Part I. Rulings — Internal Revenue Bulletin 2011-18

Section 167.—Depreciation

A safe harbor method of accounting is provided for determining the recovery periods for depreciation of certain tangible assets used by wireless telecommunications carriers. The revenue procedure also explains how a taxpayer may obtain automatic consent from the Commissioner of Internal Revenue to change to the safe harbor method of accounting provided. See Rev. Proc. 2011-22, page 737.

Section 168.—Accelerated Cost Recovery System

Section 263.—Capital Expenditures

Two alternative safe harbor approaches are provided that taxpayers may use to determine whether expenditures to maintain, replace, or improve wireline network assets must be capitalized under section 263(a) of the Internal Revenue Code: a network asset maintenance allowance method or a units of property method. A companion revenue procedure (Rev. Proc. 2011–28) provides similar safe harbor approaches that may be used for wireless network assets. See Rev. Proc. 2011-27, page 740.

Two alternative safe harbor approaches are provided that taxpayers may use to determine whether expenditures to maintain, replace, or improve wireless network assets must be capitalized under section 263(a) of the Internal Revenue Code: a network asset maintenance allowance method or a units of property method. A companion revenue procedure (Rev. Proc. 2011–27) provides similar safe harbor approaches that may be used for wireline network assets. See Rev. Proc. 2011-28, page 743.

A safe harbor method of accounting is provided for allocating success-based fees paid in business acquisitions or reorganizations described in regulations section 1.263(a)–5(e)(3). In lieu of maintaining the documentation required by section 1.263(a)–5(f), this safe harbor permits electing taxpayers to treat 70 percent of the success-based fee as an amount that does not facilitate the transaction. The remaining portion of the fee must be capitalized as an amount that facil

itates the transaction. See Rev. Proc. 2011-29, page 746.

Section 6323.—Validity and Priority Against Certain Persons

26 CFR 301.6323(b)–1: Protection for certain inter- ests even though notice filed.

T.D. 9520

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 301

Withdrawal of Regulations Related to Validity and Priority of Federal Tax Lien

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations related to the validity and priority of the Federal tax lien against certain persons under section 6323 of the Internal Revenue Code (the Code). The final regulations update the corresponding Treasury Regulations to reflect changes in the law and in IRS practice.

DATES: Effective Date: These regulations are effective on April 4, 2011.

Applicability Date: These regulations apply to any notice of Federal tax lien filed on or after April 4, 2011.

FOR FURTHER INFORMATION CONTACT: Debra A. Kohn at (202) 622–3600 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains final regulations that amend the Procedure and Administration Regulations (26 CFR part 301) under section 6323 of the Code. If any person liable for tax neglects or

refuses to pay after demand, the amount of that tax is a lien in favor of the United States against all property and rights to property of such person under section 6321. Section 6323 provides that a Federal tax lien is only valid against certain persons if a notice of Federal tax lien (NFTL) is filed and addresses generally the validity and priority of the Federal tax lien against such persons. Section 6323(b) and (c) addresses the protection of certain interests even though an NFTL has been filed. Section 6323(f) prescribes the place for filing and the form of an NFTL. Section 6323(g) addresses the refiling of an NFTL. Section 6323(h) contains definitions of certain terms used throughout section 6323. Since 1976, there have been numerous amendments to section 6323 that are not reflected in the existing regulations. There have also been several changes to IRS practice that thus far have not been reflected in the regulations. On April 17, 2008, a notice of proposed rulemaking (REG–141998–06, 2008–1 C.B. 911) to reflect these changes in law and practice was published in the Federal Register (73 FR 20877–01). No comments were received and no public hearing was requested or held. Accordingly, in this Treasury Decision, the proposed regulations are adopted substantially without change with the exception of one revision described in this preamble.

Explanation of Revision

Section 301.6323(g)–1(a) sets forth general principles pertaining to refiling NFTLs. Most NFTLs now contain a certificate of release that automatically becomes effective on the date prescribed in the NFTL, which is the date the required refiling period ends. Therefore, if an NFTL that contains a certificate of release is not timely refiled in each jurisdiction where it was originally filed, the lien self-releases and is extinguished in all jurisdictions. See IRC §6325(f)(1)(A). The extinguishment of the lien invalidates NFTLs filed in other jurisdictions and requires the IRS to file certificates of revocation, as well as new NFTLs, in each

2011–18 I.R.B. 730 May 2, 2011

§301.6323(f)–1. B has no actual notice or knowledge of the tax lien. In addition, B does not know that the sale is one of a series of sales. Because the sale is a casual sale for less than $1,380 and involves books of a profession (tangible personal property of a type described in §301.6334–1, irrespective of the fact that A has never engaged in the legal profession), the tax lien is not valid against B even though a notice of lien was filed prior to the time of B’s purchase.

