IRS Liens and Levies
(Author Un-Known)
Many of us are only too familiar with the story of a friend or family member
who went to an ATM machine to take out some cash only to discover that
their balance had somehow dropped to "$0.00". The IRS,
without warning, had emptied their bank account. Others may have had their
weekly paycheck "attached" by the IRS. Such
individuals, in describing their intense feelings of anger and frustration over
the apparent outright theft of their personal property, speak of having
been "robbed," yet seemingly have no legal recourse.
In fact, there is recourse under the law for those Americans willing to
pursue their legal rights to their property - namely, their money, the
heard-earned fruits of their labor. The Internal Revenue Code
(Title 26) is the body of law that
contains the legal authority for the Secretary of the Treasury to administer
provisions pertaining to the collection of income taxes. It is, however,
not unusual for the Service to cite the Internal Revenue Manual as their
legal authority for various aspects of a collection procedure. At least
six Courts have now ruled that the Manual is only "directory"
in nature and that it does not convey any such legal authority. The
following article which appeared in a recent issue of "Reasonable Action", the membership newsletter of the
Save-A-Patriot Fellowship, will demonstrate
how devastating such rulings are to the IRS. It will also relate the
specific effect that this will have on agency employees who fail to recognize
the limited nature of their authority and other provisions pertaining to, for
example, liens and levies.
THE LEVY
It goes without saying that one of the most dreaded forms that any person
can receive from the IRS is the Form 668-W. This form is the "Notice of Levy" that is sent to
third parties for the purpose of collecting taxes that are allegedly owed.
The legal authority for its use is extremely limited, but since the
general public is unaware of the statutory provisions for "levying" upon
the wages, accrued salary, or other property of an individual, the legal
impotence of the IRS is unknown to them.
The reason is: when the form was designed, the cite of
authority that would reveal its limited application was conveniently
omitted - a cite that must, by law, accompany the notice. But,
then again, if the IRS actually cited the authority for the levy on the
form, it is doubtful they could coerce people into honoring the levy. The
individual who actually receives the "Notice of Levy" is, of course, a
third party [i.e., a bank manager]. But rarely,
if ever, does that third party realize the responsibility for correctly
determining that the validity of the levy is theirs. Nor do they fully
realize the importance of making a correct legal determination, since an
incorrect determination can lead to a personal liability. Even worse, it
could lead to a criminal charge called "conversion of
property."
The majority of people have little or no understanding of the law and so
they are not cognizant of the requisite statutory authority or its limitations.
As far as the "Notice of Levy"
is concerned, most people assume that the responsibility for these
determinations rests with the IRS. It naturally follows, in their
mind, that the IRS is then legally responsible for that "determination." What they fail to consider, is
that, since they are in possession of the property, it is they who are
ultimately responsible for any determination having to do with its disposition,
not the IRS.
The agent who sends a levy is merely acting on the "presumption" that the authority may be valid. If
the agent was knowledgeable, it might be considered unethical, but unless the
agent had full knowledge of all of the circumstances and the actual limitation
of the authority in question, his or her actions could be considered to be
within the law. It is easy for someone who is cognizant of the limitations
to jump to conclusions and assume that such action is illegal. Maybe it
is, but did the IRS agent ever suggest that the authority for the levy was
valid or applicable? Probably not! Nor did he or she
necessarily suggest that the property of the individual that was under the
control of the third party was "subject to levy." For that matter, the
agent was probably as ignorant of the law as the third party who received the
levy! It was not the agent's responsibility to tell the third party
that the levy was invalid without the necessary court order, and more than
likely, the agent didn't even know that himself. Rather, because the
third party is in control of the property, it is their responsibility to
know the law and act in accordance with the law, or, if unfamiliar with the law,
to seek competent legal advice (assuming any can
be found).
