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[Federal Register Volume 66, Number 121 (Friday, June 22, 2001)]
[Rules and Regulations]
[Pages 33464-33467]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-15656]

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 8951]
RIN 1545-AV00

Withdrawal of Notice of Federal Tax Lien in Certain Circumstances

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulation.

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SUMMARY: This document contains final regulations relating to the 
withdrawal of notices of federal tax liens in certain circumstances. 
The final regulations reflect changes made to section 6323 of the 
Internal Revenue Code of 1986 by the Taxpayer Bill of Rights 2. The 
final regulations affect all taxpayers seeking withdrawals of notices 
of federal tax liens.

EFFECTIVE DATE: June 22, 2001.

FOR FURTHER INFORMATION CONTACT: Kevin B. Connelly, (202) 622-3630 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to the Procedure and 
Administration Regulations (26 CFR part 301) relating to the withdrawal 
of notices of federal tax liens under section 6323 of the Internal 
Revenue Code (Code). Section 501(a) of the Taxpayer Bill of Rights 2 
(TBOR2), Public Law 104-168, 110 Stat. 1452 (1996), amended section 
6323 to authorize the Secretary to withdraw a notice of federal tax 
lien in certain limited circumstances. Section 501(a) also requires the 
Secretary to notify credit reporting agencies, financial institutions 
and creditors of the withdrawal upon the written request of the 
taxpayer. On June 30, 1999, a notice of proposed rulemaking reflecting 
these changes was published in the Federal Register (64 FR 35102). 
Several parties commented on the notice of proposed rulemaking and a 
hearing was held on November 30, 1999. The final regulations are 
adopted with minor changes.

Explanation of Provisions

    Section 501(a) of TBOR2 amended section 6323 of the Code by 
authorizing the Secretary to withdraw a notice of federal tax lien 
under certain conditions and providing that upon written request of the 
taxpayer the Secretary will notify any credit reporting agency and any 
financial institution or creditor identified by the taxpayer. These 
regulations implement section 501(a).
    The proposed regulations provided that the district director had 
the authority to withdraw a notice of federal tax lien if the district 
director determined that one of the four conditions enumerated in 
paragraph (b) of the regulations existed. Because of the reorganization 
of the Internal Revenue Service (IRS), which eliminated the district 
director position, the final regulations provide that the Commissioner 
or his delegate (Commissioner) may withdraw a notice of federal tax 
lien under the proper conditions.
    The notice of federal tax lien is withdrawn by filing a notice of 
withdrawal in the office in which the notice of federal tax lien is 
filed and providing the taxpayer with a copy of the notice. Following 
the withdrawal of a notice of federal tax lien, chapter 64 of subtitle 
F, relating to collection, is applied as if the IRS had never filed a 
notice of federal tax lien. The withdrawal of a notice of federal tax 
lien does not affect the underlying tax lien. The withdrawal simply 
relinquishes any lien priority the IRS had obtained under section 6323 
of the Code when the IRS filed the notice being withdrawn.
    Paragraph (b) of the regulations provides that the Commissioner has 
the authority to withdraw a notice of federal tax lien if one of the 
following conditions exists: (1) The filing of the notice of federal 
tax lien was premature or otherwise not in accordance with the 
administrative procedures of the Secretary; (2) the taxpayer has 
entered into an agreement under section 6159 to satisfy the liability 
for which the lien was imposed by means of installment payments, unless 
the agreement by its terms provides that the notice will not be 
withdrawn; (3) the withdrawal of notice will facilitate collection of 
the tax liability for which the lien was imposed; or (4) the withdrawal 
of notice is in the best interests of the taxpayer and the United 
States.
    A new example has been added (Example 1) that illustrates when the 
Commissioner may withdraw a notice of federal tax lien under paragraph 
(b)(1) because the IRS failed to follow administrative procedures when 
filing