- - - Example 3 . In an advertisement appearing in a local newspaper, G indicates that he is offering for sale a lawn mower, a used television set, a desk, a refrigerator, and certain used dining room furniture. In response to the advertisement, H purchases the dining room furniture for $200. H does not receive any information which would impart notice of a lien, or that the sale is one of a series of sales, beyond the information contained in the advertisement. Prior to the sale a notice of lien was filed with respect to G’s delinquent tax liability in accordance with §301.6323(f)–1. Because H had no actual notice or knowledge that substantially all of G’s household goods were being sold or that the sale is one of a series of sales, and because the sale is a casual sale for less than $1,380, H does not purchase the dining room furniture subject to the lien. The household goods are of a type described in §301.6334–1(a)(2) irrespective of whether G is the head of a family or whether all such household goods offered for sale exceed $8,250 in value.
- - - (g) Residential property subject to a mechanic’s lien for certain repairs and improvements —(1) In general . Even though a notice of a lien imposed by section 6321 is filed in accordance with §301.6323(f)–1, the lien is not valid against a mechanic’s lienor (as defined in §301.6323(h)–1(b)) who holds a lien for the repair or improvement of a personal residence if —

(i) The residence is occupied by the owner and contains no more than four dwelling units; and

(ii) The contract price on the prime contract with the owner for the repair or improvement (excluding interest and expenses described in §301.6323(e)–1) is not more than $6,890, effective for 2010 and adjusted each year based on the rate of inflation.

(iii) For purposes of paragraph (g)(1)(ii) of this section, the amounts of subcontracts under the prime contract with the owner are not to be taken into consideration for purposes of computing the $6,890 prime contract price. It is immaterial that the notice of tax lien was filed before the contractor undertakes his work or that he knew of the lien before undertaking his work.

(2) - *

jurisdiction where NFTLs were previously filed.

The proposed regulations contemplated amending §301.6323(g)–1(a)(3) to provide generally that, with respect to an NFTL that includes a certificate of release, failure to timely refile the NFTL in any jurisdiction where it was originally filed extinguishes the lien and renders the NFTL ineffective with respect to property that is the subject matter of a suit to which the United States is a party that is commenced before the required filing period expires, and property that has been levied upon by the United States before the refiling period expires. Further consideration led to the determination that failure to timely refile the NFTL should not render the NFTL ineffective under these circumstances. Accordingly, the final regulations provide that neither failure to timely refile the NFTL, nor the release of the lien, shall alter or impair any right of the United States to property or its proceeds that is the subject of a levy or judicial proceeding commenced prior to the end of the refiling period or the release of the lien, except to the extent that a person acquires an interest in the property for adequate consideration after the commencement of the proceeding and does not have notice of, and is not bound by, the outcome of the proceeding.

Special Analyses

Drafting Information

The principal author of these regulations is Debra A. Kohn of the Office of the

Associate Chief Counsel (Procedure and Administration).

- - - -

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 301 is amended as follows:

PART 301—PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority citation for part 301 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * * Par. 2. Section 301.6323(b)–1 is amended as follows:

Paragraph (d)(1) is revised.
Paragraph (d)(3) Example 1 and 3 are revised.
Paragraphs (g)(1) and (g)(2) Exam- ple 1, 2, and 3 are revised.
Paragraphs (i)(1)(iii) and (j) are revised.

The revisions read as follows:

§301.6323(b)–1 Protection for certain interests even though notice filed .

- - - (d) Personal property purchased in ca- sual sale —(1) In general . Even though a notice of lien imposed by section 6321 is filed in accordance with §301.6323(f)–1, the lien is not valid against a purchaser (as defined in §301.6323(h)–1(f)) of household goods, personal effects, or other tangible personal property of a type described in §301.6334–1 (which includes wearing apparel, school books, fuel, provisions, furniture, arms for personal use, livestock, and poultry (whether or not the seller is the head of a family); and books and tools of a trade, business, or profession (whether or not the trade, business, or profession of the seller)), purchased, other than for resale, in a casual sale for less than $1,380, effective for 2010 and adjusted each year based on the rate of inflation (excluding interest and expenses described in §301.6323(e)–1).
- - - (3) - - Example 1 . A, an attorney’s widow, sells a set of law books for $200 to B, for B’s own use. Prior to the sale a notice of lien was filed with respect to A’s delinquent tax liability in accordance with

May 2, 2011 731 2011–18 I.R.B.

erty then owned or thereafter acquired by G. In accordance with §301.6323(f)–1, on January 10, 2006, a notice of lien is filed and recorded in the public index with respect to G’s delinquent tax liability. On March 3, 2006, with actual notice of the tax lien, F makes a cash disbursement of $5,000 to G and furnishes him seed, fertilizer, and insecticides having a value of $10,000. Under local law F’s security interest, coming into existence by reason of the cash disbursement and the furnishing of goods, has priority over a judgment lien arising January 10, 2006 (the date of tax lien filing and recording in the public index) out of an unsecured obligation.

