[Federal Register Volume 73, Number 21 (Thursday, January 31, 2008)]
[Rules and Regulations]
[Pages 5741-5744]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-1569]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 301 and 401

[TD 9378]
RIN 1545-BE35


Release of Lien or Discharge of Property

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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SUMMARY: This document contains final regulations related to release of 
lien and discharge of property under sections 6325, 6503, and 7426 of 
the Internal Revenue Code (Code). These regulations update existing 
regulations and contain procedures for processing a request made by a 
property owner for discharge of a Federal tax lien from his property 
under section 6325(b)(4). The regulations also clarify the impact of 
these procedures on sections 6503(f)(2) and 7426(a)(4) and (b)(5). 
These regulations reflect the enactment of sections 6325(b)(4), 
6503(f)(2), and 7426(a)(4) by the IRS Restructuring and Reform Act of 
1998.

DATES: Effective Date: These regulations are effective January 31, 
2008.
    Applicability Date: These regulations apply to any release of lien 
or discharge of property that is requested after January 31, 2008.

FOR FURTHER INFORMATION CONTACT: Debra A. Kohn, (202) 622-7985 (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 sections 6325, 
6503, and 7426 of the Code. The IRS Restructuring and Reform Act of 
1998, Public Law 105-206 (112 Stat. 685) (RRA 1998), enacted sections 
6325(b)(4), 6503(f)(2), 7426(a)(4), and 7426(a)(5) to provide a 
statutory mechanism for a person other than the person against whom the 
underlying tax was assessed, upon furnishing a deposit or bond, to 
obtain a discharge of the Federal tax lien from property owned by him, 
and for the IRS or the courts to determine the disposition of the 
deposit or bond amount. RRA 1998 thereby necessitated changes to the 
rules under sections 6325, 6503, and 7426.
    On January 11, 2007, a notice of proposed rulemaking (REG-159444-
04) relating to release of lien or discharge of property was published 
in the Federal Register (72 FR 1301-03). No comments were received and 
no public hearing was requested or held. Accordingly, the proposed 
regulations are adopted as amended by this Treasury decision. These 
final regulations generally retain the provisions of the proposed 
regulations but include one modification as explained in more detail 
below.

Explanation of Modification

    The final regulations differ substantively in one respect from the 
version of the regulations set forth in the notice of proposed 
rulemaking. The proposed regulations interpret section 6325(b)(4)(D), 
which states that section 6325(b)(4)(A) is inapplicable ``if the owner 
of the property is the person whose unsatisfied liability gave rise to 
the lien,'' as indicating that the procedures for obtaining a discharge 
of a Federal tax lien under section 6325(b)(4) are not available to a 
person who owns the subject property with the person whose tax 
liability gave rise to the lien (the taxpayer). Upon further 
consideration of this issue, it was decided that section 6235(b)(4)(D) 
should not be so interpreted, as that interpretation would unfairly 
leave some third-party property owners without a means to discharge 
Federal tax liens from their properties. Accordingly, the final 
regulations reflect an interpretation of section 6325(b)(4)(D) that 
makes the section 6325(b)(4) procedures available to a person who co-
owns property with the taxpayer.

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 also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations, and because 
these regulations do not impose collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. 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 Debra A. Kohn of the 
Office of the Associate Chief Counsel (Procedure and Administration).

[[Page 5742]]

List of Subjects

26 CFR Part 301

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

26 CFR Part 401

    Reporting and recordkeeping requirements, Taxes.