The bottom line is, were it not for the many parties involved and the
various legal aspects that seem to confuse the average attorney, it would be
impossible for the IRS to seize property under the guise of collecting
taxes. The question that most people ask is: who is to blame? Is the agent at fault because his or
her training was incomplete? Was it their instructor's fault, or was the
instructor only doing what he or she was told? To a large degree
the "misperceptions" we've discussed result from ignorance that has been
perpetuated as much by natural processes as by any design, and it has gone on
for such a long time that no one is willing to admit that they really can not
explain why certain actions and procedural anomalies (for which they may
be responsible) seem to conflict with the law. The best that any
IRS employee can hope to do, is pretend that they know what they're doing
and hope that they can convince everyone else that what they have been doing is
proper and lawful. Is the third party to blame? Perhaps,
but then, how can anyone expect the average person to understand these
limitations when the agents themselves do not understand?
The lawyers that are called upon to give legal advice concerning levies
have virtually no experience in tax law and end up calling the very agents
that were just mentioned because they don't know either. Ironically,
everyone seems to have a sincere desire to obey the law, even many of the
agents. They just refuse to believe that what they've been doing for years
is outside the law -- surely there must be some other law that would permit
them to continue doing things the way they were told! Like the
children's' fairy tale about the emperor who had no clothes, the
people involved just can't believe their own eyes. The lower level agents
believe their supervisors wouldn't lie to them, and the supervisors believe that
what they have been told is correct and on up the ladder it goes. In the
case of the fairy tale emperor, the people just couldn't believe that the
emperor was really as naked as their eyes would seem to suggest. After
all, there must be some other explanation. Surely he (or in this
case the average IRS agent) wasn't that gullible! The real
problem is that none of the authorities involved are willing to admit the
possibility that they are wrong. That would be dangerously close to
admitting that they had been needlessly destroying the lives of their fellow
countryman, and the more evidence that surfaces to prove or disprove the various
points in contention, the more obsessive the bureaucrats desire to blindly, and
without basis, insist otherwise.
The funny thing about a lie, is that, the more a person repeats it, the
greater the tendency there is to believe it. For some, the misapplication
of the income tax has been a nightmare, not a fairy tale, but it has
been perpetuated by what in some cases seem to be well meaning, yes,
bureaucrats. Consider former Commissioner
Shirley Peterson's recent speech at Southern Methodist University. She blasted the
income tax and said that it must be done away with, echoing none other than
former President Jimmy Carter's own words when
he said "the income tax is a disgrace to the human race."
It was once difficult for us to believe that officials as high as Ms. Peterson were capable of such gross ignorance of
the law, but in a recent court ordered interrogatory, she stated that
"wages" and "salaries" were clearly includable in "section 61(a)" (gross income).
We pointed out to the present commissioner that not only were
"wages" and "salaries" not mentioned in the text of section 61, which is Subtitle A, but that they were by definition,
strictly limited to Subtitle C.
Moreover, a person cannot even have what is legally defined as a
"wage" unless he has applied to participate in the entitlement programs.
We added that: knowing she would not deliberately lie to
the court, her statements could only result from gross ignorance of the
law. That being the case, it may be that even the highest level
officials within the IRS may be under the false impression that they are in
compliance with the law (as hard as that may be for some
to believe). In the fairy tale, you may recall, it was the
innocent admission of a young boy who pointed to the emperor and asked
where his clothes were. The boy was unconcerned with any potential fear of
reprisal and his candid observation "exposed" the bare truth for all
to see. Of course, everyone already knew that the royal rascal was
buck naked because they could see it with their own eyes. They
were just unwilling to admit it because they were afraid of what the emperor
might do. Everyone was astounded by the youngster's honesty and when
everyone began to admit the truth, the emperor had no choice but to realize he
had been rather foolish.
