Release of Lien or Discharge of Property, 1301-1308 [E7-219]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 72, Number 7 (Thursday, January 11, 2007)]
[Proposed Rules]
[Pages 1301-1308]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-219]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[REG-159444-04]
RIN 1545-BE35


Release of Lien or Discharge of Property

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations related to release 
of lien and discharge of property under sections 6325, 6503, and 7426 
of the Internal Revenue Code (Code). The proposed regulations update 
existing regulations and contain procedures for processing a request 
made by a property owner for discharge of a Federal tax lien from his 
property, under section 6325(b)(4). The proposed regulations also 
clarify the impact of these procedures on sections 6503(f)(2) and 
7426(a)(4) and (b)(5). The proposed regulations reflect the enactment 
of sections 6325(b)(4), 6503(f)(2), and 7426(a)(4) by the IRS 
Restructuring and Reform Act of 1998.

DATES: Written or electronic comments and requests for a public hearing 
must be received by April 11, 2007.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-159444-04), room 
5203, Internal Revenue Service, P.O.B. 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
159444-04), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC 20224. Alternatively, taxpayers may submit 
comments electronically to the IRS Internet site at https://www.irs.gov/
regs or via the Federal eRulemaking Portal at www.regulations.gov (IRS-
REG-159444-04).

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Debra A. 
Kohn, (202) 622-7985; concerning submissions of comments and the 
hearing, Richard A. Hurst, Publications and Regulations Specialist, at 
Richard.A.Hurst@irscounsel.treas.gov or (202) 622-7180 (not toll-free 
numbers).

SUPPLEMENTARY INFORMATION:

Background

    This document contains proposed amendments to the Procedure and 
Administration Regulations (26 CFR part 301) under sections 6325, 6503, 
and

[[Page 1302]]

7426 of the Code. Section 6325(b)(4) was enacted by section 3106(a) of 
the IRS Restructuring and Reform Act of 1998 (RRA 1998), Public Law 
105-206 (112 Stat. 685). Section 6503(f)(2) was enacted by section 
3106(b)(3) of RRA 1998. Sections 7426(a)(4) and (b)(5) were enacted by 
section 3106(b)(1) of RRA 1998. These provisions of RRA 1998 provide a 
statutory mechanism for a person other than the person against whom the 
underlying tax was assessed, upon furnishing a deposit or bond, to 
obtain a discharge of the Federal tax lien from property owned by him, 
and for the IRS or the courts to determine the disposition of the 
deposit or bond amount.
    The provisions added by RRA 1998 were enacted in response to United 
States v. Williams, 514 U.S. 527 (1995). In Williams, the Supreme Court 
held that a third party who paid another person's tax liability under 
protest had standing to bring a civil suit for refund pursuant to 28 
U.S.C. 1346(a)(1), which waives the Government's sovereign immunity 
with respect to refund suits for Federal taxes alleged to have been 
erroneously or illegally assessed or collected. The Government argued 
in Williams that section 1346(a)(1) was intended to afford a remedy 
only to the person against whom a tax is assessed, and not a third 
party in this situation. In rejecting this argument, the Supreme Court 
reasoned that the plaintiff in Williams, who was not the taxpayer and 
who needed a discharge of the Federal tax lien in order to sell her 
property, had no effective remedy other than to pay the tax giving rise 
to the lien and to institute a refund suit. Sections 6325(b)(4), 
6503(f)(2), and 7426(a)(4) and (b)(5) afford such a remedy to an owner 
of the property in this situation if the owner is not the person whose 
unsatisfied liability gave rise to the lien (a third-party owner). In 
light of the addition these provisions to the Code, the continuing 
applicability of Williams is extremely limited, as the IRS has noted in 
other published guidance. See Rev. Rul. 2005-50, 2005-30 I.R.B. 124 
(2005).
    The current Code of Federal Regulations contains both temporary and 
final regulations under sections 6325, 6503, and 7426. Neither the 
temporary regulations nor the final regulations reflect the amendments 
to the Code made by RRA 1998. These proposed regulations, if adopted as 
final, would constitute permanent regulations that would incorporate 
the amendments made by RRA 1998 by replacing the existing temporary 
regulations and updating the existing final regulations under sections 
6325, 6503, and 7426. In particular, these proposed regulations contain 
procedures for processing a request for a certificate of discharge of a 
Federal tax lien under section 6325(b)(4). In addition, these proposed 
regulations clarify the impact of these procedures on the collection 
limitations period tolling provisions of section 6503(f)(2) and on the 
judicial remedy provisions of sections 7426(a)(4) and (b)(5).
    The proposed regulations also incorporate, with updates, the 
language of the existing temporary regulations relating to release of 
lien under section 6325(a), while withdrawing the existing temporary 
regulations. Changes to the language of the existing temporary 
regulations have been made to account for the IRS's acceptance of 
additional forms of payment since the temporary regulations became 
effective in 1983. Although section 7805(e)(2) provides that temporary 
regulations expire after three years, this provision applies only to 
temporary regulations issued after November 20, 1988. Since the 
temporary regulations relevant here were issued prior to that date, 
they are not subject to the three-year statutory limit. The proposed 
regulations provide that the existing temporary regulations under 
section 6325(a) are removed as of the date the proposed regulations 
become effective as final regulations.
    The existing permanent and temporary regulations do not account for 
the current organizational structure of the IRS. The existing permanent 
regulations under sections 6325 and 6503(f) employ the title ``district 
director,'' in numerous instances, in indicating the highest official 
of a local office of the IRS. That title was used under an 
organizational structure of the IRS that no longer exists. In order to 
account for the IRS's current organizational structure and to allow for 
future reorganizations of the IRS, the proposed regulations remove the 
title ``district director'' throughout Sec. Sec.  301.6325-1 and 
301.6503(f)-1, and replace that title with the term ``appropriate 
official.'' Section 301.6325-1(h) and Section 301.6503(f)-1(c) of the 
proposed regulations state that as used throughout section 301.6325-1 
and section 301.6503(f)-1, respectively, the term ``appropriate 
official'' means the official or office identified in the relevant IRS 
Publication, or if such official is not so identified, the Secretary or 
his delegate. In this context, the relevant publication is either IRS 
Publication 1450, ``Instructions on How to Request a Certificate of 
Release of Federal Tax Lien,'' or IRS Publication 783, ``Instructions 
on How to Apply for a Certificate of Discharge of Property from Federal 
Tax Lien.''