Adoption of Amendments to the Regulations

0
Accordingly, under the authority of 26 U.S.C. 7805, 26 CFR parts 301 
and 401 are 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 301.6325-1 is amended as follows:
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1. Paragraphs (a) and (b)(1)(i), (b)(2)(i), and (b)(2)(ii) and (b)(3) 
are revised.
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2. Paragraph (b)(2)(iii) is redesignated as paragraph (b)(6) and 
revised.
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3. Paragraph (b)(4) is redesignated as paragraph (b)(5) and revised.
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4. A new paragraph (b)(4) is added.
0
5. Paragraphs (c)(1) and (c)(2) are amended by removing the language 
``district director'' and adding the language ``appropriate official'' 
in its place, wherever it appears.
0
6. The first sentence of paragraph (d)(1) is amended by removing the 
language ``A district director'' and adding the language ``The 
appropriate official'' in its place, by removing the word ``Code'' and 
adding the language ``Internal Revenue Code'' in its place, and by 
removing the language ``the district director'' and adding the language 
``the appropriate official'' in its place. The third sentence is 
amended by removing the language ``a district director'' and adding the 
language ``the appropriate official'' in its place, and removing the 
language ``the district director'' and adding ``the appropriate 
official'' in its place.
0
7. Paragraph (d)(2)(i) is amended by removing the language ``A district 
director'' and adding the language ``The appropriate official'' in its 
place, by removing the word ``Code'' and adding the language ``Internal 
Revenue Code'' in its place, and by removing the language ``the 
district director'' and adding the language ``the appropriate 
official'' in its place.
0
8. Paragraph (d)(2)(ii), Examples 1 through 4, are amended by removing 
the language ``district director'' and adding the language 
``appropriate official'' in its place, wherever it appears.
0
9. Paragraphs (d)(3) and (d)(4) are amended by removing the language 
``district director'' and adding the language ``appropriate official'' 
in its place, wherever it appears.
0
10. The first sentence of paragraph (e) is amended by removing the 
language ``a district director'' and adding the language ``the 
appropriate official'' in its place, and by removing the language ``the 
district director'' and adding the language ``the appropriate 
official'' in its place. The third and fourth sentences are amended by 
removing the language ``district director'' and adding the language 
``appropriate official'' in its place.
0
11. Paragraphs (f)(1) and (f)(2)(i) are amended by removing the 
language ``a district director'' and adding the language ``the 
appropriate official'' in its place, paragraph (f)(2)(i)(b) is amended 
by removing the language ``the district director'' and adding the 
language ``the appropriate official'' in its place, and paragraph 
(f)(3) is amended by removing the word ``Code'' and adding the language 
``Internal Revenue Code'' in its place.
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12. Paragraphs (h) and (i) are added.
    The revisions and additions read as follows:


Sec.  301.6325-1  Release of lien or discharge of property.

    (a) Release of lien--(1) Liability satisfied or unenforceable. The 
appropriate official shall issue a certificate of release for a filed 
notice of Federal tax lien, no later than 30 days after the date on 
which he finds that the entire tax liability listed in such notice of 
Federal tax lien either has been fully satisfied (as defined in 
paragraph (a)(4) of this section) or has become legally unenforceable. 
In all cases, the liability for the payment of the tax continues until 
satisfaction of the tax in full or until the expiration of the 
statutory period for collection, including such extension of the period 
for collection as is agreed to.
    (2) Bond accepted. The appropriate official shall issue a 
certificate of release of any tax lien if he is furnished and accepts a 
bond that is conditioned upon the payment of the amount assessed 
(together with all interest in respect thereof), within the time agreed 
upon in the bond, but not later than 6 months before the expiration of 
the statutory period for collection, including any agreed upon 
extensions. For provisions relating to bonds, see sections 7101 and 
7102 and Sec. Sec.  301.7101-1 and 301.7102-1.
    (3) Certificate of release for a lien which has become legally 
unenforceable. The appropriate official shall have the authority to 
file a notice of Federal tax lien which also contains a certificate of 
release pertaining to those liens which become legally unenforceable. 
Such release will become effective as a release as of a date prescribed 
in the document containing the notice of Federal tax lien and 
certificate of release.
    (4) Satisfaction of tax liability. For purposes of paragraph (a)(1) 
of this section, satisfaction of the tax liability occurs when--
    (i) The appropriate official determines that the entire tax 
liability listed in a notice of Federal tax lien has been fully 
satisfied. Such determination will be made as soon as practicable after 
tender of payment; or
    (ii) The taxpayer provides the appropriate official with proof of 
full payment (as defined in paragraph (a)(5) of this section) with 
respect to the entire tax liability listed in a notice of Federal tax 
lien together with the information and documents set forth in paragraph 
(a)(7) of this section. See paragraph (a)(6) of this section if more 
than one tax liability is listed in a notice of Federal tax lien.
    (5) Proof of full payment. As used in paragraph (a)(4)(ii) of this 
section, the term proof of full payment means--
    (i) An internal revenue cashier's receipt reflecting full payment 
of the tax liability in question;
    (ii) A canceled check in an amount sufficient to satisfy the tax 
liability for which the release is being sought;
    (iii) A record, made in accordance with procedures prescribed by 
the Commissioner, of proper payment of the tax liability by credit or 
debit card or by electronic funds transfer; or
    (iv) Any other manner of proof acceptable to the appropriate 
official.
    (6) Notice of a Federal tax lien which lists multiple liabilities. 
When a notice of Federal tax lien lists multiple tax liabilities, the 
appropriate official shall issue a certificate of release when all of 
the tax liabilities listed in the notice of Federal tax lien have been 
fully satisfied or have become legally unenforceable. In addition, if 
the taxpayer requests that a certificate of release be issued with 
respect to one or more tax liabilities