(ii) Because F’s security interest arose by reason of a disbursement (including the furnishing of goods) made under a written agreement which was entered into before tax lien filing and which constitutes an agreement to finance the raising or harvesting of a farm crop, and because F’s security interest is valid under local law against a judgment lien arising as of the time of tax lien filing out of an unsecured obligation, the tax lien is not valid with respect to F’s security interest in the crop even though a notice of lien was filed before the security interest arose. Furthermore, because the farm is property subject to the tax lien at the time of tax lien filing, F’s security interest with respect to the farm also has priority over the tax lien.

Example 5 . Assume the same facts as in Example 4 and in addition that on October 2, 2006, G acquires several tractors to which F’s security interest attaches under the terms of the agreement. Because the tractors are not property subject to the tax lien at the time of tax lien filing, the tax lien has priority over F’s security interest in the tractors.

(e) Effective/applicability date . This section applies with respect to any notice of Federal tax lien filed on or after April 4, 2011. Par. 4. Section 301.6323(f)–1 is amended as follows:

Paragraph (d)(2) is revised.
Paragraph (f) is added. The revision and addition read as follows:

§301.6323(f)–1 Place for filing notice; form .

- - - (d) - * (2) Form 668 defined . The term Form 668 means either a paper form or a form transmitted electronically, including a form transmitted by facsimile (fax) or electronic mail (e-mail). A Form 668 must identify the taxpayer, the tax liability giving rise to the lien, and the date the assessment arose regardless of the method used to file the notice of Federal tax lien.
- - - (f) Effective/applicability date . This section applies with respect to any notice

Example 1 . A owns a building containing four apartments, one of which he occupies as his personal residence. A notice of lien which affects the building is filed in accordance with §301.6323(f)–1. Thereafter, A enters into a contract with B in the amount of $800, which includes labor and materials, to repair the roof of the building. B purchases roofing shingles from C for $300. B completes the work and A fails to pay B the agreed amount. In turn, B fails to pay C for the shingles. Under local law, B and C acquire mechanic’s liens on A’s building. Because the contract price on the prime contract with A is not more than $6,890 and under local law B and C acquire mechanic’s liens on A’s building, the liens of B and C have priority over the Federal tax lien.

Example 2 . Assume the same facts as in Exam- ple 1, except that the amount of the prime contract between A and B is $7,100. Because the amount of the prime contract with the owner, A, is in excess of $6,890, the tax lien has priority over the entire amount of each of the mechanic’s liens of B and C, even though the amount of the contract between B and C is $300.

Example 3 . Assume the same facts as in Example 1, except that A and B do not agree in advance upon the amount due under the prime contract but agree that B will perform the work for the cost of materials and labor plus 10 percent of such cost. When the work is completed, it is determined that the total amount due is $850. Because the prime contract price is not more than $6,890 and under local law B and C acquire mechanic’s liens on A’s residence, the liens of B and C have priority over the Federal tax lien.

- - - (i) - - (1)
- (iii) After the satisfaction of a levy pursuant to section 6332(b), unless and until the Internal Revenue Service delivers to the insuring organization a notice (for example, another notice of levy, a letter, etc.) executed after the date of such satisfaction, that the lien exists.
- - - (j) Effective/applicability date . This section applies to any notice of Federal tax lien filed on or after April 4, 2011.

Par. 3. Section 301.6323(c)–2 is amended as follows:

Paragraph (d) Example 1, 2, 3, 4, and 5 is revised.
Paragraph (e) is added. The revisions and addition read as follows:

§301.6323(c)–2 Protection for real property construction or improvement financing agreements.

(d) - - Example 1 . A, in order to finance the construction of a dwelling on a lot owned by him, mortgages the property to B. The mortgage, executed January 4, 2006, includes an agreement that B will make cash disbursements to A as the construction progresses. On February 1, 2006, in accordance with §301.6323(f)–1, a notice of lien is filed and recorded in the public index with respect to A’s delinquent tax liability. A continues the construction, and B makes cash disbursements on June 15, 2006, and December 15, 2006. Under local law B’s security interest arising by virtue of the disbursements is protected against a judgment lien arising February 1, 2006 (the date of tax lien filing) out of an unsecured obligation. Because B is the holder of a security interest coming into existence by reason of cash disbursements made pursuant to a written agreement, entered into before tax lien filing, to make cash disbursements to finance the construction of real property, and because B’s security interest is protected, under local law, against a judgment lien arising as of the time of tax lien filing out of an unsecured obligation, B’s security interest has priority over the tax lien.