Explanation of Provisions

I. In General

    Under section 6325(a), the Secretary shall issue a certificate of 
release of a Federal tax lien within 30 days of finding that the 
liability for the underlying tax either has been fully satisfied or has 
become legally unenforceable, or if an appropriate bond has been 
furnished to and accepted by the Secretary.
    Under section 6325(b)(4)(A), the Secretary shall issue a 
certificate of discharge of property from a Federal tax lien if the 
owner of the property requests the issuance of a certificate of 
discharge and either deposits an amount of money ``equal to the value 
of the interest of the United States (as determined by the Secretary) 
in the property'' or furnishes an acceptable bond in a like amount. 
Section 6325(b)(4)(D) renders section 6325(b)(4)(A) inapplicable ``if 
the owner of the property is the person whose unsatisfied liability 
gave rise to the lien.'' This means that if undivided interests in the 
property at issue are owned by both the taxpayer and another person, 
neither the taxpayer nor the other person may obtain a discharge of the 
property from the Federal tax lien under section 6325(b)(4).
    Under section 6325(b)(4)(B), the Secretary shall refund the amount 
deposited, with interest, or release the bond furnished, ``to the 
extent that the Secretary determines that'' either: (i) The unsatisfied 
liability giving rise to the lien ``can be satisfied from a source 
other than such property''; or (ii) the value of the interest of the 
United States in the property ``is less than the Secretary's prior 
determination of such value.'' Section 7426(a)(4) allows a person who 
has obtained a certificate of discharge under section 6325(b)(4) to 
bring a civil action in Federal district court against the United 
States ``for a determination of whether the value of the interest of 
the United States (if any) in such property is less than the value 
determined by the Secretary.'' This action must be filed within 120 
days after the date the certificate of discharge is issued. Section 
7426(a)(4) states that ``[n]o other action may be brought by such 
person for such a determination.'' Section 7426(b)(5) provides that if 
the Federal district court determines that the Secretary's 
determination of the value of the interest of the United States in the 
property under section 6325(b)(4) exceeds the value of such interest, 
the court shall grant a judgment ordering a

[[Page 1303]]

refund of the deposit amount, or a release of the bond, to the extent 
that the amount furnished exceeds the value determined by the court.
    Section 6325(b)(4)(C) states that if no action is filed under 
section 7426(a)(4) within the specified 120-day period, the Secretary 
shall, within 60 days after the expiration of that period: (i) Apply 
the deposit, or collect on the bond, to the extent necessary to satisfy 
the liability secured by the lien; and (ii) refund, with interest, any 
portion of the deposit not used to satisfy such liability.
    Section 6503(f)(2) suspends the running of the period provided in 
section 6502 for collecting an assessed tax liability from the time a 
person becomes entitled to a certificate of discharge under section 
6325(b)(4) until 30 days after: (A) The earliest date on which the 
Secretary no longer holds any amount as a deposit or bond provided 
under section 6325(b)(4) because the deposit or bond either has been 
used to satisfy the unpaid tax liability or has been refunded or 
released; or (B) the date a judgment secured under section 7426(b)(5) 
becomes final. Suspension of the running of the collection limitations 
period under section 6503(f)(2) applies only with respect to the amount 
of the assessment equal to the value of the interest of the United 
States in the subject property, plus interest, penalties, and certain 
other additions to tax.