[[Page 33465]]

notice. Each example now refers to just one of the four withdrawal 
criteria under paragraph (b)(1). In addition, the examples have been 
renumbered to correspond to the numbers of the criteria in paragraph 
(b) that the examples illustrate.
    One of the commenting parties recommended that the final 
regulations define the terms ``facilitate collection'' and ``best 
interests of the taxpayer and the United States,'' found in paragraphs 
(b)(3) and (b)(4). The final regulations purposely do not define these 
terms. Congress intended ``to give the IRS discretion to withdraw a 
notice of lien'' in these circumstances. H.R. Rep. No. 506, 104the 
Cong., 2d Sess. 32 (Mar. 28, 1996). The circumstances under which a 
lien may be withdrawn are inherently factual. Further refinement of the 
statutory terms may unnecessarily limit the IRS's ability to withdraw a 
notice where appropriate.
    A commenting party asked the IRS to add a paragraph providing that, 
if the National Taxpayer Advocate (or his delegate) determines that a 
taxpayer is suffering or about to suffer a significant hardship, the 
National Taxpayer Advocate (or his delegate) may, in appropriate cases, 
issue a taxpayer assistance order (TAO) requiring the Commissioner to 
withdraw a notice of federal tax lien. This issue, concerning whether 
the National Taxpayer Advocate (or his delegate) may issue a TAO 
ordering the withdrawal of a notice, involves an interpretation of 
section 7811, and the authority granted to the National Taxpayer 
Advocate, which are not pertinent to this regulation.
    The final regulations provide that a person may request the 
withdrawal of a notice of federal tax lien by writing to the 
Commissioner. A written request for withdrawal must include: (1) The 
name, current address, and taxpayer identification number of the person 
requesting withdrawal of the notice of federal tax lien; (2) a copy of 
the notice of federal tax lien affecting the property, if available; 
(3) the grounds upon which the withdrawal of notice of federal tax lien 
is being requested; (4) a list of the names and addresses of any credit 
reporting agency and any financial institution or creditor that the 
taxpayer wishes the Commissioner to notify of the withdrawal of notice 
of federal tax lien; and (5) a request to disclose information relating 
to the withdrawal to the persons or entities listed.
    The Commissioner must consider each taxpayer's request for 
withdrawal of notice of federal tax lien and determine whether any of 
the conditions authorizing withdrawal exist and whether to issue a 
withdrawal. The Commissioner also may issue a notice of withdrawal 
based on information received from a source other than the taxpayer.
    If the Commissioner grants a request for the withdrawal of notice 
of federal tax lien, the taxpayer may supplement the list of credit 
reporting agencies and financial institutions or creditors provided 
with the request for withdrawal. If no list was submitted with the 
request for withdrawal, a list may be submitted after the notice is 
withdrawn. A request to supplement the list must be sent in writing to 
the Commissioner. The request must contain: (1) The name, current 
address, and taxpayer identification number of the person requesting 
the notification; (2) a copy of the notice of withdrawal; (3) the names 
and addresses of the persons or entities the taxpayer wishes the IRS to 
contact; and (4) a request to disclose the withdrawal to the persons or 
entities listed.
    A commenting party suggested that the IRS send notification to 
credit agencies and financial institutions by certified mail. Certified 
mail generally is required where there is a statute of limitations 
dependent on service. This is not the case with respect to notification 
under section 6323(j)(2).
    A commenting party also requested that language be added to the 
regulations stating that, upon receipt of notification that the IRS has 
withdrawn a notice of federal tax lien, a credit agency will be immune 
from any damage claim a taxpayer may have against it for its handling 
of the notice if the credit agency acts within reasonable time after 
receiving notice. The statute simply instructs the IRS to notify credit 
agencies of a notice of withdrawal upon request of the taxpayer. The 
IRS does not have the statutory authority to shield a credit agency 
from a taxpayer's claim for damages due to how the credit agency 
handled the notice.
    The regulations will apply on or after June 22, 2001, with respect 
to withdrawals of any notice of federal tax lien occurring after such 
date regardless of when the notice was filed.

Special Analyses

    It has been determined that this final regulation is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations, and because the 
collection of information in the regulations is exempt pursuant to 5 
U.S.C. 601(7)(B), the Regulatory Flexibility Act (5 U.S.C. chapter 6) 
does not apply. Pursuant to section 7805(f) of the Internal Revenue 
Code, this regulation will be submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on its impact 
on small businesses.

Drafting Information

    The principal author of these regulations is Kevin B. Connelly, 
Office of Associate Chief Counsel (Procedure and Administration), 
Collection Bankruptcy & Summons Division, CC:PA:CBS, IRS. However, 
other personnel from the IRS and Treasury Department participated in 
their development.

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Final Amendments to the Regulations

    Accordingly, the IRS amends 26 CFR part 301 as follows:

PART 301--PROCEDURE AND ADMINISTRATION

    Paragraph 1. The authority citation for part 301 continues to read 
in part as follows:

    Authority: 26 U.S.C. 7805 * * *

    Par. 2. Section 301.6323(j)-1 is added to read as follows:

Sec. 301.6323(j)-1  Withdrawal of notice of federal tax lien in certain 
circumstances.

