Taxpayers have the right to appeal the IRS’ filing of a notice of a tax lien in the public record and petition for release. If filed in error, the IRS must release the lien and state that the lien was erroneous. The request for tax relief must be based on one of the following grounds: (1) the tax liability had been satisfied before the lien was filed; (2) the assessing of the tax liability violated either the notice of deficiency procedures or the Bankruptcy Code; or (3) the limitations period for collecting the liability had expired prior to the filing of the lien.
The IRS may withdraw a tax lien before payment in full if:
(1) the filing of the lien notice was premature or not in accord with administrative procedures;
(2) the taxpayer has entered into an agreement to satisfy the tax liability;
(3) withdrawal of the lien notice would facilitate the collection of the tax liability; or
(4) the withdrawal of the lien notice would be in the best interest of the taxpayer and the government.
The withdrawal of a notice of tax lien does not affect the underlying tax lien; rather, the withdrawal simply relinquishes any lien priority the IRS had obtained when the tax lien notice was filed.
The IRS is required to release a levy if:
(1) the underlying tax liability is satisfied or becomes unenforceable due to lapse of time;
(2) the IRS determines that the release of the tax levy will facilitate the collection of the tax debt;
(3) a satisfactory installment payment agreement has been executed by the taxpayer with respect to the tax liability;
(4) the IRS agrees that the levy is creating a financial hardship; or
(5) the fair market value of the property exceeds the tax liability, and the partial release of the IRS levy would not hinder the collection of tax.
In addition, a taxpayer may request that the IRS sell the levied property.
The IRS has been given authority to return property that has been levied upon if:
(1) the tax levy was premature or not in accordance with the IRS administrative procedure;
(2) the taxpayer has entered into an installment agreement to satisfy the tax liability, unless the agreement provides otherwise;
(3) the return of the property will facilitate collection of the tax liability; or
(4) with the consent of the taxpayer, the return of the property would be in the best interests of the taxpayer and the government.
Property is returned in the same manner as if the property had been wrongfully levied upon, except that the taxpayer is not entitled to interest.
A taxpayer may bring a suit in federal district court if an IRS employee knowingly or negligently fails to release a tax lien on the taxpayer’s property after receiving written notice from the taxpayer of the IRS’s failure to release the lien. The taxpayer may recover actual economic damages plus the costs of the action. Injuries such as inconvenience, emotional distress, and loss of reputation are not compensable damages unless they result in actual economic harm. Costs of the action that may be recovered are limited generally to certain court costs and do not include administrative costs or attorney’s fees, although attorney’s fees may be recoverable under Code Sec. 7430. A two-year statute of limitations, measured from the date on which the cause of action accrued, applies.
Third-Party Owners. A third-party owner of property against which a federal tax lien has been filed may obtain a certificate of discharge with respect to the lien on such property. The certificate is issued if (1) the third-party owner deposits with the IRS an amount of money equal to the value of the government’s interest in the property as determined by the IRS or (2) the third-party owner posts a bond covering the government’s interest in the property in a form acceptable by the IRS.
A third-party owner who is a co-owner of property with the taxpayer against whom the underlying tax was assessed may no longer be automatically barred from obtaining a certificate of discharge with respect to a lien on the property. Applicable to requests to obtain a discharge after January 31, 2008, third-party owners may request the discharge of a tax lien on property that they own with the person whose tax liability gave rise to the tax lien.
If the IRS determines that (1) the liability to which the tax lien relates can be satisfied from other sources or (2) the value of the government’s interest in the property is less than the IRS’s prior determination of the government’s interest in the property, then the IRS will refund (with interest) the amount deposited and release the bond applicable to such property. Within 120 days after a certificate of discharge is issued, the third-party owner may file a civil action against the United States in a federal district court for a determination of whether the government’s interest in the property (if any) has less value than that determined by the IRS.
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