Final Regs on Collection of Taxes by Levy

 [4830-01-u]

 ACTION: Final regulations.

 SUMMARY: This document contains final regulations regarding the authority to collect taxes from taxpayers by means of levy and distraint under section 6331 of the Internal Revenue Code. The Technical and Miscellaneous Revenue Act of 1988 (TAMRA) amended section 6331 in several respects.

 EFFECTIVE DATE: These regulations are effective December 10, 1992.

 FOR FURTHER INFORMATION CONTACT: Robert A. Walker, 202-622-3640 (not a toll-free call).

 SUPPLEMENTARY INFORMATION:

BACKGROUND

These final regulations contain changes to sections 301.6331-1 and 301.6331-2, to reflect amendments made to sections 6331 and 6332(c) of the Internal Revenue Code (Code) by section 349(a) of TEFRA as well as by sections 6236(a), (b) and (d) of TAMRA.

 The IRS published a notice of proposed rulemaking in the Federal Register on December 11, 1992, (57 FR 58760) providing proposed rules under section 6331 of the Code. No public comments were received and accordingly, these final regulations are substantially identical to the notice of proposed rulemaking. Certain stylistic changes have been made.

 TAMRA increased the 10-day requirement for notification of intention to levy to 30 days, required specific types of information to be included in the notice, and expanded the reasons for releasing a levy on salary or wages to include all the situations described in section 6343(a). TAMRA also placed restrictions on levies that are uneconomical or that are scheduled to be made on the day a person is required to appear in response to a summons issued for the purpose of collecting any underpayment of tax by that person. The final regulations reflect these changes. In addition, the final regulations change the existing regulations with respect to levying on bank deposits to conform to section 6332(c), which was enacted by TAMRA. The final regulations also reflect two amendments to section 6331 made by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA): extending to "other property" of a taxpayer the requirement of notification of intention to levy that exists for a levy on salary or wages; and requiring that any mailing of that notice be done by certified or registered mail. Finally, several stylistic changes were made to clarify parts of the regulations that were not affected by the statutory changes.

EXPLANATION OF PROVISIONS

 The final regulations make a number of minor amendments to sections 301.6331-1 and 301.6331-2. As these amendments have been fully described in the notice of proposed rulemaking and have not changed (except for certain minor stylistic changes) since that time, this explanation will not repeat them here.

 For the most part, the amendments were made to reflect the additional protections provided to taxpayers by the Taxpayer Bill of Rights contained in TAMRA.

SPECIAL ANALYSES

 It has been determined that this Treasury Decision is not a significant regulatory action as defined in EO 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) 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 Internal Revenue Code, the notice of proposed rulemaking preceding these regulations was submitted to the Small Business Administration for comment on its impact on small business.

DRAFTING INFORMATION

 The principal author of these regulations is Robert A. Walker, Office of Assistant Chief Counsel, (General Litigation). However, other personnel from the IRS and Treasury Department participated in their development.

LISTS OF SUBJECTS IN 26 CFR PART 301

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

Treasury Decision 8558

ADOPTION OF AMENDMENTS TO THE REGULATIONS

Accordingly, 26 CFR part 301 is amended as follows:

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

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

Par. 2. Section 301.6331-1 is amended as follows:

1. Paragraph (a)(1) is amended as follows:

a. A sentence is added immediately following the eighth sentence of the paragraph.

b. In the new tenth sentence, the reference "section 301.6331-2(c)" is removed and "section 301.6331-1(b)(1)" is added in its place.

c. The new thirteenth sentence of paragraph (a)(1) is revised.

2. Paragraph (a)(2) is revised.

3. Paragraph (b) is amended as follows:

a. Paragraph (b) is redesignated (b)(2):

b. A paragraph heading for new paragraph (b) is added.

c. A paragraph (b)(1) heading and text are added.

4. Paragraph (d) is added, at the end of the section 0.

5. The additions and revisions read as follows:

SECTION 301.6331-1 LEVY AND DISTRAINT.

(a) * * *

(1) * * * A levy on a bank reaches any interest that accrues on the taxpayer's balance under the terms of the bank's agreement with the depositor during the 21-day holding period provided for in section 6332(c). * * * Similarly, a levy only reaches property in the possession of the person levied upon at the time the levy is made together with interest that accrues during the 21-day holding period provided for in section 6332(c). * * *

(2) JEOPARDY CASES. If the district director finds that the collection of any tax is in jeopardy, he or she may make notice and demand for immediate payment of such tax and, upon failure or refusal to pay such tax, collection thereof by levy shall be lawful without regard to the 10-day period provided in section 6331(a), the 30-day period provided in section 6331(d), or the limitation on levy provided in section 6331(g)(1).

