I. Introduction

This Tax Division Judgment Collection Manual sets forth the Tax Division's collection policies, explains the laws authorizing enforced judgment collection, and furnishes trial attorneys with suggestions as to how to collect tax judgments. Neither the legal discussions nor the suggestions are intended to be exhaustive, but merely serve as a guide for trial attorneys' collection activities.

Collection of judgments is an essential part of the Tax Division's work. It requires imagination, perseverance, and skill in using federal tax lien and levy law, post judgment discovery, judicial sale procedures, the Federal Debt Collection Procedures Act, and state judgment execution laws. When a judgment is obtained, the trial attorney must ensure that the collection steps outlined are promptly pursued.

Certain initial steps must be taken in every case, such as sending demand letters, and obtaining financial information. Nonetheless, each case is different and must be evaluated individually to determine its collection potential and the further collection steps that are appropriate.

Delay in attempting to collect greatly reduces the likelihood of collection. Thus, collection should be pursued promptly, as well as vigorously, uniformly, and fairly. Collection of amounts owed pursuant to a settlement, especially in the early stages, should be monitored carefully. If default occurs, appropriate action to enforce collection should be taken promptly.

In most cases, the trial attorney should complete the initial collection efforts within nine months after entry of a judgment. After initial efforts have been completed, the trial attorney and section chief or assistant chief should decide whether the case should be retained by the Tax Division or be referred to the IRS (or United States Attorney).

In deciding whether to retain or refer a judgment after initial collection efforts are completed, it may be helpful to classify cases into two categories. First, in many of our collection cases, taxes have been assessed and the IRS has attempted to effect collection by levy. The IRS can use its levy power for as long as ten years before referring a case to the Tax Division for suit. Often, the sole reason the IRS refers a suit is a determination by the IRS that judicial foreclosure of the tax lien on identified property of the taxpayer will bring abetter return than a sale pursuant to levy. Aside from the sale of that property, little chance of collection may exist. Cases in this category are often prime candidates for referral to the IRS for monitoring as soon as the uncollectibility of the judgment is confirmed. A case cannot be transferred as uncollectible, however, simply because the taxpayer or the taxpayer's lawyer represents that the taxpayer has no assets or income. Rather, the determination of uncollectibility must be made independently by either the IRS or the Tax Division.

In a sizeable number of cases, however, administrative remedies⁽¹⁾ either were not available to or were not exhausted by the IRS. For example, liabilities for failure to honor a levy and liabilities under Internal Revenue Code § 3505 are not assessed and thus cannot be the subject of a pre-suit levy. Also, in trust fund recovery penalty refund suits and other partial payment refund cases involving divisible assessments in which we file counterclaims, the IRS traditionally has deferred collection during the pendency of the litigation. The IRS may not have worked these cases thoroughly from a collection standpoint, and many of the cases have substantial collection potential.

If initial investigation or discovery of a taxpayer's income and assets reveals collection potential, a case should be retained by the Tax Division for collection work beyond the initial steps that must be taken in all cases.

Attorneys in private practice evaluate the collection potential of a case even before suit is brought and continue to consider collectibility during all stages of the pendency of the case and prior to obtaining a judgment. Tax Division attorneys should likewise begin at an early stage to develop a collection strategy for each case.

Collection of a judgment is the responsibility of the trial attorney assigned to the case, but the attorney should seek the assistance of a paralegal. The paralegal, in assisting the trial attorney, should have access to the trial attorney's file, the DJ file, and the administrative file. The administrative file should not be retained unless it bears on collection; but in any event, the paralegal should assure that copies of the following are retained:

1. the judgment debtor's income tax returns;

2. the transcript of account and/or certificate of assessments and payments; and

3. any financial statement, letter, memorandum, or investigation report describing the judgment debtor's financial condition or property holdings.

Paralegals are particularly helpful with some of the more routine collection tasks such as initial demand letters and initial collection interrogatories. Even these tasks, however, require some attention by the trial attorney. Trial attorneys must recognize that successful judgment collection will require substantial amounts of the trial attorney's time and attention, and that a paralegal is most effective when working closely with a trial attorney who is knowledgeable about the case.

Every effort should be made to collect a judgment or to determine that it is uncollectible within nine months after judgment has been entered. Nevertheless, this process may take substantially more or less than nine months depending on the circumstances of a particular case. This Manual lists a series of steps to be undertaken to collect judgments or to ascertain whether judgments are uncollectible. Initial collection activity is not completed until these steps have been taken. After the Tax Division's initial collection effort has been completed, if the judgment remains unsatisfied the trial section should determine whether the case should be retained by the Tax Division for further collection efforts or closed in the Division with the judgment referred to the IRS or to the United States Attorney. The steps necessary to transfer a judgment to the IRS or the United States Attorney are set forth, pp. 62-64, infra.

As explained in Part IV, infra, it is essential that collection and payment activities conducted by trial attorneys and paralegals be promptly and accurately reported on the Tax Division's "Attorney Activity Reporting Form" (sometimes referred to as an "IBM card"). Additionally, paralegal and attorney time spent on collection matters should be reported in the "Collection Activities" column on the Tax Division time sheet. These procedures enable the Division to keep track of the status of outstanding judgments and the amount of attorney and paralegal time devoted to judgment collection work.

