[Federal Register Volume 70, Number 134 (Thursday, July 14, 2005)]
[Rules and Regulations]
[Pages 40669-40672]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-13801]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9213]
RIN 1545-AV01


Return of Property in Certain Cases

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulation.

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SUMMARY: This document contains final regulations that amend 
regulations under section 6343 of the Internal Revenue Code (Code) 
relating to the return of property in certain cases. The regulations 
reflect changes made to section 6343 of the Code by the Taxpayer Bill 
of Rights 2. The regulations also reflect changes affecting levies 
enacted by the Internal Revenue Service Restructuring and Reform Act of 
1998. The regulations affect taxpayers seeking the return of levied 
property from the Internal Revenue Service (IRS).

[[Page 40670]]


DATES: Effective Date: These regulations are effective July 14, 2005.
    Applicability Date: For dates of applicability, see Sec.  301.6343-
3(k).

FOR FURTHER INFORMATION CONTACT: Kevin B. Connelly, (202) 622-3630 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to the Procedure and 
Administration Regulations (26 CFR part 301) relating to the return of 
property under section 6343 of the Code. Section 501(b) of the Taxpayer 
Bill of Rights 2 (TBOR2), Public Law 104-168 (110 Stat. 1452), amended 
section 6343 to authorize the IRS to return levied property in certain 
cases. The purpose of this provision is, to the extent possible, to 
return the taxpayer to the position the taxpayer would have been in had 
the levy not been issued. No interest shall be paid with respect to 
property returned to the taxpayer under this provision. These final 
regulations reflect the amendments made by section 501(b) of TBOR2.
    These regulations also reflect amendments made by the Internal 
Revenue Service Restructuring and Reform Act (RRA 1998), Public Law 
105-206 (112 Stat. 685), which added new sections 6331(i) and (j) to 
the Code to provide that no levy may be made during the pendency of 
proceedings for refund of divisible taxes or prior to completion of an 
investigation of the status of property that is to be sold under 
section 6335. RRA 1998 also added section 6331(k) to the Code, which 
provides that no levy may be made during the period an offer-in-
compromise or an installment agreement is pending or in effect. In 
addition, RRA 1998 added section 6330, which provides in certain 
circumstances for notice and an opportunity for a hearing before a levy 
can be made.

Explanation of Provisions

    On February 14, 2001, a notice of proposed rulemaking (REG-101520-
97) reflecting these changes was published in the Federal Register (66 
FR 10249). No written comments were received in response to the notice 
of proposed rulemaking and no public hearing was requested, scheduled 
or held. These final regulations adopt the provisions of the notice of 
proposed rulemaking without change.

Comments on the Proposed Regulation

    None.

Modifications of Proposed Regulation

    None.

Special Analyses

    It has been determined that this final regulation is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 
6) do not apply to these regulations, and, therefore, a Regulatory 
Flexibility Analysis is not required. Pursuant to section 7805(f) of 
the Code, the preceding notice of proposed rulemaking 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 Kevin B. Connelly, 
Office of Associate Chief Counsel (Procedure and Administration), 
Collection Bankruptcy & Summons Division, CC:PA:CBS, IRS.

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

0
Paragraph 1. The authority citation for part 301 continues to read, in 
part, as follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 2. Section 301.6343-3 is added to read as follows:


Sec.  301.6343-3  Return of property in certain cases.