II. Release of Lien

    Section 6325(a) provides that the Secretary shall issue a 
certificate of release of lien within 30 days of the satisfaction of 
certain conditions. Section 301.6325-1(a)(1) and (2) of the existing 
permanent regulations state that the Secretary ``may'' issue a 
certificate of release if such conditions are met. These proposed 
regulations change the word ``may'' to ``shall'' in the appropriate 
instances, and incorporate the 30-day requirement contained in the 
existing temporary regulations, consistent with section 6325(a).
    Much of the remainder of the language of Sec.  401.6325-1(a) of the 
temporary regulations is essentially the same as the language of Sec.  
301.6325-1(a) of the existing permanent regulations. Therefore, the 
remaining language need not be incorporated into these proposed 
regulations. The language of Sec.  401.6325-1(b), dealing with notices 
of Federal tax lien that also contain certificates of release that 
become effective as of a prescribed date, survives as an addition to 
Sec.  301.6325-1(a). The language of Sec.  401.6325-1(c), defining the 
phrase satisfaction of the tax liability for purposes of section 
6325(a)(1), also survives as an addition to Sec.  301.6325-1(a). The 
language of Sec.  401.6325-1(d), defining the phrase proof of full 
payment for purposes of Sec.  401.6325-1(a), survives as part of a new 
subsection of the permanent regulations addressing payment via credit 
and debit cards and electronic funds transfers, consistent with 26 CFR 
Sec. Sec.  31.6302-1(h)(8) and 301.6311-2(a). The language of Sec.  
401.6325-1(e), dealing with Federal tax liens listing multiple tax 
liabilities, and the language of Sec.  401.6325-1(f), dealing with the 
requirements of a valid request for a certificate of release, is 
incorporated into the permanent regulations.

III. Discharge of Property Under Section 6325(b)(4)

A. Issuance of the Certificate of Discharge

    Section 6325(b)(4)(A) requires the Secretary to issue a certificate 
of discharge of a third-party owner's property from a Federal tax lien 
if the third-party owner meets certain requirements. The proposed 
regulations state that a certificate of discharge must be issued under 
section 6325(b)(4) if the third-party owner submits a proper request 
and either deposits an appropriate amount or furnishes an acceptable 
bond.
1. Request of Third-Party Owner
    Section 301.6325-1(b)(4) provides that a person seeking a 
certificate of discharge under section 6325(b) must submit an 
application in writing to the local IRS official responsible for 
collection of the tax at issue, and that the application must contain 
such information as the official may require. Section 301.6325-1(b)(4) 
as currently written applies to only certificates of discharge under 
section 6325(b)(1) through (3). The proposed regulations extend the 
applicability of the language of Sec.  301.6325-1(b)(4) (redesignated 
as Sec.  301.6325-1(b)(5)) to a request for a certificate of discharge 
under section 6325(b)(4) and indicate that the request should be 
submitted to the appropriate IRS official or office.
    New Sec.  301.6325-1(b)(5) of the proposed regulations states that 
a request for a certificate of discharge made by a third-party owner 
will be viewed as a request under section 6325(b)(4), and not as a 
request made under section 6325(b)(2), unless the third-party owner 
expressly states otherwise in writing. Similarly, any amount the IRS 
receives from a third-party owner following a discharge request will be 
viewed as a deposit made under section 6325(b)(4)(A), rather than as a 
payment under section 6325(b)(2), unless the third-party owner in 
writing expressly states otherwise, and expressly waives the right to 
file a civil suit in Federal district court for a refund of the amount 
received in writing.
    The waiver provisions included in the proposed regulations 
generally protect the third-party owner in that a certificate of 
discharge granted under section 6325(b)(4), unlike one granted under 
section 6325(b)(2), affords a third-party owner the right to pursue a 
civil action under section 7426(a)(4) regarding the IRS's determination 
of the value of its lien. Amounts paid under section 6325(b)(2) do not 
constitute deposits and are immediately credited to the taxpayer's 
account once paid by the taxpayer or another person.
2. Value of the Interest of the United States (as Determined by the 
Secretary) in the Property
    Section 6325(b)(4)(A) and (D) requires the Secretary to issue a 
certificate of discharge of a third-party owner's property from a 
Federal tax lien if the third-party owner either deposits with the 
Secretary an amount ``equal to the value of the interest of the United 
States (as determined by the Secretary)'' or furnishes a bond 
acceptable to the IRS in a like amount. The proposed regulations 
provide that the deposit should be made or the bond should be furnished 
to the appropriate IRS official or office.
    Section 301.6325-1(b)(2)(iii) indicates that in determining the 
value of the interest of the United States under section 6325(b)(2), 
the appropriate official ``shall give consideration to the value of the 
property and the amount of all liens and encumbrances thereon having 
priority over the Federal tax lien. In determining the value of the 
property, the [appropriate official] may, in his discretion, give 
consideration to the forced sale value of the property in appropriate 
cases.''
    The proposed regulations state that this language applies to the 
determination of the value of the United States' interest in a third-
party owner's property under section 6325(b)(4) and provide that the 
appropriate official shall make the determination.

