CCA 9934019: Collection investigation and liens during a due process appeal

Plain-English summary

District Counsel asked whether a revenue officer could continue investigating possible fraudulent transfers while a taxpayer pursued a collection due process hearing after a proposed levy notice. Chief Counsel advised that section 6330 suspends levy action, but does not stop investigation or the use of a summons for collection information, provided the section 7602 restriction on summonses after a Justice Department referral does not apply. It also said the law did not bar filing a federal tax lien notice or nominee lien during that appeal. The memo cautioned that a future Internal Revenue Manual revision might restrict such filings as a matter of policy, but had not been finalized. An attached chart compares legal and administrative treatment of levy and lien actions under sections 6320 and 6330.

Ruling snapshot

• Question: May collection personnel use summonses and file liens while a section 6330 hearing suspends levy action?
• Outcome: Advice given: summonses and lien filings remain legally available, subject to the stated restrictions; possible future policy limits were unresolved.
• Key authorities: IRC §§ 6320, 6330, 7602.

Full text (IRS public release)

INTERNAL REVENUE SERVICE
Issued June 30, 1999
Number: 199934019
Release Date: 8/27/1999
CC:EL:GL:Br1
GL-701696-99

UILC:50.00.00-00

MEMORANDUM FOR DISTRICT COUNSEL, NORTH CENTRAL DISTRICT

FROM: Alan C. Levine
Chief, Branch 1 (General Litigation)

SUBJECT: RRA 98 Section 3401: Impact on Summonses
GL-701696-99

This responds to your request for advice dated May 4, 1999, asking us to review your proposed answers to a request for advice sent to you from the North Central District RRA 98 Collection Coordinator. The request described the following hypothetical fact pattern. A taxpayer makes a request for a Collection Due Process (“CDP”) hearing after receiving an I.R.C. § 6330 notice. The revenue officer wants to continue investigation of potential fraudulent transfers and potentially use nominee liens because the taxpayer had previously transferred property to his wife and a trust. The revenue officer wishes to continue this investigation while the taxpayer is going through the CDP hearing process. The revenue officer believes he will need to serve a summons for collection information. You asked us to review your responses to the following issues.

Issues

1) Whether I.R.C. § 6330(e)(1) refers only to levy and seizure actions.

2) Whether section 6330, and other Code sections, limit the use of summonses for collection information during the pendency of the CDP appeal.

3) Whether section 6330(e)(1), and other Code sections, limit the filing of liens and/or nominee liens during the pendency of the CDP appeal.

                             Law and Analysis

1) Whether I.R.C. § 6330(e)(1) refers only to levy and seizure actions.

Section 6330(e)(1) provides that “if a hearing is requested under subsection
 -2-

(a)(3)(B), the levy actions which are the subject of the requested hearing and the running of the period of limitations . . . shall be suspended for the period during which such hearing, and appeals therein, are pending. In no event shall any such period expire before the 90 th day after the day on which there is a final determination in such hearing.” This provision is incorporated into I.R.C. § 6320 by I.R.C. § 6320(c). It is important to differentiate whether a taxpayer is sent a section 6320 notice, “Notice of Federal Tax Lien Filing and Right to a Hearing”, or a section 6330 notice, “Notice of Intent to Levy and Right to a Hearing”, because the suspension of collection activity differs depending on the notice the taxpayer received. The effect the levy suspension has on collection activity also depends on whether the taxpayer’s appeal rights under section 6320 and/or 6330 have concluded and whether a NFTL was on file prior to the effective date of sections 6320 and 6330 -- January 19, 1999. Please see the attached chart for an explanation of the effect of the suspension on collection action under section 6320 and 6330.

Section 6330(e)(2) provides an exception to the bar on levy action, while an appeal is pending, if the underlying tax liability is not at issue in the appeal and the court determines that the Service has shown “good cause” not to suspend the levy. The determination of whether “good cause” is appropriate is decided on a case by case basis.

2) Whether section 6330, and other Code sections, limit the use of summonses for collection information during the pendency of the CDP appeal.

As mentioned above, under section 6330(e)(1), in some situations there is a suspension on levying and seizing the taxpayer’s property. However, there is no suspension on investigation. Accordingly, section 6330 does not limit the use of summonses during this period. I.R.C. § 7602 provides that a summons cannot be issued “with respect to any person if a Justice Department referral is in effect with respect to such person.” As long as the prohibition in section 7602 does not apply, a revenue officer can continue an investigation through the use of summonses during the pendency of a CDP appeal. However, the revenue officer may wish to forego the use of a summons until the CDP hearing is concluded because the information the revenue officer is interested in obtaining may be disclosed at the CDP hearing.

3) Whether section 6330(e)(1), and other Code sections, limit the filing of liens and/or nominee liens during the pendency of the CDP appeal.

Once a section 6330 CDP notice is issued only levy action is required to be suspended. If it is determined by the revenue officer that the filing of a lien is necessary, then he is legally able to do so even though the levy action has been suspended. There is also no legal prohibition against filing a nominee lien during this period. We are advised that consideration is being given that in the next
 -3-

revision of the Internal Revenue Manual (IRM) it will provide that the filing of NFTLs, including nominee liens, will be suspended once a taxpayer has requested a CDP hearing except in certain circumstances. However, the IRM has not been finalized and should be checked upon release. If an NFTL is filed, the taxpayer must be given notice of the filing “not more than 5 business days after the day of the filing of the notice of lien.”

If you have any questions regarding this memorandum please call (202)622-3610.