* * * * *

(b) CONTINUING LEVIES AND SUCCESSIVE SEIZURES -- (1) CONTINUING EFFECT OF LEVY ON SALARY AND WAGES. A levy on salary or wages has continuous effect from the time the levy originally is made until the levy is released pursuant to section 6343. For this purpose, the term SALARY OR WAGES includes compensation for services paid in the form of fees, commissions, bonuses, and similar items. The levy attaches to both salary or wages earned but not yet paid at the time of the levy, advances on salary or wages made subsequent to the date of the levy, and salary or wages earned and becoming payable subsequent to the date of the levy, until the levy is released pursuant to section 6343. In general, salaries or wages that are the subject of a continuing levy and are not exempt from levy under section 6334(a)(8) or (9), are to be paid to the district director, the service center director, or the compliance center director (director) on the same date the payor would otherwise pay over the money to the taxpayer. For example, if an individual normally is paid on the Wednesday following the close of each work week, a levy made upon his or her employer on any Monday would apply to both wages due for the prior work week and wages for succeeding work weeks as such wages become payable. In such a case, the levy would be satisfied if, on the first Wednesday after the levy and on each Wednesday thereafter until the employer receives a notice of release from levy described in section 6343, the employer pays over to the director wages that would otherwise be paid to the employee on such Wednesday (less any exempt amount pursuant to section 6334).

* * * * *

(d) EFFECTIVE DATE. These regulations are effective December 10, 1992.

Paragraph 3. Section 301.6331-2 is revised to read as follows:

SECTION 301.6331-2 PROCEDURES AND RESTRICTIONS ON LEVIES.

(a) NOTICE OF INTENT TO LEVY -- (1) IN GENERAL. Levy may be made upon the salary, wages, or other property of a taxpayer for any unpaid tax no less than 30 days after the district director, the service center director, or the compliance center director (director) has notified the taxpayer in writing of the intent to levy. The notice must be given in person, be left at the dwelling or usual place of business of the taxpayer, or be sent by registered or certified mail to the taxpayer's last known address. The notice of intent to levy is separate from, but may be given at the same time as, the notice and demand described in section 301.6331-1.

(2) CONTENT OF NOTICE. The notice of intent to levy is to contain a brief statement in nontechnical terms including the following information --

(i) The Internal Revenue Code provisions and the procedures relating to levy and sale of property;

(ii) The administrative appeals available with respect to the levy and sale of property and the procedures relating to such appeals;

(iii) The alternatives available that could prevent levy on the property (including the use of an installment agreement under section 6159); and

(iv) The Internal Revenue Code provisions and the procedures relating to redemption of property and release of liens on property.

(b) UNECONOMICAL LEVY -- (1) IN GENERAL. No levy may be made on property if the director estimates that the anticipated expenses with respect to the levy and sale will exceed the fair market value of the property. The estimate is to be made on an aggregate basis for all of the items that are anticipated to be seized pursuant to the levy. Generally, no levy should be made on individual items of insignificant monetary value. For the definition of fair market value, see section 301.6325-1(b)(1)(i). See section 301.6341-1 concerning the expenses of levy and sale.

(2) TIME OF ESTIMATE. The estimate, which may be formal or informal, is to be made at the time of the seizure or within a reasonable period of time prior to a seizure. The estimate may be based on earlier estimates of fair market value and anticipated expenses of the same or similar property.

(3) EXAMPLES. The following examples illustrate the application of this paragraph (b):

EXAMPLE 1. A director anticipates that the taxpayer has only one item of property that can be seized and sold. This item is estimated to have a fair market value of $250.00. The director also estimates that the costs of seizure and sale will total $300.00 if this item is seized. The director is prohibited from levying on this one item of the taxpayer's property because the costs of seizure and sale are estimated to exceed the property's fair market value.

EXAMPLE 2. The facts are the same as in Example 1 except that the director anticipates that the taxpayer has 10 items of property that can be seized and sold. Each of those items is estimated to have a fair market value of $250.00. The director also estimates that the costs of seizure and sale will total $300.00 regardless of how many of those items are seized. The director is prohibited from levying on only one item of the taxpayer's property because the costs of seizure and sale are estimated to exceed the fair market value of the single item of property. The director, however, would not be prohibited from levying on two or more items of the taxpayer's property because the aggregate fair market value of the seized property would exceed the estimated costs of seizure and sale.

EXAMPLE 3. The taxpayer has three items of property, A, B, and C. The director anticipates that the value of items A, B, and C depends on their being sold as a unit. The director estimates that due to high anticipated costs of storing or maintaining item B prior to the sale, the aggregate fair market value of items A, B, and C will not exceed the anticipated expenses of seizure and sale if all three items are seized. Accordingly, the director is prohibited from levying on items A, B, and C.

EXAMPLE 4. The facts are the same as in Example 3 except that the director does not anticipate that the value of items A, B, and C depends on those items being sold as a unit. If the director estimates that the aggregate fair market value of items A and C exceeds the aggregate anticipated costs of the seizure and sale of those two items, items A and C can be seized and sold. The director is prohibited from levying on item B because the high cost of storing or maintaining item B is estimated to exceed the fair market value of item

(c) RESTRICTION ON LEVY ON DATE OF APPEARANCE. Except for continuing levies on salaries or wages described in section 301.6331-1(b)(1), no levy may be made on any property of a person on the day that person, or an officer or employee of that person, is required to appear in response to a summons served for the purpose of collecting any underpayment of tax from that person. For purposes of this paragraph (c), the date on which an appearance is required is the date fixed by an officer or employee of the Internal Revenue Service pursuant to section 7605 or the date (if any) fixed as the result of a judicial proceeding instituted under sections 7604 and 7402(b) seeking the enforcement of the summons.

(d) JEOPARDY. Paragraphs (a) and (c) of this section do not apply to a levy if the director finds, for purposes of section 301.6331-1(a)(2), that the collection of tax is in jeopardy.

(e) EFFECTIVE DATE. These regulations are effective December 10, 1992.