Example 2. (i) C is awarded a contract for the demolition of several buildings. On March 3, 2004, C enters into a written agreement with D which provides that D will make cash disbursements to finance the demolition and also provides that repayment of the disbursements is secured by any sums due C under the contract. On April 1, 2004, in accordance with §301.6323(f)–1, a notice of lien is filed with respect to C’s delinquent tax liability. With actual notice of the tax lien, D makes cash disbursements to C on August 13, September 13, and October 13, 2004. Under local law D’s security interest in the proceeds of the contract with respect to the disbursements is entitled to priority over a judgment lien arising on April 1, 2004 (the date of tax lien filing) out of an unsecured obligation.

(ii) Because D’s security interest arose by reason of disbursements made pursuant to a written agreement, entered into before tax lien filing, to make cash disbursements to finance a contract to demolish real property, and because D’s security interest is valid under local law against a judgment lien arising as of the time of tax lien filed out of an unsecured obligation, the tax lien is not valid with respect to D’s security interest in the proceeds of the demolition contract.

Example 3. Assume the same facts as in Exam- ple 2 and, in addition, assume that, as further security for the cash disbursements, the March 3, 2004, agreement also provides for a security interest in all of C’s demolition equipment. Because the protection of the security interest arising from the disbursements made after tax lien filing under the agreement is limited under section 6323(c)(3) to the proceeds of the demolition contract and because, under the circumstances, the security interest in the equipment is not otherwise protected under section 6323, the tax lien will have priority over D’s security interest in the equipment.

Example 4 . (i) On January 3, 2006, F and G enter into a written agreement, whereby F agrees to provide G with cash disbursements, seed, fertilizer, and insecticides as needed by G, in order to finance the raising and harvesting of a crop on a farm owned by G. Under the terms of the agreement F is to have a security interest in the crop, the farm, and all other prop

2011–18 I.R.B. 732 May 2, 2011

of Federal tax lien filed on or after April 4, 2011. Par. 5. Section 301.6323(g)–1 is amended as follows:

Paragraphs (a)(1), (a)(3) introductory text, (a)(3)(i), and (a)(3)(ii), (a)(4), (b)(3) introductory text, (b)(3) Example 1, and (b)(3) Example 5 are revised.
The undesignated text following paragraph (a)(3)(ii) is removed.
Paragraph (c)(1) is revised.
Paragraph (c)(2) is removed.
Paragraph (c)(3) is redesignated as paragraph (c)(2) and revised.
Paragraph (d) is added. The revisions and additions read as follows:

§301.6323(g)–1 Refiling of notice of tax lien .

(a) In general —(1) Requirement to re- file . In order to continue the effect of a notice of lien, the notice must be refiled in the place described in paragraph (b) of this section during the required refiling period (described in paragraph (c) of this section). If two or more notices of lien are filed with respect to a particular tax assessment, and each notice of lien contains a certificate of release that releases the lien when the required refiling period ends, the failure to comply with the provisions of paragraphs (b)(1)(i) and (c) of this section in respect to one of the notices of lien releases the lien and renders ineffective the refiling of any other notice of lien.

- - - *. (3) Effect of failure to refile .—If the Internal Revenue Service fails to refile a notice of lien in the manner described in paragraphs (b) and (c) of this section, the notice is not effective, after the expiration of the required refiling period, as against any person described in section 6323(a), without regard to when the interest of the person in the property subject to the lien was acquired. If a notice of lien contains a certificate of release that provides that the lien is released at the end of the required refiling period unless the notice of lien is refiled, and the notice of lien is not refiled, then the lien is extinguished and the notice of lien is ineffective.

(i) However, neither the failure to refile before the expiration of the refiling period, nor the release of the lien, shall alter or impair any right of the United States to prop

erty or its proceeds that is the subject of a levy or judicial proceeding commenced prior to the end of the refiling period or the release of the lien, except to the extent that a person acquires an interest in the property for adequate consideration after the commencement of the proceeding and does not have notice of, and is not bound by, the outcome of the proceeding.

(ii) If a suit or levy referred to in the preceding sentence is dismissed or released and the property is subject to the lien at such time, a notice of lien with respect to the property is not effective after the suit or levy is dismissed or released unless refiled during the required refiling period.

(4) Filing of new notice . If a notice of lien is not refiled, and the notice of lien contains a certificate of release that automatically releases the lien when the required refiling period ends, the lien is released as of that date and is no longer in existence. The Internal Revenue Service must revoke the release before it can file a new notice of lien. This new filing must meet the requirements of section 6323(f) and §301.6323(f)–1 and is effective from the date on which such filing is made.