The binding psychological principle that is at work here is not dissimilar
with the authority, the misapplication, and the subsequent "I'm just doing what I was told" response that
is usually received when government employees are confronted with the facts in
question. Pride, fear, and confusion do not allow the ego-driven
authoritarian (i.e. in this case, the professional bureaucrat)
to admit that they are wrong. To do so, would be to subject themselves to
the embarrassment and ridicule that would deflate the ego-trip that is the
driving force behind this type of individual, and to admit to such utter
negligence or ignorance is simply unthinkable. But just like in the
fairy tale, when everyone was forced to confront the naked truth, the
emperor had no recourse but to admit that he had been the fool. So just
how naked is the emperor?
THE AUTHORITY FOR THE
LEVY
The authority to levy is restricted to and contained within Section 6331(a) of the Internal Revenue Code.
IRC 6331 - Levy and
distraint.
(a) Authority of
Secretary. If any person liable to pay any tax neglects or refuses
to pay the same within 10 days after notice and demand, it shall be lawful
for the Secretary to collect such tax (and such further sum as shall be
sufficient to cover the expenses of the levy) by levy upon all property and
rights to property (except such property as is exempt under section 6334) belonging to such person or on which
there is a lien provided in this chapter for the payment of such tax.
Levy may be made upon the accrued salary or wages of
any officer, employee, or elected official, of the United States,
the District of Columbia, or any agency or instrumentality of the
United States or the District of Columbia, by serving a notice of
levy on the employer (as defined in section
3401(d)) of such officer, employee, or elected official).
If the Secretary makes a finding that the collection of such tax is in
jeopardy, notice and demand for immediate payment of such tax may be made by the
Secretary 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
this section. [Emphasis Added]
Section 6331 is the only authority in the
entire IR Code that provides for the levy of wages and salaries etc.,
and the "limitation" of that authority should be rather obvious since it
pertains ONLY to certain officers, employees, and
elected officials of the government and of course, their employer,
the government.
MORAL RESPONSIBILITY VS. LEGAL
OBLIGATION
It could be said that the IRS has a moral responsibility, however, in
reality, there is a difference between a moral responsibility, and a legal
obligation. Therefore, ethical questions may be reduced to the actual
"intent" or the "frame of mind" of any given agent who
mistakenly exercises such authority. Certainly, the IRS agent has a
moral responsibility to refrain from misusing authority, but if he or she is
unaware of the limitations of that authority, then technically, the actual legal
obligation to make a correct determination and accept that authority
(if appropriate) or not accept that authority
(if inappropriate) remains that of the third party.
It is equally important to understand that despite this ethical
"loop hole" which would seem to exonerate and provide an escape for
an agent errantly exercising a "presumed" authority, there are other
provisions that do hold him responsible for its administration.
Specifically, these provisions deal with what are called
"delegation orders" because no agent may administer a provision of
law without a proper order delegating such authority.
THE DELEGATION ORDER
The authority to "administer" the provisions of Section 6331, regardless of its applicability, is
further restricted by national and local "delegation orders"
designed to ensure agency compliance with the limited application of
the law.
As with all authority under the IR Code, it is the Secretary who must
administer the provisions for the levy or delegate the authority if and when
appropriate. The "delegation orders" that do exist for liens
and levies are remarkably limited. Interestingly, the back of the
levy form itself also shows a similar peculiarity. On the 668-W levy form, the authority listed
includes 6331(b) through 6331(e) but omits the elusive 6331(a) which is the actual authority for a levy and
the Section upon which the others rely and refer to. Why is it not cited
on the form?
In the "delegation order," the remainder of the cite references
the "Internal Revenue Manual" which is of course only
"directive" in nature. Since it is not the law, it cannot possibly
convey actual legal authority. It can only clarify, for the benefit of
agents seeking to identify such authority, what that authority is or how it is
limited, and whether they would be acting within their authority when
administering its provisions. A search of each
"delegation order" nationwide reveals that Section 6331(a) has indeed been omitted from each
and every one, but then again, if the authority for the levy pertains only to
government agencies within the territories (which is what it actually says), then it
should certainly come as no surprise that "delegation orders"
pertaining to service centers and district offices
within the 50 states cannot authorize such a levy. If an agent is
puzzled by this, his only other source for clarification is the
"Internal Revenue Manual."
