CTRS CTRS Tax Liens and Levies — Advanced Strategies 2 — Questions and Answers
Question 1: What is the IRS's 'Lien Withdrawal' and how does it differ from a lien release?
- A withdrawal removes the public Notice of Federal Tax Lien from the record as if it was never filed, while a release only acknowledges the lien is satisfied (Correct answer)
- A withdrawal eliminates the underlying tax liability, while a release only removes the lien
- A withdrawal is a judicial action, while a release is an administrative action
- A withdrawal reduces the lien amount by 50%, while a release eliminates it entirely
Correct answer: A withdrawal removes the public Notice of Federal Tax Lien from the record as if it was never filed, while a release only acknowledges the lien is satisfied
A lien withdrawal under IRC §6323(j) removes the Notice of Federal Tax Lien from public record as if it was never filed, which is more favorable than a release for credit purposes because it eliminates the public record entirely.
Question 2: Under Fresh Start, what criteria must be met for the IRS to consider withdrawing a Notice of Federal Tax Lien?
- The balance owed is $25,000 or less, the taxpayer enters a direct debit installment agreement, makes 3 consecutive payments, and is in full compliance (Correct answer)
- The taxpayer pays the full balance within 30 days of lien filing
- The taxpayer submits a successful OIC with a lump sum payment
- The taxpayer demonstrates economic hardship and files a formal petition
Correct answer: The balance owed is $25,000 or less, the taxpayer enters a direct debit installment agreement, makes 3 consecutive payments, and is in full compliance
Under Fresh Start expanded procedures, the IRS will consider lien withdrawal when the balance is $25,000 or less, the taxpayer enters a direct debit IA, makes 3 consecutive timely payments, and is in full filing compliance.
Question 3: What is an 'Equivalent Hearing' and how does it differ from a Collection Due Process hearing?
- An Equivalent Hearing is available when the CDP deadline is missed (filed within 1 year instead of 30 days), but does not confer Tax Court rights (Correct answer)
- An Equivalent Hearing is identical to a CDP hearing in all respects
- An Equivalent Hearing is only available for lien disputes, not levy disputes
- An Equivalent Hearing results in a binding settlement agreement unlike a CDP hearing
Correct answer: An Equivalent Hearing is available when the CDP deadline is missed (filed within 1 year instead of 30 days), but does not confer Tax Court rights
An Equivalent Hearing provides a review by the IRS Office of Appeals but, unlike a CDP hearing, does not suspend collection and the resulting determination cannot be appealed to Tax Court.
Question 4: What is the IRS's policy on levying a taxpayer's primary residence?
- The IRS requires supervisory approval and must obtain a federal district court judgment before levying a principal residence (Correct answer)
- The IRS can levy a primary residence using the same process as any other real property without special requirements
- The IRS cannot levy a primary residence under any circumstances
- Primary residences can only be levied in criminal tax fraud cases
Correct answer: The IRS requires supervisory approval and must obtain a federal district court judgment before levying a principal residence
Under IRC §6334(e) and §6343, levying a principal residence requires written approval from an IRS Area Director and, in some cases, a federal court order, reflecting Congress's intent to protect primary homes.
Question 5: What is 'levy source priority' and why does it matter in tax resolution?
- The IRS generally levies the easiest and most liquid assets first (bank accounts, wages) before pursuing harder-to-reach assets like real estate (Correct answer)
- The IRS is required to levy the largest asset first to maximize collection efficiency
- The IRS randomly selects levy sources without regard to asset type or liquidity
- The IRS must levy all assets simultaneously rather than in a sequential order
Correct answer: The IRS generally levies the easiest and most liquid assets first (bank accounts, wages) before pursuing harder-to-reach assets like real estate
While the IRS has broad discretion, it typically targets the most liquid and accessible assets first, meaning bank accounts and wages are usually levied before real estate or business assets.
Question 6: What recourse does a taxpayer have if the IRS levied property after the taxpayer made a timely CDP hearing request?
- The levy was improper because a timely CDP request suspends levy authority; the taxpayer can demand return of the levied property and may seek damages under IRC §7433 (Correct answer)
- The levy is valid because the IRS has discretion to levy despite a pending CDP request
- The taxpayer must file a Tax Court petition before the IRS is required to return the property
- The taxpayer can only recover the property if the IRS agreed in advance not to levy
Correct answer: The levy was improper because a timely CDP request suspends levy authority; the taxpayer can demand return of the levied property and may seek damages under IRC §7433
A timely CDP request suspends the IRS's right to levy under IRC §6330(e); any levy made after a timely CDP request is improper and the taxpayer can seek return of the property and potentially damages under IRC §7433.
CTRS CTRS Tax Liens and Levies — Advanced Strategies 2
What is the IRS's 'Lien Withdrawal' and how does it differ from a lien release?