(b) - - (3) Examples . The following examples illustrate the provisions of this section:

Example 1 . A, a delinquent taxpayer, is a resident of State M and owns real property in State N. In accordance with §301.6323(f)–1, notices of lien are filed in States M and N. The notices of lien contain certificates of release that release the lien at the end of the required refiling period. In order to continue the effect of the notice of lien filed in either M or N, the Internal Revenue Service must refile, during the required refiling period, the notice of lien with the appropriate office in M as well as with the appropriate office in N.

- - - Example 5 . D, a delinquent taxpayer, is a resident of State M and owns real property in States N and O. In accordance with §301.6323(f)–1, the Internal Revenue Service files notices of lien in M, N, and O States. Nine years and 6 months after the date of the assessment shown on the notice of lien, D establishes his residence in P, and at that time the Internal Revenue Service receives from D a notification of his change in residence in accordance with the provisions of paragraph (b)(2) of this section. On a date which is 9 years and 7 months after the date of the assessment shown on the notice of lien, the Internal Revenue Service properly refiles notices of lien in M, N, and O which refilings are sufficient to continue the effect of each of the notices of lien. The Internal Revenue Service is not required to file a notice of lien in P because D did not notify the Internal Revenue Service of his change of residence to P more than 89 days prior to the date each of the refilings in M, N, and O was completed.
- - - (c) Required refiling period —(1) In general . For the purpose of this section, except as provided in paragraph (c)(2) of this section, the term required refiling period means—

(i) The 1-year period ending 30 days after the expiration of 10 years after the date of the assessment of the tax; and

(ii) The 1-year period ending with the expiration of 10 years after the close of the preceding required refiling period for such notice of lien.

(2) Examples . The following examples illustrate the provisions of this paragraph:

Example 1 . On March 10, 1998, an assessment of tax is made against B, a delinquent taxpayer, and a lien for the amount of the assessment arises on that date. On July 10, 1998, in accordance with §301.6323(f)–1, a notice of lien is filed. The notice of lien filed on July 10, 1998, is effective through April 9, 2008. The first required refiling period for the notice of lien begins on April 10, 2007, and ends on April 9, 2008. A refiling of the notice of lien during that period will extend the effectiveness of the notice of lien filed on July 10, 1998, through April 9, 2018. The second required refiling period for the notice of lien begins on April 10, 2017, and ends on April 9, 2018.

Example 2 . Assume the same facts as in Exam- ple 1, except that the Internal Revenue Service fails to refile a notice of lien during the first required refiling period (April 10, 2007, through April 9, 2008). A notice of lien is filed on June 9, 2009, in accordance with §301.6323(f)–1. This notice is ineffective if the original notice contained a certificate of release, as the certificate of release would have had the effect of extinguishing the lien as of April 10, 2008. The Internal Revenue Service could revoke the release and file a new notice of lien, which would be effective as of the date it was filed.

(d) Effective/applicability date . This section applies with respect to any notice of Federal tax lien filed on or after April 4, 2011. Par. 6. Section 301.6323(h)–1 is amended as follows:

Paragraphs (a)(2)(ii) and (a)(3) are revised.
A new paragraph (h) is added. The revisions and addition read as follows:

§301.6323(h)–1 Definitions .

(a) * - (2) - * (ii) The following example illustrates the application of paragraph (a)(2):

Example . (i) Under the law of State X, a security interest in certificated securities, negotiable documents, or instruments may be perfected, and hence protected against a judgment lien, by filing or by

May 2, 2011 733 2011–18 I.R.B.

the secured party taking possession of the collateral. However, a security interest in such intangible personal property is considered to be temporarily perfected for a period of 20 days from the time the security interest attaches, to the extent that it arises for new value given under an authenticated security agreement. Under the law of X, a security interest attaches to such collateral when there is an agreement between the creditor and debtor that the interest attaches, the debtor has rights in the property, and consideration is given by the creditor. Under the law of X, in the case of temporary perfection, the security interest in such property is protected during the 20-day period against a judgment lien arising, after the security interest attaches, out of an unsecured obligation. Upon expiration of the 20-day period, the holder of the security interest must perfect its security interest under local law.

(ii) Because the security interest is perfected during the 20-day period against a subsequent judgment lien arising out of an unsecured obligation, and because filing or the taking of possession before the conclusion of the period of temporary perfection is not considered, for purposes of paragraph (a)(2)(i) of this section, to be a requisite action which relates back to the beginning of such period, the requirements of this paragraph are satisfied. Because filing or taking possession is a condition precedent to continued perfection, filing or taking possession of the collateral is a requisite action to establish such priority after expiration of the period of temporary perfection. If there is a lapse of perfection for failure to file or take possession, the determination of when the security interest exists (for purposes of protection against the tax lien) is made without regard to the period of temporary perfection.