[[Page 5743]]

listed in the notice of Federal tax lien and such liability has been 
fully satisfied or has become legally unenforceable, the appropriate 
official shall issue a certificate of release. For example, if a notice 
of Federal tax lien lists two separate liabilities and one of the 
liabilities is satisfied, the taxpayer may request the issuance of a 
certificate of release with respect to the satisfied tax liability and 
the appropriate official shall issue a release.
    (7) Taxpayer requests. A request for a certificate of release with 
respect to a notice of Federal tax lien shall be submitted in writing 
to the appropriate official. The request shall contain the information 
required in the appropriate IRS Publication.
    (b) Discharge of specific property from the lien--(1) Property 
double the amount of the liability. (i) The appropriate official may, 
in his discretion, issue a certificate of discharge of any part of the 
property subject to a Federal tax lien imposed under chapter 64 of the 
Internal Revenue Code if he determines that the fair market value of 
that part of the property remaining subject to the Federal tax lien is 
at least double the sum of the amount of the unsatisfied liability 
secured by the Federal tax lien and of the amount of all other liens 
upon the property which have priority over the Federal tax lien. In 
general, fair market value is that amount which one ready and willing 
but not compelled to buy would pay to another ready and willing but not 
compelled to sell the property.
* * * * *
    (2) Part payment; interest of United States valueless--(i) Part 
payment. The appropriate official may, in his discretion, issue a 
certificate of discharge of any part of the property subject to a 
Federal tax lien imposed under chapter 64 of the Internal Revenue Code 
if there is paid over to him in partial satisfaction of the liability 
secured by the Federal tax lien an amount determined by him to be not 
less than the value of the interest of the United States in the 
property to be so discharged. In determining the amount to be paid, the 
appropriate official will take into consideration all the facts and 
circumstances of the case, including the expenses to which the 
government has been put into the matter. In no case shall the amount to 
be paid be less than the value of the interest of the United States in 
the property with respect to which the certificate of discharge is to 
be issued.
    (ii) Interest of the United States valueless. The appropriate 
official may, in his discretion, issue a certificate of discharge of 
any part of the property subject to the Federal tax lien if he 
determines that the interest of the United States in the property to be 
so discharged has no value.
    (3) Discharge of property by substitution of proceeds of sale. The 
appropriate official may, in his discretion, issue a certificate of 
discharge of any part of the property subject to a Federal tax lien 
imposed under chapter 64 of the Internal Revenue Code if such part of 
the property is sold and, pursuant to a written agreement with the 
appropriate official, the proceeds of the sale are held, as a fund 
subject to the Federal tax liens and claims of the United States, in 
the same manner and with the same priority as the Federal tax liens or 
claims had with respect to the discharged property. This paragraph does 
not apply unless the sale divests the taxpayer of all right, title, and 
interest in the property sought to be discharged. Any reasonable and 
necessary expenses incurred in connection with the sale of the property 
and the administration of the sale proceeds shall be paid by the 
applicant or from the proceeds of the sale before satisfaction of any 
Federal tax liens or claims of the United States.
    (4) Right of substitution of value--(i) Issuance of certificate of 