THE INTERNAL REVENUE
MANUAL
As long as there is some illusion of authority, it is easy for an
IRS agent to justify (in his or her own mind) that certain
actions are within the scope of their authority, and as mention previously, the
"delegation orders" do list another "authority," specifically
the "IR Manual." But now that research has revealed that at
least 6 courts have ruled that the Manual does not have the
force of law, these agents are going to have to swallow one more
wake-up pill.
The courts have correctly ruled that the provisions of the
"Internal Revenue Code" are only
"directory in nature" and NOT mandatory. [See Lurhing v. Glotzbach,
304 F.2d 360 (4th Cir. 1962); Einhorn v. DeWitt,
618 F.2d 347 (5th Cir. 1980); and United States v. Goldstein,
342 F. Supp. 661 (E.D.N.Y. 1972)]. Courts have also
held that the provisions of the "Internal Revenue Manual" are
not mandatory and lack the force of law. [See Boulez v. C.I.R.,
810 F.2d 209 (D.C. Cir. 1987); United States v. Will,
671 F.2d 963, 967,(6th Cir. 1982)]. These
decisions are of course absolutely correct. The fact is, the Manual may
not be relied upon as the legal authority for any part of a collection
action. The only problem is, that leaves Section 6331(a), as the sole authority for a levy,
and as we've just seen, this Section is rather severely limited. So it
would seem that the awesome nonjudicial collection powers of the IRS are
not as awesome as some IRS officials would like the public to believe.
Or is it just another case of the emperor deluding himself. Either
way, it doesn't end there! The "Notice and Demand" is another
nail in the coffin.
THE "NOTICE AND DEMAND"
The "nonjudicial" collection authority is wholly dependent upon a
statute (Section 6321) which provides for
a lien to automatically arise when a taxpayer fails to make payment of a tax
that is demanded via a "Notice and Demand" under Section 6303. If such "demand" is
not, or cannot be made, then a lien cannot automatically arise and subsequent
collection activity cannot occur. All of the available case law confirms
this. In Linwood Blackstone et.al., v. United States
of America, (778 F.Supp 244
[D. Md. 1991]), the Court held that:
"The general rule is that no tax lien arises until the IRS makes a demand
for payment.
"Without a valid notice and demand, there can be no tax lien;
without a tax lien, the IRS cannot levy against the
taxpayer's property ... this Court concludes, consistent with the
views expressed in Berman, Marvel, and Chila that the appropriate "sanction" against
the IRS for its failure to comply with the 6303(a) notice and demand requirement is to take
away its awesome non-judicial collection powers."
Myrick v. United
States, [62-1 USTC 9112],
296 F 2d 312 (5th
Cir. 1961).
The Internal Revenue Code section 6303 is
the law that requires a "Notice and Demand" to be issued,
however, the IRS does not issue such notices for reasons which are beyond
the scope of this article.
IRC 6303 - Notice and demand for tax.
(a) General Rule ... the Secretary shall ...
give notice to each person liable for unpaid tax, stating the amount and
demanding payment thereof.
As evident from the Court case just mentioned, it would be, and is,
impossible for the IRS to move forward with the legal action that is
required by Section 7403 if they have not
issued a "Notice and Demand."
The "Notice of Levy" that is
given to a third party, in most (if not all cases),
falsely states that a "Notice and Demand" has been issued, but
if the IRS errs by failing to issue the required
"Notice and Demand" pursuant to IRC 6303, then they can not possibly obtain the
necessary legal sanction through a court of law to enforce the levy.
Why? Because in order to obtain the sanction of the court they would
need to produce a copy of the "Notice and Demand" that was
referenced on the levy form, and they can't do that if it doesn't exist.
If the IRS is unable to send the
"Notice and Demand," then it naturally follows that it would be
impossible to obtain the necessary Court Order.