(3) Money or money’s worth . For purposes of this paragraph, the term money or money’s worth includes money, a security (as defined in paragraph (d) of this section), tangible or intangible property, services, and other consideration reducible to a money value. Money or money’s worth also includes any consideration which otherwise would constitute money or money’s worth under the preceding sentence which was parted with before the security interest would otherwise exist if, under local law, past consideration is sufficient to support an agreement giving rise to a security interest, and provided that the grant of the security interest is not a fraudulent transfer under local law or 28 U.S.C. § 3304(a)(2). A firm commitment to part with money, a security, tangible or intangible property, services, or other consideration reducible to a money value does not, in itself, constitute a consideration in money or money’s worth. A relinquishing or promised relinquishment of dower, curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights is not a consideration in money or money’s worth.

Nor is love and affection, promise of marriage, or any other consideration not reducible to a money value a consideration in money or money’s worth.

- - - (h) Effective/applicability date . This section applies as of April 4, 2011.

Steven T. Miller, Deputy Commissioner for Services and Enforcement.

Approved March 25, 2011.

Michael Mundaca, Assistant Secretary of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on April 1, 2011, 8:45 a.m., and published in the issue of the Federal Register for April 4, 2011, 76 F.R. 18384)

Section 7811.—Taxpayer Assistance Orders

26 CFR 301.7811–1: Taxpayer assistance orders.

T.D. 9519

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 301

Taxpayer Assistance Orders

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations relating to taxpayer assistance orders. These regulations reflect changes to the law made by the Taxpayer Bill of Rights II, the Internal Revenue Service Restructuring and Reform Act of 1998, the Community Renewal Tax Relief Act of 2000, and the American Jobs Creation Act of 2004. The final regulations affect taxpayers in cases where a taxpayer assistance order is being considered or issued.

DATES: Effective date: These regulations are effective on April 1, 2011.

Applicability date: For dates of applicability, see §301.7811–1(f).

FOR FURTHER INFORMATION CONTACT: Janice R. Feldman, (202) 622–8488 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

These final regulations contain rules related to taxpayer assistance orders under section 7811 of the Internal Revenue Code (Code). These regulations are necessary to reflect changes to the law made by the Taxpayer Bill of Rights II (TBOR 2), the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 98), the Community Renewal Tax Relief Act of 2000, and the American Jobs Creation Act of 2004. On July 27, 2009, a notice of proposed rulemaking (REG–152166–05, 2009–32 I.R.B. 183) relating to taxpayer assistance orders was published in the Federal Register (74 FR 36973). No comments were received from the public in response to the notice of proposed rulemaking. No public hearing was requested or held. The proposed regulations are adopted without substantive change by this Treasury decision with one exception. Example 3 in §301.7811–1(a)(4)(iv) of the regulations illustrating significant costs was revised slightly.

Furthermore, §301.7811–1(g) of the final regulations (T.D. 8403) published on March 23, 1992, in the Federal Register (57 FR 9975) defined the term “Ombudsman.” After these final regulations were published, section 101 of TBOR 2, Public Law 104–168, 110 Stat. 1452 (1996), amended section 7811 by changing the name of the “Ombudsman” to the “Taxpayer Advocate.” Section 1102 of RRA 98, Public Law 105–206, 112 Stat. 685 (1998), further amended section 7811, by replacing “Taxpayer Advocate” with “National Taxpayer Advocate.” Thus, §301.7811–1(g), which defined the obsolete term “ombudsman” is being removed by these final regulations as it is obsolete. Section 301.7811–1(e) of the existing final regulations (T.D. 8403), which contains the term “ombudsman” and concerns the suspension of the statute of limitations, was not revised by these final regulations as changes to that section may involve changes to IRS computer processing systems. Thus, all references to the term

2011–18 I.R.B. 734 May 2, 2011

(A) An immediate threat of adverse action;

(B) A delay of more than 30 days in resolving taxpayer account problems;

(C) The incurring by the taxpayer of significant costs (including fees for professional representation) if relief is not granted; or

(D) Irreparable injury to, or a long-term adverse impact on, the taxpayer if relief is not granted.

(iii) A delay of more than 30 days in re- solving taxpayer account problems is fur- ther defined . A delay of more than 30 days in resolving taxpayer account problems exists under the following conditions:

(A) When a taxpayer does not receive a response by the date promised by the IRS; or

(B) When the IRS has established a normal processing time for taking an action and the taxpayer experiences a delay of more than 30 days beyond the normal processing time.

