPTER 7 BANKRUPTCY, THE TRUSTEE HAS SIXTY DAYS TO ACCEPT OR REJECT THE OFFER IN COMPROMISE OR ELSE IT IS DEEMED REJECTED. IF THE TAXPAYER HAS FILED A CHAPTER 11 OR 13 PROCEEDING, THE TRUSTEE MUST ACCEPT OR REJECT THE OFFER IN COMPROMISE BEFORE THE CONFIRMATION OF THE REORGANIZATION PLAN.
THE THIRD EVENT THAT SUSPENDS THE RUNNING OF THE STATUTE OF LIMITATIONS IS THE FILING OF A PETITION. ONCE A PETITION CHALLENGING NOTICE OF DEFICIENCY IS FILED WITH THE UNITED STATES TAX COURT, THE IRS IS PROHIBITED FROM MAKING ASSESSMENT AND THE STATUTE OF LIMITATIONS IS TOLLED UNTIL FINAL DECISION IS RENDERED IN TAX COURT, PLUS SIXTY DAYS THEREAFTER.

VIII. LIMITATIONS ON CREDIT OR REFUND

SECTION 6511 OF THE IRC INFORMS THE TAXPAYER ON HOW TO PROCEED IF THE TAXPAYER IS IN THE UNFORTUNATE POSITION OF HAVING OVERPAID THE IRS AND THE TAXPAYER WISHES TO CLAIM A REFUND FOR THE AMOUNT OF THE OVERPAID TAX. PROVIDED THE TAXPAYER HAS OVERPAID AND YOU WANT TO COLLECT A REFUND FROM THE IRS, THERE ARE A COUPLE WAYS IN WHICH THE TAXPAYER CAN REQUEST A REFUND. SECTION 6511 EXPLAINS HOW TO PROCEED WITH THIS CLAIM.
THE TAXPAYER CAN EITHER FILE FOR A REFUND USING AN AMENDED TAX RETURN FORM 1040X OR FILE FORM 843. IN ANY CASE, THERE IS A STATUTE OF LIMITATIONS THAT HAS TO BE SATISFIED BEFORE THE IRS WILL CONSIDER YOUR REFUND REQUEST. IF THE REQUEST FOR A REFUND IS NOT TIMELY MADE IT WILL NOT BE ALLOWED. SECTION 6511 STATES THAT A CLAIM FOR CREDIT OR REFUND OF AN OVERPAYMENT MUST BE FILED WITH THREE YEARS FROM THE TIME THE RETURN WAS FILED BY THE TAXPAYER OR WITHIN TWO YEARS FROM THE TIME THE TAX WAS PAID, WHICHEVER EXPIRES LATER. IF A RETURN WAS NEVER FILED WITH THE IRS, THE CLAIM FOR REFUND MUST BE MADE WITHIN TWO YEARS FROM THE DATE THAT THE TAX WAS PAID BY THE TAXPAYER.

WITH RESPECT TO THE STATUTORY TIME ALLOWED TO CLAIM A REFUND, THERE IS A CAVEAT THAT YOU SHOULD BE AWARE OF. WHEN THE CLAIM IS FILED WITHIN THE THREE YEAR PERIOD, THE AMOUNT OF THE CREDIT OR THE REFUND SHALL NOT EXCEED THE PORTION OF THE TAX PAID WITHIN THE PERIOD IMMEDIATELY PRECEDING THE FILING OF THE CLAIM, EQUAL TO THREE YEARS PLUS THE PERIOD OF ANY EXTENSION OF TIME FOR FILING THE RETURN. SO IN ESSENCE, THE TAXPAYER CANNOT COLLECT ANYMORE THAN THE TAXPAYER ACTUALLY PAID FOR THE PREVIOUS THREE YEARS.
IF THE TAXPAYERS CLAIM FOR REFUND IS DENIED OR SIX MONTHS HAS PASSED WITHOUT COMMENT FROM THE IRS SINCE THE FILING OF THE CLAIM FOR REFUND, THEN THE TAXPAYER CAN FILE A SUIT IN UNITED STATES DISTRICT COURT OR THE UNITED STATES CLAIMS COURT FOR REFUND. THE TAXPAYER MUST FILE THE SUIT FOR REFUND WITHIN TWO YEARS FROM THE DATE THAT IRS DISALLOWS THE CLAIM FOR REFUND.
SECTION 6511 ALSO PROVIDES FOR A SPECIAL STATUTE OF LIMITATIONS IN CERTAIN CIRCUMSTANCES (MOST OF WHICH WILL NOT APPLY TO YOUR CLIENT). THE STATUTE OF LIMITATIONS IS EXTENDED TO SEVEN YEARS FOR A CLAIM OF REFUND FOR OVERPAYMENT DUE TO BAD DEBTS AND WORTHLESS SECURITIES. THERE IS ALSO AN ADDITIONAL THREE YEAR PERIOD ADDED TO THE STATUTORY PERIOD FOR OVER PAYMENTS RELATING TO NET OPERATING LOSSES.

LASTLY AND SOMETHING THAT YOU SHOULD EXPLORE IF THE STATUTE OF LIMITATIONS HAS RUN ON A TAXPAYER WHO HAS OVERPAID, IS SECTION 6511(H). SECTION 6511(H) SUSPENDS THE RUNNING OF THE STATUTE OF LIMITATIONS WHILE THE TAXPAYER IS “FINANCIALLY DISABLED.” FOR PURPOSES OF THIS SECTION, A TAXPAYER IS “FINANCIALLY DISABLED” IF SUCH INDIVIDUAL IS UNABLE TO MANAGE HIS FINANCIAL AFFAIRS BY REASON OF A MEDICALLY DETERMINABLE PHYSICAL OR MENTAL IMPAIRMENT WHICH CAN BE EXPECTED TO RESULT IN DEATH OR WHICH HAS LASTED OR CAN BE EXPECTED TO LAST FOR A CONTINUOUS PERIOD NOT LESS THAN TWELVE MONTHS. A PERSON CANNOT BE DEEMED “FINANCIALLY DISABLED” IF THE TAXPAYER HAS A SPOUSE OR GUARDIAN AUTHORIZED TO ACT ON THE TAXPAYERS’ BEHALF.