discharge to property owner who is not the taxpayer. If an owner of 
property subject to a Federal tax lien imposed under chapter 64 of the 
Internal Revenue Code submits an application for a certificate of 
discharge pursuant to paragraph (b)(5) of this section, the appropriate 
official shall issue a certificate of discharge of such property after 
the owner either deposits with the appropriate official an amount equal 
to the value of the interest of the United States in the property, as 
determined by the appropriate official pursuant to paragraph (b)(6) of 
this section, or furnishes an acceptable bond in a like amount. This 
paragraph does not apply if the person seeking the discharge is the 
person whose unsatisfied liability gave rise to the Federal tax lien. 
Thus, if the property is owned by both the taxpayer and another person, 
the other person may obtain a certificate of discharge of the property 
under this paragraph, but the taxpayer may not.
    (ii) Refund of deposit and release of bond. The appropriate 
official may, in his discretion, determine that either the entire 
unsatisfied tax liability listed on the notice of Federal tax lien can 
be satisfied from a source other than the property sought to be 
discharged, or the value of the interest in the United States is less 
than the prior determination of such value. The appropriate official 
shall refund the amount deposited with interest at the overpayment rate 
determined under section 6621 or release the bond furnished to the 
extent that he makes this determination.
    (iii) Refund request. If a property owner desires an administrative 
refund of his deposit or release of the bond, the owner shall file a 
request in writing with the appropriate official. The request shall 
contain such information as the appropriate IRS Publication may 
require. The request must be filed within 120 days after the date the 
certificate of discharge is issued. A refund request made under this 
paragraph neither is required nor is effective to extend the period for 
filing an action in court under section 7426(a)(4).
    (iv) Internal Revenue Service's use of deposit if court action not 
filed. If no action is filed under section 7426(a)(4) for refund of the 
deposit or release of the bond within the 120-day period specified 
therein, the appropriate official shall, within 60 days after the 
expiration of the 120-day period, apply the amount deposited or collect 
on such bond to the extent necessary to satisfy the liability listed on 
the notice of Federal tax lien, and shall refund, with interest at the 
overpayment rate determined under section 6621, any portion of the 
amount deposited that is not used to satisfy the liability. If the 
appropriate official has not completed the application of the deposit 
to the unsatisfied liability before the end of the 60-day period, the 
deposit will be deemed to have been applied to the unsatisfied 
liability as of the 60th day.
    (5) Application for certificate of discharge. Any person desiring a 
certificate of discharge under this paragraph (b) shall submit an 
application in writing to the appropriate official. The application 
shall contain the information required by the appropriate IRS 
Publication. For purposes of this paragraph (b), any application for 
certificate of discharge made by a property owner who is not the 
taxpayer, and any amount submitted pursuant to the application, will be 
treated as an application for discharge and a deposit under section 
6325(b)(4) unless the owner of the property submits a statement, in 
writing, that the application is being submitted under another 
paragraph of section 6325 and not under section 6325(b)(4), and the 
owner in writing waives the rights afforded under paragraph (b)(4), 
including the right to seek judicial review.