(iv) Examples of significant hardship . The provisions of this section are illustrated by the following examples:

Example 1 . Immediate threat of adverse action . The IRS serves a levy on A’s bank account. A needs the bank funds to pay for a medically necessary surgical procedure that is scheduled to take place in one week. If the levy is not released, A will lack the funds necessary to have the procedure. A is experiencing an immediate threat of adverse action.

Example 2 . Delay of more than 30 days . B files a Form 4506, “ Request for a Copy of Tax Return .” B does not receive the photocopy of the tax return after waiting more than 30 days beyond the normal time for processing. B is experiencing a delay of more than 30 days.

Example 3 . Significant costs . The IRS sends XYZ, Inc. a notice requesting payment of the outstanding employment taxes and penalties owed by XYZ, Inc. The notice indicates that XYZ, Inc. has small employment tax balances with respect to 12 employment tax quarters totaling $10X. XYZ, Inc. provides documentation to the IRS which it contends shows that if all payments were applied to each quarter correctly, there would be no balance due. The IRS requests additional records and documentation. Because there are 12 quarters involved, to comply with this request XYZ, Inc. asserts that it will need to hire an accountant, who estimates he will charge at least $5X to organize all the records and provide a detailed analysis of how to apply the deposits and payments. XYZ, Inc. is facing significant costs.

Example 4 . Irreparable injury . D has arranged with a bank to refinance his mortgage to lower his monthly payment. D is unable to make the current monthly payment. Unless the monthly payment amount is lowered, D will lose his residence to foreclosure. The IRS refuses to subordinate the Federal tax lien, as permitted by section 6325(d), or discharge the property subject to the lien, as permitted by sec

“ombudsman” in §301.7811–1(e) should, consistent with the current version of the statute, be construed as referring to the “National Taxpayer Advocate.” Possible revisions to §301.7811–1(e) will be considered at a later date.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. The information required under this Treasury decision is already required by the current regulations and the Form 911, “ Request for Taxpayer Advo- cate Service Assistance (And Application for Taxpayer Assistance Order ).” In addition, the Form 911 takes minimal time and expense to prepare, and the filing of a Form 911 is optional. Therefore, preparing the Form 911 does not significantly increase the burden on taxpayers. Based on these facts, the Treasury Department and the IRS have determined that these regulations will not have a significant economic impact on a substantial number of small entities. Furthermore, the substance of the regulations does not concern the Form 911, but the procedures the Taxpayer Advocate Service (TAS) or the Internal Revenue Service (IRS) must follow with respect to taxpayer assistance orders. Therefore, any burden created by these regulations is on the TAS or IRS, not taxpayers. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding these regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Drafting Information

The principal author of these regulations is Janice R. Feldman, Office of the Special Counsel (National Taxpayer Advocate Program) (CC:NTA).

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Adoption of the Amendments to the Regulations

Accordingly, 26 CFR part 301 is amended as follows:

PART 301—PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority citation for part 301 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * * Par. 2. Section 301.7811–1 is amended by revising paragraphs (a), (b), (c) and (d), removing paragraphs (f), (g), (h) and redesignating paragraph (h) as (f) and revising newly designated paragraph (f) to read as follows:

§301.7811–1 Taxpayer assistance orders .

(a) Authority to Issue —(1) In general . When an application for a taxpayer assistance order (TAO) is filed by the taxpayer or the taxpayer’s authorized representative in the form, manner and time specified in paragraph (b) of this section, the National Taxpayer Advocate (NTA) may issue a TAO if, in the determination of the NTA, the taxpayer is suffering or is about to suffer a significant hardship as a result of the manner in which the internal revenue laws are being administered by the Internal Revenue Service (IRS), including action or inaction on the part of the IRS.

(2) The National Taxpayer Advocate defined . The term National Taxpayer Ad- vocate includes any designee of the NTA, such as a Local Taxpayer Advocate.

(3) Issuance without a written applica- tion . The NTA may issue a TAO in the absence of a written application by the taxpayer under section 7811(a).

(4) Significant hardship —(i) Determi- nation required . Before a TAO may be issued, the NTA is required to make a determination regarding significant hardship.

(ii) Term defined . The term significant hardship means a serious privation caused or about to be caused to the taxpayer as the result of the particular manner in which the revenue laws are being administered by the IRS. Significant hardship includes situations in which a system or procedure fails to operate as intended or fails to resolve the taxpayer’s problem or dispute with the IRS. A significant hardship also includes, but is not limited to:

May 2, 2011 735 2011–18 I.R.B.

tion 6325(b). As a result, the bank will not allow D to refinance. D is facing an irreparable injury if relief is not granted.