Throughout this explanation, it is important to keep in mind that no single
IRS official is necessarily guilty of fraud. It is more accurate to
say that the process itself is constructively fraudulent. In other words,
it is not necessarily intentional. Whether it was designed with that in
mind is not for us to say. It is sufficient to explain that there are many
IRS employees involved and that the employee responsible for any given part
of the "presumed correctness" of any given action, rarely, if ever,
has any communication with any of the other employees who then act on
those "presumptions." Those who have worked in a typical busy
office environment know that the responsibility for getting things done often
falls to a low level employee who is trying to do the work of 10 people.
The shortcuts they teach their fellow workers are not necessarily in the
best interest of their employer but since they are unfamiliar with the details
of their companies inner workings, the reason that it is a detriment is
beyond their understanding. Of course, if there is no economic detriment
to their actions, the likelihood that their ingenious "procedure" will be
corrected by a superior is slim.
When new employees are hired, they learn the same defective way of
doing things. The government is more prone to this situation than any
business in the private sector because its employees are generally less
productive. In the situation we are examining, the law is written to
protect people from these inadvertent "shortcuts" made by lower level
employees, and that is why a Court Order is necessary to
affect levy.
COURT ORDER NECESSARY
Page 57(16) of the Internal Revenue Manual entitled "Legal Reference Guide for Revenue Officers"
confirms (in the upper right hand corner of the page) that
a Court Order (warrant of distraint) is necessary. We
say "confirms" because the Manual is merely referring to established
principles of law, it is not in and off itself the law that requires it.
Moreover, the IR Manual shows that
the IRS even agrees with those established principles and encourages their
agents to abide by those principles by citing the authority of United States v. O' Dell which says
that a proper levy against amounts held as due and owing by employers, banks,
stockbrokers, etc., must issue from a warrant of distraint
(Court Order) and not by mere notice. The O'Dell Court specifically stated that:
"The method of accomplishing a levy ... is the
issuing of warrants of distraint ..."
and that the Internal Revenue Service must also serve
"... with the notice of levy, [a] copy of the warrants
of distraint and [the] notice of lien."
The court emphasized that the
"... Levy is not effected by mere
notice."
Agents who bother to read the Manual know that the
"warrant of distraint" mentioned above, is the
Court Order which is required pursuant to IRC 7403.20.
IRC 7403 - Action to enforce lien or to subject
property to payment of tax
(c) Adjudication and decree: The court shall,
after the parties have been duly notified of the action, proceed to adjudicate
all matters involved therein and finally determine the merits of all claims to
and liens upon the property.
In a more recent decision involving the tax indebtedness of Stephens Equipment Co., Inc., debtor,"
(54 BR, 626 [D.C. 1985]), the court said:
"The role of the district court in issuing an order for the seizure of
property in satisfaction of tax indebtedness is substantially similar to the
court's role in issuing a criminal search warrant. In either
case, there must be a sufficient showing of probable cause."
More importantly, the court held that in order to substantiate such an
Order, the IRS must present the court with certain validation. The
court stated that
"... to effect a levy on the taxpayer's property [an Order] must
contain specific facts providing the following information:
- An assessment of tax has been made against the taxpayer, including the
date on which the assessment was made, the amount of the assessment, and the
taxable period for which the assessment was made;
- Notice and demand have been properly made, including the date of such
notice and demand and the manner in which notice was given and
demand made;
- The taxpayer has neglected or refused to pay said assessment within ten
days after notice and demand; ...
- Property, subject to seizure and particularly described presently
exists at the premises sought to be searched and that said property either
belongs to the taxpayer or is property upon which a lien exists for the
payment of the taxes; and
- Facts establishing that probable cause exists to believe that the
taxpayer is liable for the tax assessed.
Is it any wonder that the IRS cannot seek a Court Order?
Nevertheless, the "Court Order" is a statutory requirement for
the levy procedure because it establishes the validity of
the IRS's claim to the third party to whom the levy is presented.