B. Processing the Deposit

    Section 6325(b)(4)(B) states that the Secretary shall refund the 
amount deposited, with interest at the overpayment rate determined 
under section 6621, and shall release the bond, to the extent that the 
Secretary determines that either: (i) The unsatisfied tax liability 
giving rise to the

[[Page 1304]]

lien can be satisfied from a source other than the third-party owner's 
property; or (ii) the value of the United States' interest in the 
property is less than the Secretary's prior determination of such 
value.
    The proposed regulations specify that any request for a refund of 
deposit or release of bond under section 6325(b)(4)(B) must be made in 
writing and must contain the information required by the appropriate 
IRS Publication. The proposed regulations also clarify that the phrase 
``unsatisfied liability giving rise to the lien'' contained in section 
6325(b)(4)(B)(i) refers to the entire tax liability listed on the 
notice of Federal tax lien, not just the portion of the liability equal 
to the value of the United States' interest in the third-party owner's 
property. The proposed regulations, in addition, indicate that the 
Secretary is afforded discretion as to whether he should make a 
determination, and if he does so, in determining whether a deposit 
should be refunded or a bond released under section 6325(b)(4)(B).
    As discussed in part IV of this preamble, a third-party owner 
wishing to file a civil suit for disposition of his deposit or bond is 
required by section 7426(a)(4) to do so within 120 days of issuance of 
the certificate of discharge. Consistent with this limitation period 
for filing suit, the proposed regulations allow the same 120-day period 
for the IRS to make any administrative determination regarding refund 
of deposit or release of bond under section 6325(b)(4)(B). During that 
120-day period, the third-party owner may request a refund of deposit 
or release of bond administratively under section 6325(b)(4)(B), file a 
civil suit in district court under section 7426(a)(4), or both.

IV. Civil Action by Person Other Than Taxpayer for Substitution of 
Value

    Section 7426(a)(4) provides that a person to whom a certificate of 
discharge has been issued under section 6325(b)(4) with respect to any 
property may, within 120 days after the day the certificate is issued, 
bring a civil action in Federal district court for ``a determination of 
whether the value of the interest of the United States (if any) in such 
property is less than the value determined by the Secretary.''

A. Allowable Basis for Judicial Determination

    The existing permanent regulations under section 7426 do not 
address the cause of action afforded by section 7426(a)(4). The 
proposed regulations clarify that the only allowable basis for a 
judicial determination under section 7426(a)(4) is that the value of 
the interest of the United States in the third-party owner's property 
is less than the value as determined by the Secretary under section 
6325(b)(4)(A)(i). This follows from the express language of section 
7426(a)(2) and is the case despite the fact that an additional basis 
for reevaluation of the Secretary's original determination--that the 
tax liability underlying the lien can be satisfied from another 
source--is provided under section 6325(b)(4)(B)(i).

B. Exclusivity of Remedy

    The proposed regulations emphasize that section 7426(a)(4) provides 
the only judicial remedy available to a third-party owner whose 
property is subject to a Federal tax lien to obtain a refund of the 
deposit or bond provided in exchange for a discharge of the lien from 
the property.
    Section 7426(a)(4) explicitly provides that: ``No other action may 
be brought by such person [to whom a certificate of discharge is issued 
under section 6325(b)(4)] for such a determination.'' Additionally, by 
the terms of section 7426(a)(4), a third-party owner must obtain a 
certificate of discharge under section 6325(b)(4) (and not under 
section 6325(b)(2)) to have standing to pursue the remedy offered by 
section 7426(a)(4).

C. No Tolling of 120-Day Period

    The proposed regulations state that an administrative request for 
refund of deposit or release of bond made under section 6325(b)(4)(B) 
does not affect the running of the 120-day period for bringing a civil 
suit under section 7426(a)(4). The statutory scheme makes the standing 
of a third-party owner to bring suit under section 7426(a)(4) 
independent of, rather than related to, events that might occur under 
section 6325(b)(4)(B). Thus, an administrative request for refund of 
deposit or release of bond under section 6325(b)(4)(B) is not a 
prerequisite to filing an action under section 7426(a)(4), and the 120-
day period of section 7426(a)(4) will not be tolled by an 
administrative request for refund of deposit or release of bond made 
under section 6325(b)(4)(B).

D. Court's Authority To Issue Judgment

    The proposed regulations under section 7426 address section 
7426(b)(5), which authorizes a Federal district court to decide whether 
the Secretary's determination of the value of the United States' 
interest in a third-party owner's property exceeds the actual value of 
its interest, and, if so, to grant a judgment ordering refund of all or 
part of the third-party owner's deposit accordingly.

V. Secretary's Use of Deposit or Bond if Judicial Action Not Filed

    Section 6325(b)(4)(C) instructs the Secretary how to process the 
third-party owner's deposit or bond if the third-party owner does not 
institute suit under section 7426(a)(4) within the statutorily 
prescribed 120-day period. Under section 6325(b)(4)(C), the Secretary 
has 60 days after expiration of the 120-day period to: (i) Apply the 
amount deposited (or collect on the bond furnished) ``to the extent 
necessary to satisfy the unsatisfied liability secured by the lien''; 
and (ii) refund, with interest at the overpayment rate, any portion of 
the amount deposited ``which is not used to satisfy such liability.'' 
Thus, the statute affords the Secretary a total of 180 days after 
issuing the certificate of discharge to complete processing of the 
third-party owner's deposit or bond.
    The proposed regulations specify that the IRS may take these 
actions even after 180 days have passed. Prohibiting the IRS from 
either applying or refunding the deposit once the 180-day period has 
elapsed would prevent the IRS from ever relinquishing a deposit 
thereafter, in effect requiring IRS personnel to retain amounts 
deposited despite, in many cases, being aware that the amounts should 
be applied to outstanding tax liabilities or returned to third-party 
owners.
    However, because section 6325(b)(4)(C) reflects Congress's intent 
that the deposit or bond be processed within 60 days after expiration 
of the 120-day period for bringing suit (or 180 days after the date a 
certificate of discharge is issued under section 6325(b)(4)(A)), the 
proposed regulations state that the deposit or bond will be deemed to 
have been processed as of the 60th day after expiration of the 120-day 
period for purposes of applying payments to the taxpayer's account. 
This means that if the IRS has not either applied or refunded any part 
of the deposit within the 180-day period, the IRS will be prohibited 
from charging the taxpayer interest and penalties on an outstanding 
liability to which the deposit should have been applied under section 
6325(b)(4)(C)(i). On the other hand, the IRS will pay the third-party 
owner interest at the overpayment rate on any refund that should have 
been paid under section 6325(b)(4)(C)(ii) within the 60-day period 
until the refund is actually paid.