(5) Distinction between significant hardship and the issuance of a TAO . A finding that a taxpayer is suffering or about to suffer a significant hardship as a result of the manner in which the internal revenue laws are being administered by the IRS will not automatically result in the issuance of a TAO. After making a determination of significant hardship, the NTA must determine whether the facts and the law support relief for the taxpayer. In cases where any IRS employee is not following applicable published administrative guidance (including the Internal Revenue Manual), the NTA shall construe the factors taken into account in determining whether to issue a TAO in the manner most favorable to the taxpayer.

(b) Generally . A TAO is an order by the NTA to the IRS. The IRS will comply with a TAO unless it is appealed and then modified or rescinded by the NTA, the Commissioner, or the Deputy Commissioner. If a TAO is modified or rescinded by the Commissioner or the Deputy Commissioner, a written explanation of the reasons for the modification or rescission must be provided to the NTA. The NTA may not make a substantive determination of any tax liability. A TAO is also not intended to be a substitute for an established administrative or judicial review procedure, but rather is intended to supplement existing procedures if a taxpayer is about to suffer or is suffering a significant hardship. A request for a TAO shall be made on a Form 911, “ Request for Taxpayer Advo- cate Service Assistance (And Application for Taxpayer Assistance Order) ” (or other specified form) or in a written statement that provides sufficient information for the Taxpayer Advocate Service (TAS) to determine the nature of the harm or the need for assistance. A taxpayer’s right to administrative or judicial review will not be diminished or expanded in any way as a result of the taxpayer’s seeking assistance from TAS.

(c) Contents of taxpayer assistance or- ders . After establishing that the taxpayer is facing significant hardship and determining that the facts and law support relief to the taxpayer, the NTA may issue a TAO ordering the IRS within a specified time to—

(1) Release a levy . Release levied property (to the extent that the IRS may by law release such property); or

(2) Take certain other actions . Cease any action, take any action as permitted by law, or refrain from taking any action with respect to a taxpayer pursuant to—

(i) Chapter 64 (relating to collection); (ii) Chapter 70, subchapter B (relating to bankruptcy and receiverships);

(iii) Chapter 78 (relating to discovery of liability and enforcement of title); or

(iv) Any other provision of the internal revenue laws specifically described by the NTA in the TAO.

(3) Expedite, review, or reconsider an action at a higher level . Although the NTA may not make the substantive determination, a TAO may be issued to require the IRS to expedite, reconsider, or review at a higher level an action taken with respect to a determination or collection of a tax liability.

(4) Examples . The following examples assume the existence of significant hardship:

Example 1 . J contacts a Local Taxpayer Advocate because a wage levy is causing financial difficulties. The NTA determines that the levy should be released as it is causing economic hardship (within the meaning of section 6343(a)(1)(D) and §301.6343–1(b)(4)). The NTA may issue a TAO ordering the IRS to release the levy in whole or in part by a specified date.

Example 2 . The IRS rejects K’s offer in compromise. K files a Form 911, “ Request for Taxpayer Ad- vocate Service Assistance (And Application for Tax- payer Assistance Order) .” The NTA discovers facts that support acceptance of the offer in compromise. The NTA may issue a TAO ordering the IRS to reconsider its rejection of the offer or to review the rejection of the offer at a higher level. The TAO may include the NTA’s analysis of and recommendation for resolving the case.

Example 3 . L files a protest requesting Appeals consideration of IRS’s proposed denial of L’s request for innocent spouse relief. Appeals advises L that it is going to issue a Final Determination denying the request for innocent spouse relief. L files a Form 911,

“ Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order) .” The NTA reviews the administrative record and concludes that the facts support granting innocent spouse relief. The NTA may issue a TAO ordering Appeals to refrain from issuing a Final Determination and reconsider or review at a higher level its decision to deny innocent spouse relief. The TAO may include the NTA’s analysis of and recommendation for resolving the case.

(d) Issuance . A TAO may be issued to any office, operating division, or function of the IRS. A TAO shall apply to persons performing services under a qualified tax collection contract (as defined in section 6306(b)) to the same extent and in the same manner as the order applies to IRS employees. A TAO will not be issued to IRS Criminal Investigation division (CI), or any successor IRS division responsible for the criminal investigation function, if the action ordered in the TAO could reasonably be expected to impede a criminal investigation. CI will determine whether the action ordered in the TAO could reasonably be expected to impede an investigation. Generally, a TAO may not be issued to the Office of Chief Counsel.

- - - (f) Effective/applicability date . These regulations are applicable for TAOs issued on or after April 1, 2011, except that paragraph (e) of this section is applicable beginning March 20, 1992.

Steven T. Miller, Deputy Commissioner for Services and Enforcement.

Approved March 25, 2011.

Michael Mundaca, Assistant Secretary of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on March 31, 2011, 8:45 a.m., and published in the issue of the Federal Register for April 1, 2011, 76 F.R. 18059)

2011–18 I.R.B. 736 May 2, 2011