SALE
Notice of the Sale
Once real or personal property is seized for purposes of satisfying a tax liability, the IRS must sell the property to obtain funds for application towards the liability. Prior to selling the property at a public sale, the IRS must issue a Notice of Sale to the taxpayer. The same requirements that apply to the issuance of a notice of seizure apply to the issuance of a notice of sale. IRC §6335(b). IRC §6335(b) also requires the IRS to place a public notice of the pending sale in a local newspaper published in the county where the IRS seized the asset. If a newspaper with larger circulation in said county is published outside of said county, the IRS may publish in that paper. Regs. §301.6335-1(b)(1). Additionally, if no newspaper is published in the county, the IRS must alternatively post notices of the pending sale in the post office nearest to the place where the asset was seized, and also post the notice in two other public places. IRC §6335(b).
The notice must specifically describe the property to be sold, as well as the time, place, and conditions of the sale. The notice must also state that only the taxpayer’s right, title, and interest in the property are to be sold, i.e., the property is sold “as is” subject to other encumbrances if in existence. See IRM 56(14)3.2 (4-21-87) and Regs. §301.6335-1(c)(4)(iii). A potential buyer who is interested in purchasing property at a public sale can ask the IRS questions regarding encumbrances and may also be allowed to inspect the property.
If the IRS does not provide proper notice of a sale, the owner may invalidate the sale.
The Sale
The IRS must hold the sale on the date, and at the time and place listed in the Notice of Sale. The guidelines for dates of sale are governed by statute. The sale must take place no sooner than 10 days following the publishing or posting of public notice of the sale, but no later than 40 days following said date. The 10 day waiting period is strictly enforced. See Kulawy v. U.S., 917 F.2d 729 (2nd Cir. 1990). However, the IRS can delay a sale beyond the 40 day period if the District Director determines that adjournment is in the best interests of either the government or the taxpayer. Regs. §301.6335-1(c). A delay can only adjourn the sale for a period not to exceed one month.
The IRS can delay a sale, even once the sale has begun, prior to the time the property is declared sold or the bidding reaches the minimum bidding price. However, the IRS cannot adjourn the sale solely because the bidding has not reached the minimum bidding price.
If the IRS adjourns a sale on the date of the sale, the new date, time, and place of the sale are announced to the bidders present. IRM 56(14)1.4 (6-3-91). The adjourned date must be within one month from the date the original sale was scheduled to take place. Regs. §301.6335-1(c)(2). Additionally, the IRS is required to provide the owner with notice of the adjournment and of the new date, time, and place for the sale. See U.S. v. Conry, 74-1 USTC ¶9187.
If the sale is not conducted within the time specifications discussed above, the IRS must return the seized property to the taxpayer. Additionally, if the taxpayer pays the IRS the entire outstanding amount of tax, penalties, and interest, plus the costs incurred by the IRS in seizing the property in issue, the IRS must return the property to the taxpayer. The full payment must be made before the IRS accepts the highest bid. The payment must be in cash, a money order, or certified check.
Prior to 1997, the above constituted the sole procedure for obtaining a return of seized property to the taxpayer. However, following the Taxpayer Bill of Rights 2, the IRS is able to return property (including money deposited in the Treasury) that has been levied upon, if the Secretary determines that one of the following circumstances exists:
- The levy was premature or otherwise not in accordance with the administrative procedures of the IRS.
- The taxpayer has entered into an installment agreement to satisfy the tax liability.
- The return of the property will facilitate collection of the tax liability.
- The return of the property would be in the best interests of the taxpayer (as determined by the Taxpayer Advocate) and the Government.
(TPBR2 §501(b). IRC §6323(j) and §6343(d)).
Pursuant to the IRS Restructuring and Reform Act of 1998 the Service is now prohibited from selling property below the minimum bid price.
Also pursuant to the IRS Restructuring and Reform Act of 1998 the IRS is required to keep records of all sales of property that includes the date of any deed or certificate of sale of personal property issued. Additionally, IRC §6340(c) now requires the IRS to give the taxpayer whose property has been sold or redeemed a copy of the record that the Service is required to keep and the amount from each sale applied to the taxpayer’s account and the remaining balance.
The Right of Redemption
A right of redemption exists for certain persons after a sale of seized property. The persons having a right of redemption are as follows:
- The taxpayer/owner or heirs, executors or administrators.
- Any person having an interest in the sold property.
- Any person holding a lien on the sold property.
The right of redemption must be exercised within 180 days of the sale. IRC §6337(b)(1). Additionally, this right exists only as to real property.
To redeem real property, the redeemer pays the purchaser the sum of money paid by the purchaser for the property, plus interest (20% per annum). IRC §6337(b)(2). This payment is made to the purchaser, unless the purchaser cannot be located in the county in which the property is located. If the purchaser cannot be located, then the redeemer pays the funds to the IRS who receives said funds on behalf of the purchaser. In either case, however, the District Director for the district in which the property is located must be notified that the redeemer is exercising the right of redemption. See Regs. §301.6337-1(c) for information that must be included in notice to district director.
If the IRS bids on the property at the sale as the highest bidder, the redeemer has the normal 180 days to redeem the property from the IRS. The IRS may not sell the property to another prior to the expiration of 180 days following the sale. However, if the IRS fails to sell the property after 2 years, and prior to the two years the taxpayer fully pays the liability plus interest at 1% a month, the IRS can return the property to the taxpayer. IRC §7506(d). Thus, the 180 day redemption period is extended under these circumstances.
Bluestein & Muhlbauer, P.C.
333 International Drive
Williamsville, NY 14221
716.633.3200