    (a) In general. The Commissioner or his delegate (Commissioner) may 
withdraw a notice of federal tax lien filed under this section, if the 
Commissioner determines that any of the conditions in paragraph (b) of 
this section exist. A notice of federal tax lien is withdrawn by the 
filing by the Commissioner of a notice of withdrawal in the office in 
which the notice of federal tax lien is filed. If a notice of 
withdrawal is filed, chapter 64 of subtitle F, relating to collection, 
will be applied as if the withdrawn notice had never been filed. A copy 
of the notice of withdrawal will be provided to the taxpayer. Upon 
written request by a taxpayer with respect to whom a notice of federal 
tax lien has been or will be withdrawn, the Commissioner will promptly 
make reasonable efforts to notify any credit reporting agency and any 
financial institution or creditor identified by the taxpayer of the 
withdrawal of such notice. The withdrawal of a notice of federal tax 
lien

[[Page 33466]]

will not affect the underlying federal tax lien.
    (b) Conditions authorizing withdrawal. The Commissioner may 
authorize the withdrawal of a notice of federal tax lien upon 
determining that one of the following conditions exists:
    (1) Premature or not in accordance with administrative procedures. 
The filing of the notice of federal tax lien was premature or otherwise 
not in accordance with the administrative procedures of the Secretary.
    (2) Installment agreement. The taxpayer has entered into an 
agreement under section 6159 to satisfy the liability for which the 
lien was imposed by means of installment payments. Entry into an 
installment agreement may not, however, be the basis for withdrawal of 
a notice of lien if the installment agreement specifically provides 
that a notice of federal tax lien will not be withdrawn.
    (3) Facilitate collection. The withdrawal of the notice of federal 
tax lien will facilitate the collection of the tax liability for which 
the lien was imposed.
    (4) Best interests of the United States and the taxpayer--(i) In 
general. The taxpayer or the National Taxpayer Advocate (or his 
delegate) has consented to the withdrawal of the notice of federal tax 
lien, and withdrawal of the notice would be in the best interest of the 
taxpayer, as determined by the taxpayer or the National Taxpayer 
Advocate (or his delegate), and in the best interest of the United 
States, as determined by the Commissioner.
    (ii) Best interest of the taxpayer. When a taxpayer requests the 
withdrawal of notice of federal tax lien based on the best interests of 
the United States and the taxpayer, the National Taxpayer Advocate (or 
his delegate) generally will determine whether the withdrawal of the 
notice of federal tax lien is in the best interest of the taxpayer. If, 
however, a taxpayer requests the Commissioner to withdraw a notice and 
has not specifically requested the National Taxpayer Advocate (or his 
delegate) to determine the taxpayer's best interest, a finding by the 
Commissioner that the withdrawal of notice is in the best interest of 
the taxpayer will be sufficient to support withdrawal. If the 
Commissioner decides independently of a request by the taxpayer to 
withdraw a notice of federal tax lien, the taxpayer or the National 
Taxpayer Advocate (or his delegate) must consent to the withdrawal.
    (5) Examples. The following examples illustrate the provisions of 
this paragraph (b):

    Example 1. A owes $1,000 in Federal income taxes. The IRS files 
a notice of federal tax lien to secure A's tax liability. However, 
the IRS failed to follow procedure provided by the Internal Revenue 
Manual (but not required by statute) with regard to managerial 
approval prior to the filing of a notice of federal tax lien. The 
Commissioner may withdraw the notice of federal tax lien because the 
filing of the notice was not in accordance with the Secretary's 
administrative procedures.
    Example 2.  A owes $1,000 in federal income taxes. A enters into 
an agreement to pay the outstanding federal income tax liability in 
installments. The agreement provides that a notice of federal tax 
lien may be filed if the taxpayer defaults. A timely pays the 
installments each month and has not defaulted in any way. Eleven 
months after entering into the installment agreement, the Internal 
Revenue Service files a notice of federal tax lien. Noting that 
there has been no default, the taxpayer asks the Internal Revenue 
Service to withdraw the notice of federal tax lien. In this 
situation, the Commissioner may withdraw the notice of federal tax 
lien because the taxpayer has entered into an installment agreement.
    Example 3. A is an employee of X Corporation. A notice of 
federal tax lien has been filed to secure an outstanding tax 
liability against A. A, who has no assets and no other secured 
creditors, has agreed to pay the balance of tax due through payroll 
deductions at a rate higher than the Internal Revenue Service could 
obtain through a wage levy in order to get the notice of federal tax 
lien withdrawn. X Corporation has agreed to allow A to enter into a 
payroll deduction agreement. In this situation, the Commissioner may 
withdraw the notice of federal tax lien to facilitate collection.
    Example 4. A is owner of a farm machinery dealership against 
whom a notice of federal tax lien has been filed to secure an 
outstanding tax liability. A currently is paying the tax liability 
by an installment agreement. X Corporation has agreed to provide A 
with 100 tractors to increase A's inventory if the notice of federal 
tax lien is withdrawn. A asks the Internal Revenue Service to 
withdraw the notice of federal tax lien. The Commissioner determines 
that the larger inventory would enable A to generate additional 
tractor sales. Increased sales would enable A to increase the amount 
of installment payments and, consequently, reduce the amount of time 
needed to satisfy the liability. A, who has no other assets or 
secured creditors, has agreed to modify the installment agreement. 
The Commissioner may withdraw the notice of federal tax lien because 
the withdrawal is in the best interest of the taxpayer and the 
United States.