Proper procedures assure the third party that the lien and subsequent
levy have been executed in a lawful manner. The
"Court Order" also protects the third party from a liability
which may arise under C.F.R. 26
(Code of Federal Regulations) 301.6332-1(c) which states in part:
"... Any person who mistakenly surrenders to the United States property
or rights to property not properly subject to levy [i.e., the
bank manager] is not relieved from liability to a third party who
owns the property ..."
And, the Court Order prevents some agent from taking
a "shortcut" as previously discussed. These details were
brought to the attention of a corporation who had received a
"Notice of Levy" on one its employees by the Fellowship's National
Worker's Rights Committee (NWRC).
The NWRC not only wrote to the employer, but in a telephone
conversation, one of our paralegals explained the limited nature of the
authority of Section 6331(a). The
president of the corporation was amazed and wrote to the IRS agent who had
issued the levy to inform him that they were not a
federal "employer" as mentioned within that Section and that they
could not honor a levy without proper authority. The agent began to harass
the president of the corporation by paying a visit to each of his neighbors but
the president would not budge. Instead, the president of the corporation
informed the agent that if he did not stop harassing him, he would sue the
agent, whereupon, the agent backed off.
It is amazing what happens when people insist that the IRS obey the
law, but what is more amazing is that more and more people are doing this each
and every day and the political pressure is now becoming impossible
for the IRS to ignore. According to former Commissioner Shirley Peterson in a speech before
the National Association of
Enrolled Agents in Nevada,
on August 26, 1993, as of this year, 1 in 5 people have
now stopped filing and the situation is out of control. We would say just
the opposite - it is finally becoming controllable because the public seems
to have developed the will to know the law and confine the IRS within
the law.
SUMMARY
In this article we have reviewed the nature of, confusion surrounding, and
authority for the levy. We have examined it in light of its application,
the pertinent "Delegation Orders," the missing
"Notice and Demand" that is the cornerstone of the process
leading up to the lien/levy procedure, and we have shown why the IRS
may not obtain the necessary "Court Order" without it. And
finally, we have given an example of what happens when a third party
becomes knowledgeable enough to insist that the IRS obey the law.
If we have been incorrect by assuming that high ranking IRS officials
know they are in violation of the law, then perhaps former Commissioner Shirley Peterson summed it up best
in her speech at Southern Methodist University when she quoted
former President Warren G. Harding
who said:
"I can't make a damn thing out of this tax problem. I listen to one
side and they seem right, and then ... I listen to the other side and they
seem right ... . I know somewhere there is a book that will give
me the truth, but I couldn't read the book. I know somewhere there is an
economist who knows the truth, but I don't know where to find him and haven't
the sense to know him and trust him when I find him ...
What a job!"
Warren G. Harding conversation, 1922;
reported in Joseph R. Conlin's,
"The
Morrow Book of Quotations in American History"
and quoted in David F. Bradford's,
"Untangling the Income
Tax."
Officials, like former Commissioner Peterson, may feel the same way.
However, regardless of whether Ms. Peterson is correct or incorrect, she is at least
far sighted enough to see what will happen in the next few years if
the government does not do something. If they can't or won't reign in the
ropes on IRS employees who refuse to obey the letter of the law, then
perhaps doing away with the law is the only answer.
Public sentiment against the income tax, those who administer its
provisions, and government in general (for not addressing
the problem) has become so overwhelming that even the highest ranking
officials within the IRS are looking for a way to get off the
sinking ship. They know the situation is out of control. Ms. Peterson's speech is just one of many that
will echo the same sentiments. No man's conscience would allow such a
thing to continue.
The limitation pertaining to the authority to levy that was examined in this
article is just one minor puzzle that they can't explain per their own
errant understanding of the law, and it is one more chink in the armor of those
who would ignorantly or intentionally misapply the law. The only
alternative is for the IRS to bow out gracefully and support plans for
an alternative system of taxation, and in case you haven't heard, that is
exactly what they are doing.
This article was taken from
usa-the-republic.com