VI. Suspension of Running of Period of Limitation

    Section 6503(f)(2) states that in the case of any assessment for 
which a lien

[[Page 1305]]

was made on any property, the running of the period for collecting the 
assessed tax liability, under section 6502, shall be suspended from the 
date any person becomes entitled to a certificate of discharge with 
respect to the property under section 6325(b)(4) until the date which 
is 30 days after the earlier of: (A) The earliest date on which the 
Secretary no longer holds any amount as a deposit or bond provided 
under section 6325(b)(4) with respect to the property, because the 
deposit or bond either has been used to satisfy the unpaid tax or has 
been refunded; or (B) the date that a judgment secured under section 
7426(b)(5) becomes final. Suspension of the running of the collection 
limitations period under section 6503(f)(2) applies only with respect 
to the amount of the assessment equal to the value of the interest of 
the United States in the subject property, plus interest, penalties and 
certain other additions to tax.
    The proposed regulations under section 6503 address the suspension 
of the running of the period for collecting a tax liability provided by 
section 6503(f)(2).
    Section 6325(b)(4)(A) provides that the Secretary shall issue a 
certificate of discharge when the third-party owner makes a request and 
deposits an appropriate amount or furnishes an acceptable bond. The 
proposed regulations state that the suspension of the running of the 
collection statute of limitations begins on the date a deposit or bond 
in the amount determined by the Secretary is received by the 
appropriate official under section 6325(b)(4)(A), as that is the date 
the third-party owner becomes entitled to a certificate of discharge 
under that provision.
    Assuming that no judgment is obtained under section 7426(b)(5), 
section 6503(f)(2)(A) ties the end of the period for suspension of the 
running of the collection statute to the ultimate disposition of the 
third-party owner's deposit or bond, which is addressed by section 
6325(b)(4)(B) and (C). The proposed regulations state that the 
suspension ends 30 days after the date the appropriate official no 
longer holds the deposit or bond by reason of taking actions prescribed 
under section 6325(b)(4)(B) and (C).
    Because section 6325(b)(4)(C) contemplates that the deposit or bond 
will be processed within 60 days after the expiration of 120 days after 
the date the Secretary issues the certificate of discharge, as 
discussed in the previous section, the regulations state that the 
deposit or bond is deemed processed no later than that date for 
purposes of section 6503(f)(2)(A). This means that if the deposit or 
bond is not processed within the 180-day period, the running of the 
collection statute ceases to be suspended as of 90 days (60 days + the 
30 days afforded by section 6503(f)(2)) after the 120-day period ends. 
Thus, the period for collection resumes running under section 
6503(f)(2)(A) 31 days after the 180 days have passed.
    Section 6503(f)(2)(B) ties the end of the suspension period to the 
finality of a judgment obtained under section 7426(b)(5). The proposed 
regulations state that if a judgment is obtained under section 
7426(b)(5), the suspension of the running of the collection statute 
ends 30 days after all appeals of that judgment, if any, have been 
exhausted.

Proposed Effective Date

    These regulations are proposed to apply to any release of lien or 
discharge of property that is requested after the date that these 
regulations are published as final regulations in the Federal Register.

Special Analyses

    It has been determined that this notice of proposed rulemaking 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 
these regulations do not impose collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Pursuant to section 7805(f) of the Code, this notice of proposed 
rulemaking will be submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on its impact on small 
business.

Comments and Requests for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) or electronic comments that are timely submitted 
to the IRS. The IRS and Treasury Department request comments on the 
clarity of the proposed rules and how they may be made easier to 
understand. All comments will be available for public inspection and 
copying. A public hearing will be scheduled if requested in writing by 
any person that timely submits written comments. If a public hearing is 
scheduled, notice of the date, time, and place for the public hearing 
will be published in the Federal Register.