    (a) In general. If money has been levied upon and applied toward 
the taxpayer's liability, or property has been levied upon and sold, 
and the receipts have been applied toward the taxpayer's liability, or 
property has been levied upon and purchased by the United States and 
the United States still possesses the property, and the Commissioner 
determines that any of the conditions in paragraph (c) of this section 
exist, the Commissioner may return--
    (1) An amount of money equal to the amount of money levied upon;
    (2) An amount of money equal to the amount of money received by the 
United States from a sale of the property; or
    (3) The specific property levied upon and purchased by the United 
States.
    (b) Return of levied upon property in possession of the Internal 
Revenue Service (IRS) pending sale under section 6335. Other than as 
provided in Sec.  301.6343-1(b) or in paragraph (d) of this section, 
the Commissioner, in his or her discretion, may return levied upon 
property that is in the possession of the United States pending sale 
under section 6335.
    (c) Conditions authorizing the return of property. The Commissioner 
may return property upon determining that one of the following 
conditions exist:
    (1) Premature or not in accordance with administrative procedures. 
The levy was premature or otherwise not in accordance with the 
administrative procedures of the Secretary.
    (2) Installment agreement. Subsequent to the levy, the taxpayer 
enters into an agreement under section 6159 to satisfy the liability 
for which the levy was made by means of installment payments. If, 
however, the agreement specifically provides that already levied upon 
property will not be returned under section 6343(d), the Commissioner 
may not grant a request for return of property under this paragraph 
(c)(2).
    (3) Facilitate collection. The return of property will facilitate 
the collection of the tax liability for which the levy was made.
    (4) Best interests of the United States and the taxpayer--(i) In 
general. The taxpayer or the National Taxpayer Advocate (or his or her 
delegate) has consented to the return of property, and the return of 
property would be in the best interest of the taxpayer, as determined 
by the National Taxpayer Advocate (or his or her delegate), and in the 
best interest of the United States, as determined by the Commissioner.
    (ii) Best interest of the taxpayer. The National Taxpayer Advocate 
(or his or her delegate) generally will determine whether the return of 
property is in the best interest of the taxpayer. If, however, a 
taxpayer requests the Commissioner to return property and has not 
specifically requested the National Taxpayer Advocate (or his or her 
delegate) to determine the taxpayer's best interest, a finding by the 
Commissioner that the return of property is in the best interest of the 
taxpayer will be sufficient to support the return of property. Only the 
National Taxpayer Advocate (or his or her delegate) may determine that 
a return of property is not in the best interest of the taxpayer.

[[Page 40671]]

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

    Example 1. A owes $1,000 in Federal income taxes. The IRS levies 
on a broker with respect to a money market account belonging to the 
taxpayer and receives payment from the broker which it applies to 
the taxpayer's outstanding liability. However, the IRS failed to 
follow procedure provided by the Internal Revenue Manual (but not 
required by statute) with regard to managerial approval prior to the 
making of the levy. The Commissioner may return an amount of money 
equal to the amount of money the IRS levied upon and applied toward 
the taxpayer's tax liability.
    Example 2. B owes $1,000 in Federal income taxes. The IRS levies 
on a bank with respect to a savings account belonging to the 
taxpayer and receives funds from the bank, which it applies to the 
taxpayer's liability. Subsequent to the levy, B enters into an 
installment agreement, under which B will pay timely installments to 
satisfy the entire liability. The installment agreement does not by 
its terms preclude the return of levied upon property. The revenue 
officer verifies that B is financially capable of paying the entire 
liability, including accruals, in the agreed-upon installment 
payments. The Commissioner may return an amount of money equal to 
the amount of money levied upon and applied toward the taxpayer's 
liability.
    Example 3. C owns a house that is deteriorating and in unsalable 
condition. C is in the process of renovating the house for sale when 
the IRS levies upon C's bank account for the payment of a $20,000 
outstanding Federal tax liability and receives funds in the amount 
of $3,000, which it applies toward C's liability. A notice of 
federal tax lien is the only lien encumbrancing the house. C 
requests that an amount of money equal to the amount seized from the 
bank account be returned so that C can complete the renovations on 
the house. Without the funds, C will be unable to complete the 
renovations and sell the house. Upon examination, the Commissioner 
determines that the IRS will be able to collect the entire tax 
liability if C's house is restored to salable condition. If the 
National Taxpayer Advocate, or the Commissioner in lieu of the 
National Taxpayer Advocate, determines that the return of the seized 
money is in the taxpayer's best interest, the Commissioner may 
return an amount of money equal to the amount seized from the bank 
account, in the best interest of the taxpayer and the United States.