    (c) Determinations by the Commissioner. The Commissioner must 
determine whether any of the conditions authorizing the withdrawal of a 
notice of federal tax lien exist if a taxpayer submits a request for 
withdrawal in accordance with paragraph (d) of this section. The 
Commissioner may also make this determination independent of a request 
from the taxpayer based on information received from a source other 
than the taxpayer. If the Commissioner determines that conditions 
authorizing the withdrawal are not present, the Commissioner may not 
authorize the withdrawal. If the Commissioner determines conditions for 
withdrawal are present, the Commissioner may (but is not required to) 
authorize the withdrawal.
    (d) Procedures for request for withdrawal--(1) Manner. A request 
for the withdrawal of a notice of federal tax lien must be made in 
writing in accordance with procedures prescribed by the Commissioner.
    (2) Form. The written request will include the following 
information and documents--
    (i) Name, current address, and taxpayer identification number of 
the person requesting the withdrawal of notice of federal tax lien;
    (ii) A copy of the notice of federal tax lien affecting the 
taxpayer's property, if available;
    (iii) The grounds upon which the withdrawal of notice of federal 
tax lien is being requested;
    (iv) A list of the names and addresses of any credit reporting 
agency and any financial institution or creditor that the taxpayer 
wishes the Commissioner to notify of the withdrawal of notice of 
federal tax lien; and
    (v) A request to disclose the withdrawal of notice of federal tax 
lien to the persons listed in paragraph (d)(2)(iv) of this section.
    (e) Supplemental list of credit agencies, financial institutions, 
and creditors--(1) In general. If the Commissioner grants a withdrawal 
of notice of federal tax lien, the taxpayer may supplement the list in 
paragraph (d)(2)(iv) of this section. If no list was provided in the 
request to withdraw the notice of federal tax lien, the list in 
paragraph (d)(2)(iv) of this section and the request for notification 
in paragraph (d)(2)(v) of this section may be submitted after the 
notice is withdrawn.
    (2) Manner. A request to supplement the list of any credit agencies 
and any financial institutions or creditors that the taxpayer wishes 
the Commissioner to notify of the withdrawal of notice of federal tax 
lien must be made in writing in accordance with procedures prescribed 
by the Commissioner.
    (3) Form. The request must include the following information and 
documents--

[[Page 33467]]

    (i) Name, current address, and taxpayer identification number of 
the taxpayer requesting the notification of any credit agency or any 
financial institution or creditor of the withdrawal of notice of 
federal tax lien;
    (ii) A copy of the notice of withdrawal, if available;
    (iii) A supplemental list, identified as such, of the names and 
addresses of any credit reporting agency and any financial institution 
or creditor that the taxpayer wishes the Commissioner to notify of the 
withdrawal of notice of federal tax lien; and
    (iv) A request to disclose the withdrawal of notice of federal tax 
lien to the persons listed in paragraph (e)(3)(iii) of this section.
    (f) Effective date. This section applies on or after June 22, 2001, 
with respect to a withdrawal of any notice of federal tax lien.

    Approved: June 13, 2001.
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
Mark A. Weinberger,
Assistant Secretary of the Treasury.
[FR Doc. 01-15656 Filed 6-21-01; 8:45 am]
BILLING CODE 4830-01-P
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