Drafting Information

    The principal author of these regulations is Debra A. Kohn of the 
Office of the Associate Chief Counsel (Procedure and Administration). 
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.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 301 is proposed to be amended 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 301.6325-1 is amended as follows:
    1. Paragraphs (a), (b)(1)(i), (b)(2)(i), and (b)(2)(ii) are 
revised.
    2. Paragraph (b)(2)(iii) is redesignated as paragraph (b)(6) and 
revised.
    3. Paragraph (b)(4) is redesignated as paragraph (b)(5) and 
revised.
    4. A new paragraph (b)(4) is added.
    5. Paragraphs (c)(1) and (c)(2) are amended by removing the 
language ``district director'' and adding the language ``appropriate 
official'' in its place, wherever it appears.
    6. The first sentence of paragraph (d)(1) is amended by removing 
the language ``A district director'' and adding the language ``The 
appropriate official'' in its place, by removing the word ``Code'' and 
adding the language ``Internal Revenue Code'' in its place, and by 
removing the language ``the district director'' and adding the language 
``the appropriate official'' in its place. The third sentence is 
amended by removing the language ``a district director'' and adding the 
language ``the appropriate official'' in its place, and removing the 
language ``the district director'' and adding ``the appropriate 
official'' in its place.
    7. Paragraph (d)(2)(i) is amended by removing the language ``A 
district director'' and adding the language ``The appropriate 
official'' in its place, by removing the word ``Code'' and adding the 
language ``Internal Revenue Code'' in its place, and by removing the 
language ``the district director'' and adding the language ``the 
appropriate official'' in its place.

[[Page 1306]]

    8. Paragraph (d)(2)(ii), Examples 1 through 4, are amended by 
removing the language ``district director'' and adding the language 
``appropriate official'' in its place, wherever it appears.
    9. Paragraphs (d)(3) and (d)(4) are amended by removing the 
language ``district director'' and adding the language ``appropriate 
official'' in its place, wherever it appears.
    10. The first sentence of paragraph (e) is amended by removing the 
language ``a district director'' and adding the language ``the 
appropriate official'' in its place, and by removing the language ``the 
district director'' and adding the language ``the appropriate 
official'' in its place. The third and fourth sentences are amended by 
removing the language ``district director'' and adding the language 
``appropriate official'' in its place.
    11. Paragraphs (f)(1) and (f)(2)(i) are amended by removing the 
language ``a district director'' and adding the language ``the 
appropriate official'' in its place, paragraph (f)(2)(i)(b) is amended 
by removing the language ``the district director'' and adding the 
language ``the appropriate official'' in its place, and paragraph 
(f)(3) is amended by removing the word ``Code'' and adding the language 
``Internal Revenue Code'' in its place.
    12. Paragraphs (h), (i), and (j) are added.
    The revisions and additions read as follows:


Sec.  301.6325-1  Release of lien or discharge of property.

    (a) Release of lien--(1) Liability satisfied or unenforceable. The 
appropriate official shall issue a certificate of release for a filed 
notice of Federal tax lien, no later than 30 days after the date on 
which he finds that the entire tax liability listed in such notice of 
Federal tax lien either has been fully satisfied (as defined in 
paragraph (a)(4) of this section) or has become legally unenforceable. 
In all cases, the liability for the payment of the tax continues until 
satisfaction of the tax in full or until the expiration of the 
statutory period for collection, including such extension of the period 
for collection as is agreed to.
    (2) Bond accepted. The appropriate official shall issue a 
certificate of release of any tax lien if he is furnished and accepts a 
bond that is conditioned upon the payment of the amount assessed 
(together with all interest in respect thereof), within the time agreed 
upon in the bond, but not later than 6 months before the expiration of 
the statutory period for collection, including any agreed upon 
extensions. For provisions relating to bonds, see sections 7101 and 
7102 and Sec. Sec.  301.7101-1 and 301.7102-1.
    (3) Certificate of release for a lien which has become legally 
unenforceable. The appropriate official shall have the authority to 
file a notice of Federal tax lien which also contains a certificate of 
release pertaining to those liens which become legally unenforceable. 
Such release will become effective as a release as of a date prescribed 
in the document containing the notice of Federal tax lien and 
certificate of release.
    (4) Satisfaction of tax liability. For purposes of paragraph (a)(1) 
of this section, satisfaction of the tax liability occurs when--
    (i) The appropriate official determines that the entire tax 
liability listed in a notice of Federal tax lien has been fully 
satisfied. Such determination will be made as soon as practicable after 
tender of payment; or
    (ii) The taxpayer provides the appropriate official with proof of 
full payment (as defined in paragraph (a)(5) of this section) with 
respect to the entire tax liability listed in a notice of Federal tax 
lien together with the information and documents set forth in paragraph 
(a)(7) of this section. See paragraph (a)(6) of this section if more 
than one tax liability is listed in a notice of Federal tax lien.
    (5) Proof of full payment. As used in paragraph (a)(4)(ii) of this 
section, the term proof of full payment means--
    (i) An internal revenue cashier's receipt reflecting full payment 
of the tax liability in question;
    (ii) A canceled check in an amount sufficient to satisfy the tax 
liability for which the release is being sought;
    (iii) A record, made in accordance with procedures prescribed by 
the Commissioner, of proper payment of the tax liability by credit or 
debit card or by electronic funds transfer; or
    (iv) Any other manner of proof acceptable to the appropriate 
official.
    (6) Notice of a Federal tax lien which lists multiple liabilities. 
When a notice of Federal tax lien lists multiple tax liabilities, the 
appropriate official shall issue a certificate of release when all of 
the tax liabilities listed in the notice of Federal tax lien have been 
fully satisfied or have become legally unenforceable. In addition, if 
the taxpayer requests that a certificate of release be issued with 
respect to one or more tax liabilities listed in the notice of Federal 
tax lien and such liability has been fully satisfied or has become 
legally unenforceable, the appropriate official shall issue a 
certificate of release. For example, if a notice of Federal tax lien 
lists two separate liabilities and one of the liabilities is satisfied, 
the taxpayer may request the issuance of a certificate of release with 
respect to the satisfied tax liability and the appropriate official 
shall issue a release.
    (7) Taxpayer requests. A request for a certificate of release with 
respect to a notice of Federal tax lien shall be submitted in writing 
to the appropriate official. The request shall contain the information 
required in the appropriate IRS Publication.
    (b) Discharge of specific property from the lien--(1) Property 
double the amount of the liability. (i) The appropriate official may, 
in his discretion, issue a certificate of discharge of any part of the 
property subject to a Federal tax lien imposed under chapter 64 of the 
Internal Revenue Code if he determines that the fair market value of 
that part of the property remaining subject to the Federal tax lien is 
at least double the sum of the amount of the unsatisfied liability 
secured by the Federal tax lien and of the amount of all other liens 
upon the property which have priority over the Federal tax lien. In 
general, fair market value is that amount which one ready and willing 
but not compelled to buy would pay to another ready and willing but not 
compelled to sell the property.
* * * * *
    (2) Part payment; interest of United States valueless--(i) Part 
payment. The appropriate official may, in his discretion, issue a 
certificate of discharge of any part of the property subject to a 
Federal tax lien imposed under chapter 64 of the Internal Revenue Code 
if there is paid over to him in partial satisfaction of the liability 
secured by the Federal tax lien an amount determined by him to be not 
less than the value of the interest of the United States in the 
property to be so discharged. In determining the amount to be paid, the 
appropriate official will take into consideration all the facts and 
circumstances of the case, including the expenses to which the 
Government has been put into the matter. In no case shall the amount to 
be paid be less than the value of the interest of the United States in 
the property with respect to which the certificate of discharge is to 
be issued.
    (ii) Interest of the United States valueless. The appropriate 
official may, in his discretion, issue a certificate of discharge of 
any part of the property subject to the Federal tax lien if he 
determines that the interest of the United States in the property to be 
so discharged has no value.