    (d) Best Interests of the United States and the taxpayer to release 
levy and return of property where levy made in violation of law--(1) In 
general. If the IRS makes a levy in violation of the law, it is in the 
best interests of the United States and the taxpayer to release the 
levy and the IRS will return to the taxpayer any property obtained 
pursuant to the levy. For example, the IRS will release the levy and 
return the taxpayer's property if the levy was made--
    (i) Without giving the requisite thirty-day notice of the right to 
a hearing under section 6330;
    (ii) During the pendency of a proceeding for refund of divisible 
tax in violation of section 6331(i);
    (iii) Before investigation of the status of levied upon property in 
violation of section 6331(j);
    (iv) During the pendency of an offer-in-compromise in violation of 
section 6331(k)(1); or
    (v) During the period an offer to enter into an installment 
agreement is pending (or for 30 days following the rejection of an 
offer, or, if the rejection is timely appealed, during the period that 
the appeal is pending) or during the period an installment agreement is 
in effect (or during the 30 days following a termination or, if a 
timely appeal of termination is filed, during the period the appeal is 
pending) in violation of section 6331(k)(2).
    (2) Property may not be credited to outstanding liability without 
the taxpayer's permission. When the release of a levy and the return of 
property are required under this paragraph (d), the property or the 
proceeds from the sale of the property received by the IRS pursuant to 
the levy must be returned to the taxpayer unless the taxpayer requests 
otherwise. The property or proceeds of sale may not be credited to any 
outstanding tax liability of the taxpayer, including the one with 
respect to which the IRS made the levy, without the written permission 
of the taxpayer.
    (e) Time of return. Levied upon property in possession of the IRS 
(other than money) may be returned under paragraphs (c) and (d) of this 
section at any time. An amount of money equal to the amount of money 
levied upon or received from a sale of property may be returned at any 
time before the expiration of 9 months from the date of the levy. When 
a request for the return of money filed in accordance with paragraph 
(h) of this section is filed before the expiration of the 9-month 
period, or a determination to return an amount of money is made before 
the expiration of the 9-month period, the money may be returned within 
a reasonable period of time after the expiration of the 9-month period 
if additional time is necessary for investigation or processing.
    (f) Purchase by the United States. For purposes of paragraph (a)(2) 
of this section, if property is declared purchased by the United States 
at a sale pursuant to section 6335(e)(1)(C), the United States will be 
treated as having received an amount of money equal to the minimum 
price determined by the Commissioner before the sale.
    (g) Determinations by the Commissioner. The Commissioner must 
determine whether any of the conditions authorizing the return of 
property exists if a taxpayer submits a request for the return of 
property in accordance with paragraph (h) of this section. The 
Commissioner also may make this determination independently. If the 
Commissioner determines that conditions authorizing the return of 
property are not present, the Commissioner may not authorize the return 
of property. If the Commissioner determines that conditions authorizing 
the return of property are present, the Commissioner may (but is not 
required to, unless the reason for the return of property is that the 
levy was made in violation of law and is governed by paragraph (d) of 
this section) authorize the return of property. If the Commissioner 
decides independently to return property under paragraph (c)(4) of this 
section based on the best interests of the taxpayer and the United 
States, the taxpayer or the National Taxpayer Advocate (or his or her 
delegate) must consent to the return of property.
    (h) Procedures for request for the return of property--(1) Manner. 
A request for the return of property must be made in writing to the 
address on the levy form.
    (2) Form. The written request must include the following 
information--
    (i) The name, current address, and taxpayer identification number 
of the person requesting the return of money (or property purchased by 
the United States);
    (ii) A description of the property levied upon;
    (iii) The date of the levy; and
    (iv) A statement of the grounds upon which the return of money is 
being requested (or property purchased by the United States).
    (i) No interest. No interest will be paid on any money returned 
under this section.
    (j) Administrative collection upon default. If the Commissioner 
returns property under this section, and the taxpayer fails to pay the 
previously assessed liability for which the levy was made on the 
returned property, the Commissioner may administratively collect the 
liability. Collection may include levying again on the returned 
property as long as statutory and administrative requirements are 
followed.
    (k) Effective date. This section is applicable on July 14, 2005.


[[Page 40672]]


    Approved: June 30, 2005.
Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
Eric Solomon,
Acting Deputy Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 05-13801 Filed 7-13-05; 8:45 am]
BILLING CODE 4830-01-P