[[Page 5744]]

    (6) Valuation of interest of United States. For purposes of 
paragraphs (b)(2) and (b)(4) of this section, in determining the value 
of the interest of the United States in the property, or any part 
thereof, with respect to which the certificate of discharge is to be 
issued, the appropriate official shall give consideration to the value 
of the property and the amount of all liens and encumbrances thereon 
having priority over the Federal tax lien. In determining the value of 
the property, the appropriate official may, in his discretion, give 
consideration to the forced sale value of the property in appropriate 
cases.
* * * * *
    (h) As used in this section, the term appropriate official means 
either the official or office identified in the relevant IRS 
Publication or, if such official or office is not so identified, the 
Secretary or his delegate.
    (i) Effective/applicability date. This section applies to any 
release of lien or discharge of property that is requested after 
January 31, 2008.

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Par. 3. Section 301.6503(f)-1 is amended as follows:
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1. The section heading is revised.
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2. The undesignated paragraph is designated as paragraph (a), a 
paragraph heading is added, and a new sentence is added immediately 
prior to the Example.
0
3. In newly designated paragraph (a), the language ``a district 
director'' is removed and the language ``the appropriate official'' is 
added in its place, the language ``the district director'' is removed 
and the language ``the appropriate official'' is added in its place, 
and in the Example the language ``district director'' is removed and 
the language ``appropriate official'' is added in its place, wherever 
it appears.
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4. Paragraphs (b), (c), and (d) are added.
    The revisions and additions read as follows:


Sec.  301.6503(f)-1  Suspension of running of period of limitation; 
wrongful seizure of property of third-party owner and discharge of lien 
for substitution of value.

    (a) Wrongful seizure. * * * The following example illustrates the 
principles of this section:
* * * * *
    (b) Discharge of wrongful lien for substitution of value. If a 
person other than the taxpayer submits a request in writing for a 
certificate of discharge for a filed Federal tax lien under section 
6325(b)(4), the running of the period of limitations on collection 
after assessment under section 6502 for any liability listed in such 
notice of Federal tax lien shall be suspended for a period equal to the 
period beginning on the date the appropriate official receives a 
deposit or bond in the amount specified in Sec.  301.6325-1(b)(4)(i) 
and ending on the date that is 30 days after the earlier of--
    (1) The date the appropriate official no longer holds, or is deemed 
to no longer hold, within the meaning of paragraph (b)(4)(iv) of this 
section, any amount as a deposit or bond by reason of taking such 
actions as prescribed in sections 6325(b)(4)(B) and (C); or
    (2) The date the judgment secured under section 7426(b)(5) becomes 
final.
    (c) As used in this section, the term appropriate official means 
either the official or office identified in the relevant IRS 
Publication or, if such official or office is not so identified, the 
Secretary or his delegate.
    (d) Effective/applicability date. This section applies to any 
request for a certificate of discharge made after January 31, 2008.

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Par. 4. In Sec.  301.7426-1, paragraphs (a)(4), (b)(5), and (d) are 
added.


Sec.  301.7426-1  Civil actions by persons other than taxpayers.

    (a) * * *
    (4) Substitution of value. A person who obtains a certificate of 
discharge under section 6325(b)(4) with respect to any property may, 
within 120 days after the day on which the certificate is issued, bring 
a civil action against the United States in a district court of the 
United States for a determination of whether the value of the interest 
of the United States (if any) in such property is less than the value 
determined by the appropriate official. A civil action under this 
provision shall be the exclusive judicial remedy for a person other 
than the taxpayer who obtains a certificate of discharge for a filed 
notice of Federal tax lien.
    (b) * * *
    (5) Substitution of value. If the court determines that the 
determination by the appropriate official of the value of the interest 
of the United States in the property exceeds the actual value of such 
interest, the court may grant a judgment ordering a refund of the 
amount deposited, or a release of the bond, to the extent that the 
aggregate of those amounts exceeds the value as determined by the 
court.
* * * * *
    (d) Paragraphs (a)(4) and (b)(5) of this section apply to any 
request for a certificate of discharge made after January 31, 2008.

PART 401--[REMOVED]

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Par. 5. Part 401 is removed.

Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
    Approved: January 9, 2008.
Eric Solomon,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. E8-1569 Filed 1-30-08; 8:45 am]
BILLING CODE 4830-01-P