[[Page 1307]]

    (3) Discharge of property by substitution of proceeds of sale. The 
appropriate official may, in his discretion, issue a certificate of 
discharge of any part of the property subject to a Federal tax lien 
imposed under chapter 64 of the Internal Revenue Code if such part of 
the property is sold and, pursuant to a written agreement with the 
appropriate official, the proceeds of the sale are held, as a fund 
subject to the Federal tax liens and claims of the United States, in 
the same manner and with the same priority as the Federal tax liens or 
claims had with respect to the discharged property. This paragraph does 
not apply unless the sale divests the taxpayer of all right, title, and 
interest in the property sought to be discharged. Any reasonable and 
necessary expenses incurred in connection with the sale of the property 
and the administration of the sale proceeds shall be paid by the 
applicant or from the proceeds of the sale before satisfaction of any 
Federal tax liens or claims of the United States.
    (4) Right of substitution of value--(i) Issuance of certificate of 
discharge to property owner who is not the taxpayer. If an owner of 
property subject to a Federal tax lien imposed under chapter 64 of the 
Internal Revenue Code submits an application for a certificate of 
discharge pursuant to paragraph (b)(5) of this section, the appropriate 
official shall issue a certificate of discharge of such property after 
the owner either deposits with the appropriate official an amount equal 
to the value of the interest of the United States in the property, as 
determined by the appropriate official pursuant to paragraph (b)(6) of 
this section, or furnishes an acceptable bond in a like amount. This 
paragraph does not apply if any owner of the property is the person 
whose unsatisfied liability gave rise to the Federal tax lien. Thus, if 
the property is owned by both the taxpayer and another person, neither 
the taxpayer nor the other person may obtain a certificate of discharge 
of the property under this paragraph.
    (ii) Refund of deposit and release of bond. The appropriate 
official may, in his discretion, determine that either the entire 
unsatisfied tax liability listed on the notice of Federal tax lien can 
be satisfied from a source other than the property sought to be 
discharged, or the value of the interest in the United States is less 
than the prior determination of such value. The appropriate official 
shall refund the amount deposited with interest at the overpayment rate 
determined under section 6621 or release the bond furnished to the 
extent that he makes this determination.
    (iii) Refund request. If a property owner desires an administrative 
refund of his deposit or release of the bond, the owner shall file a 
request in writing with the appropriate official. The request shall 
contain such information as the appropriate IRS Publication may 
require. The request must be filed within 120 days after the date the 
certificate of discharge is issued. A refund request made under this 
paragraph neither is required nor is effective to extend the period for 
filing an action in court under section 7426(a)(4).
    (iv) Internal Revenue Service's use of deposit if court action not 
filed. If no action is filed under section 7426(a)(4) for refund of the 
deposit or release of the bond within the 120-day period specified 
therein, the appropriate official shall, within 60 days after the 
expiration of the 120-day period, apply the amount deposited or collect 
on such bond to the extent necessary to satisfy the liability listed on 
the notice of Federal tax lien, and shall refund, with interest at the 
overpayment rate determined under section 6621, any portion of the 
amount deposited that is not used to satisfy the liability. If the 
appropriate official has not completed the application of the deposit 
to the unsatisfied liability before the end of the 60-day period, the 
deposit will be deemed to have been applied to the unsatisfied 
liability as of the 60th day.
    (5) Application for certificate of discharge. Any person desiring a 
certificate of discharge under this paragraph (b) shall submit an 
application in writing to the appropriate official. The application 
shall contain the information required by the appropriate IRS 
Publication. For purposes of this paragraph (b), any application for 
certificate of discharge made by a property owner who is not the 
taxpayer, and any amount submitted pursuant to the application, will be 
treated as an application for discharge and a deposit under section 
6325(b)(4) unless the owner of the property submits a statement, in 
writing, that the application is being submitted under another 
paragraph of section 6325 and not under section 6325(b)(4), and the 
owner in writing waives the rights afforded under paragraph (b)(4), 
including the right to seek judicial review.
    (6) Valuation of interest of United States. For purposes of 
paragraphs (b)(2) and (b)(4) of this section, in determining the value 
of the interest of the United States in the property, or any part 
thereof, with respect to which the certificate of discharge is to be 
issued, the appropriate official shall give consideration to the value 
of the property and the amount of all liens and encumbrances thereon 
having priority over the Federal tax lien. In determining the value of 
the property, the appropriate official may, in his discretion, give 
consideration to the forced sale value of the property in appropriate 
cases.
* * * * *
    (h) As used in this section, the term appropriate official means 
either the official or office identified in the relevant IRS 
Publication or, if such official or office is not so identified, the 
Secretary or his delegate.
    (i) Temporary regulations removed. The provisions of Sec.  
401.6325-1 of this chapter are removed on the date these regulations 
are published as final regulations in the Federal Register.
    (j) Effective date. This section applies to any release of lien or 
discharge of property that is requested after these regulations are 
published as final regulations in the Federal Register.

