IRS should return proceeds from an illegal levy absent written permission

Plain-English summary

Chief Counsel's Office advice addressed the return of funds from an illegal levy. Under the cited regulation, the IRS should return the funds when doing so is in the taxpayer's and the government's best interest, unless the taxpayer gives written permission to keep the money applied to a tax liability. The advice also points to IRS procedures for contacting the taxpayer and discusses the timing of the nine-month period and a related IRC § 7433 issue.

Ruling snapshot

• Question: Must the IRS return proceeds from an illegal levy unless the taxpayer gives written permission to keep them applied to a tax liability?
• Outcome: Advice given.
• Key authorities: IRC §§ 6343 and 7433; Treas. Reg. § 301.6343-3(d); IRM §§ 5.11.2.3 and 5.11.2.3.4; 26 U.S.C. § 6110(k)(3)

Full text (IRS public release)

ID: CCA_2011110209575947 Number: 201145023
Release Date: 11/10/2011
Office: --------------
UILC: 6343.00-00, 7433.00-00

From: ----------------------
Sent: Wednesday, November 02, 2011 9:58:08 AM
To: -----------------
Cc:
Subject: FW: Levy question for assignment ---------

We don't actually need consent from the taxpayer to return the funds, per se. If you look at the regs under 301.6343-3(d)(1), we say that for illegal levies it is deemed to be in the taxpayer/US best interest to return funds, and we will return funds. No discretion. However, under 301.6343-3(d)(2), the taxpayer can give us written permission to keep the money applied to a tax liability. So the onus is on the taxpayer to ask us to keep it; otherwise, we return it. I don't think there is any set process for contacting the taxpayer: it makes sense to send a letter explaining the situation advising them we plan to return the proceeds unless they ask us in writing to keep it. There is some stuff in the IRM on the procedures: see IRM 5.11.2.3; 5.11.2.3.4 and 5.

Did you see the e-mail I sent you on Friday? I think that addressed your questions about the 9 month period and 7433. The only wiggle room there really is with the 9 month period under 6343(d) is the date the "determination" was made to return the property, which would be the same date of discovery of the illegal levies. Let me know if you didn't get my Friday email for some reason or you still had questions. I agree with what you say about that below.

Feel free to contact me if other questions come up.