Attachment
 INTERPLAY BETWEEN 6320 AND 6330

• The phrase “CDP rights under section 6320/6330 have concluded” means that either (1) 45 days passed from the date
  the Service sends the taxpayer the section 6320/6330 notice and the taxpayer has failed to request a CDP hearing, or (2) the Service receives written withdrawal by the taxpayer of the request for a CDP hearing after a taxpayer has requested a CDP hearing, or (3) the determination made at the hearing becomes final by expiration of the time for seeking its review or reconsideration. See Temp. Treas. Reg. § 301.6330-1T(A-G1)
  Legally Explanation Administrativel Explanation Result
  y
  I. 6330 -
  Notice of
  Intent to Levy
  and Right to a
  Hearing
  A. 6330 Notice
  has not been
  sent to
  taxpayer
   -5-

1. Notice of cannot 6330 requires that same as legal same as legal - cannot levy until the
   Intent to levy levy effective 1/19/99 the taxpayer has been given before taxpayer must be given a given a Notice of 1/19/99 right to a CDP hearing Intent to Levy and
   before the Service levies Right to a Hearing
   (Note: If a continuous (6330 notice) and his
   wage levy was issued prior rights under 6330
   to 1/19/99 the taxpayer is have concluded
   not entitled to a CDP
   notice or hearing under - NFTLs can be filed
   section 6330 with respect
   to the levy because levy
   action was initiated prior
   to 1/19/99.)

2. No Notice of cannot 6330 requires that same as legal same as legal -cannot levy until the
   Intent to levy levy effective 1/19/99 the taxpayer has been given before taxpayer must be given a given a Notice of 1/19/99 right to a CDP hearing Intent to Levy and
   before the Service levies Right to a Hearing
   (6330 notice) and his
   rights under 6330
   have concluded

                                                                                     - NFTLs can be filed
   

   B. 6330 CDP
   rights are not
   concluded
    -6-

3. Once a 6330 suspension pursuant to section same same - suspension on levy
   notice is sent on levy 6330(e)(1) action to the taxpayer action
   - NFTLs can be filed

4. Once a CDP suspension pursuant to section We are advised don’t want to - suspension on levy
   hearing is on levy 6330(e)(1) that complicate or action
   requested action consideration is interfere with
   pursuant to a being given that the proper - the IRM has not
   6330 notice in the next functioning of been finalized and
   revision of the the CDP should be checked
   IRM it will hearing upon release to
   provide that the determine, as a
   filing of NFTLs, matter of policy,
   including when the filing of
   nominee liens, NFTLs is suspended
   will be
   suspended once
   a taxpayer has
   requested a
   CDP hearing
   except in
   certain
   circumstances
   C. 6330 CDP
   rights are
   concluded
    -7-

5. NFTL on can levy NFTL is effective from same same can levy including
   file before including before 1/19/99 we don’t seizures
   1/19/99 seizures have to send a 6320 notice

6. NFTL on can levy section 6320 is satisfied same same can levy including
   file on or after including seizures
   1/19/99 and seizures
   CDP rights
   under 6320 are
   concluded

7. NFTL is not can levy section 6320 does not can levy but internal - can levy
   on file prior to including suspend levy action cannot seize procedures
   1/19/99 or seizures require a -cannot seize until
   NFTL on file NFTL to be on there is a NFTL and
   on or after file before the taxpayer has been
   1/19/99 and Service seizes given a 6320 notice
   6320 notice has property and his CDP rights
   been sent to (I.R.M. under 6320 have
   taxpayer but 5.10.1.4:(6)); concluded
   CDP rights therefore,
   under 6320 are taxpayer
   not concluded should have
   and taxpayer opportunity to
   has not yet challenge lien
   requested a before seizure
   hearing
    -8-

8. NFTL is not can levy section 6320 does not cannot levy for to give effect to - cannot levy for
   on file prior to including suspend levy action liabilities for the cross- liabilities for the tax 1/19/99 or seizures the tax reference period(s) listed on the NFTL on file period(s) listed between NFTL once the
   on or after on the NFTL 6320(c) and taxpayer requests a
   1/19/99 and 6330(e) hearing pursuant to a
   taxpayer has 6320 notice
   requested a
   hearing but
   CDP rights
   under 6320 are
   not concluded
   II. 6320 -
   Notice of
   Federal Tax
   Lien Filing
   and the Right
   to a Hearing
   A. 6320 CDP
   rights are not
   concluded

9. 6320 notice cannot section 6330 requires that same same -cannot levy
   has been sent levy but a effective 1/19/99 the
   but no 6330 6330 taxpayer must be given a - can send 6330 notice notice has been notice can right to a CDP hearing sent be sent before the Service levies - NFTL already filed
    -9-

10. 6320 notice can levy as long as the taxpayer’s cannot seize internal - can levy as long as
    has been sent CDP rights under 6330 are procedures taxpayer’s CDP and 6330 concluded require a rights under 6330 are
    notice has been NFTL to be on concluded
    sent and the file before the
    taxpayer’s Service seizes - no seizures
    CDP rights property
    under 6330 (I.R.M. 1.4(6)); - NFTL already filed
    are concluded therefore,
    taxpayer
    should have
    opportunity to
    challenge lien
    before seizure
    B. 6320 CDP
    rights are
    concluded

11. 6320 notice cannot 6330 requires that same same -cannot levy
    has been sent levy but a effective 1/19/99 the
    but no 6330 6330 taxpayer must be given a - can send 6330 notice notice has been notice can right to a CDP hearing sent be sent before the Service levies - NFTL already filed
     -10-

12. 6320 notice can levy as long as the taxpayer’s can seize taxpayer has - can levy as long as
    has been sent CDP rights under 6330 are had taxpayer’s CDP and 6330 concluded opportunity to rights under 6330 are
    notice has been challenge lien concluded
    sent and the
    taxpayer’s
    CDP rights
    under 6330
    are concluded