    Par. 3. Section 301.6503(f)-1 is amended as follows:
    1. The section heading is revised.
    2. The undesignated paragraph is designated as paragraph (a) and a 
paragraph heading is added.
    3. In newly designated paragraph (a), the language ``a district 
director'' is removed and the language ``the appropriate official'' is 
added in its place, the language ``the district director'' is removed 
and the language ``the appropriate official'' is added in its place, 
and in the Example the language ``district director'' is removed and 
the language ``appropriate official'' is added in its place, wherever 
it appears.
    4. Paragraphs (b), (c), and (d) are added.
    The revisions and additions read as follows:


Sec.  301.6503(f)-1  Suspension of running of period of limitation; 
wrongful seizure of property of third-party owner and discharge of 
wrongful lien for substitution of value.

    (a) Wrongful seizure. * * *
    (b) Discharge of wrongful lien for substitution of value. If a 
person other than the taxpayer submits a request in writing for a 
certificate of discharge for a filed Federal tax lien under section 
6325(b)(4), the running of the period of limitations on collection 
after assessment under section 6502 for any liability listed in such 
notice of Federal tax lien shall be suspended for a period equal to the 
period beginning on the date the appropriate official receives a 
deposit or bond in the amount specified in Sec.  301.6325-1(b)(4)(i) 
and ending on the date that is 30 days after the earlier of--

[[Page 1308]]

    (1) The date the appropriate official no longer holds, or is deemed 
to no longer hold, within the meaning of paragraph (b)(4)(iv) of this 
section, any amount as a deposit or bond by reason of taking such 
actions as prescribed in sections 6325(b)(4)(B) and (C); or
    (2) The date the judgment secured under section 7426(b)(5) becomes 
final.
    (c) As used in this section, the term appropriate official means 
either the official or office identified in the relevant IRS 
Publication or, if such official or office is not so identified, the 
Secretary or his delegate.
    (d) Effective date. This section applies to any request for a 
certificate of discharge made after these regulations are published as 
final regulations in the Federal Register.
    Par. 4. In Sec.  301.7426-1, paragraphs (a)(4), (b)(5), and (d) are 
added.


Sec.  301.7426-1  Civil actions by persons other than taxpayers.

    (a) * * *
    (4) Substitution of value. A person who obtains a certificate of 
discharge under section 6325(b)(4) with respect to any property may, 
within 120 days after the day on which the certificate is issued, bring 
a civil action against the United States in a district court of the 
United States for a determination of whether the value of the interest 
of the United States (if any) in such property is less than the value 
determined by the appropriate official. A civil action under this 
provision shall be the exclusive judicial remedy for a person other 
than the taxpayer who obtains a certificate of discharge for a filed 
notice of Federal tax lien.
    (b) * * *
    (5) Substitution of value. If the court determines that the 
determination by the appropriate official of the value of the interest 
of the United States in the property exceeds the actual value of such 
interest, the court may grant a judgment ordering a refund of the 
amount deposited, or a release of the bond, to the extent that the 
aggregate of those amounts exceeds the value as determined by the 
court.
* * * * *
    (d) Paragraphs (a)(4) and (b)(5) of this section apply to any 
request for a certificate of discharge made after these regulations are 
published as final regulations in the Federal Register.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E7-219 Filed 1-10-07; 8:45 am]
BILLING CODE 4830-01-P