In sum, upon obtaining a judgment, a trial attorney and paralegal should promptly and vigorously pursue collection efforts. In approximately nine months, once initial collection steps have been taken, they should evaluate the situation and should decide in consultation with the section chief or assistant chief what further steps should be taken.

II. Prejudgment: Protecting the Government's Ability to Collect Taxes

A. Introduction: Preserving the Status Quo

B. The Importance of the Notice of Federal Tax Lien

The trial attorney should ensure that notices of federal tax liens have been filed and, if they have not, request the IRS to file them.⁽²⁾ When we are reducing an assessment to judgment, either by way of counterclaim in a refund suit involving a divisible assessment (such as a 100% penalty suit), or in a collection suit initiated by the United States as plaintiff, notices of federal tax liens should be filed. If real property is located in a county other than that in which the debtor resides, the trial attorney should ensure that a notice of federal tax lien has also been filed in that jurisdiction.

When bringing a suit to set aside a fraudulent conveyance or to determine that real property is held by a nominee or alter ego of the taxpayer, the trial attorney should ensure that the IRS has filed a nominee lien notice, which serves to prevent the title holder of the property from transferring the property beyond the Government's reach and also preserves the Government's priority position. Another way to prevent such a transfer is to file a notice of lis pendens after the complaint has been filed.⁽³⁾

C. Injunctions and Receiverships

D. Lis Pendens

E. Prejudgment Remedies Under the Federal Debt Collection Procedures Act

F. Administrative Collection While Litigation is Pending: Pros and Cons

G. Preparing for Collection by Obtaining Copies of Tax Returns

III. Entering Judgment, Stays of Collection, and Obtaining a Judgment Lien

What is a Judgment?

Fed. R. Civ. P. 54(a), provides that the term "[j]udgment" is "a decree and any order from which an appeal lies." Fed. R.Civ. P. 58 provides that a judgment "shall be set forth on a separate document. A judgment is effective only when so set forth and when entered as provided in Rule 79(a)." See United States v. Indrelunas, 411 U.S. 216 (1973).

Section 1291, 28 U.S.C., provides that the courts of appeals"shall have jurisdiction of appeals from all final decisions of the district courts of the United States...." The courts have generally construed the term "final decision" as used in § 1291 as being a decision that disposes of all claims of all parties in a lawsuit. See generally 9 James Wm. Moore and Bernard J. Ward,Moore's Federal Practice, ¶¶ 110.06-110.13 (2d ed. 1991); 7B James Wm. Moore, Moore's Federal Practice, § 1291 (2d ed. 1995).

A judicial decision that disposes of fewer than all claims or all parties in a suit is, as a general rule, an interlocutory order and, because it is not a final decision, is not appealable until a final decision is issued. An important exception to this general rule, however, is provided in Fed. R. Civ. P. 54. Rule 54(b) provides that when a decision disposes of one or more but fewer than all of the claims or parties in a lawsuit the court may direct entry of a final judgment only upon an express determination by the court that there is no just reason for delay and upon an express direction for the entry of judgment. Rule 54(b) is important to our work because we not infrequently obtain, in the course of a lawsuit, a favorable decision as to one of several claims or with respect to one of several parties.⁽⁴⁾ When this happens, a trial attorney should generally request the court to make the determination specified in Rule 54(b) and direct entry of final judgment. This will allow the Government to proceed without delay to use the steps outlined in this Manual to collect the judgment.

The definition of judgment is important because the Government's authority to use judicial collection procedures to collect a debt arises primarily from Fed. R. Civ. P. 69 and 28 U.S.C. § 3001, each of which authorizes judicial collection actions to collect or enforce a "judgment." Thus, without the Rule 54(b) determination, when a decision is entered as to fewer than all claims or parties the Government would have to wait fora Rule 54(a) final decision as to all claims and all parties before it could initiate judicial collection activities.

Accordingly, unless otherwise specified, the term "judgment" as used in this Manual means a final decision that disposes of all claims of all parties in a lawsuit, or a decision that disposes of one or more but fewer than all of the claims or parties and has been expressly determined by the court pursuant to Rule 54(b) to be a final judgment on the ground that there is no just reason for delay.

B. Form of Judgment

In drafting a judgment (assuming it is for the full amount of our claim) it is preferable to hew as closely as possible to the amounts of assessed tax, penalty, and interest, and then refer simply to interest and penalties⁽⁵⁾ accruing after the date(s) of assessment to the date of payment in accordance with law.⁽⁶⁾ Under 28 U.S.C. § 1961(c)(1), interest on tax judgments is computed at the rate established under § 6621 of the I.R.C.,which may be adjusted quarterly.⁽⁷⁾ I.R.C. § 6622 provides for the daily compounding of interest, including interest on judgments.

If one or more payments or credits have been made since the date of assessment, interest accrues on the full amount of the original assessment until the date of the first payment, and thereafter accrues on the unpaid assessed balance. The following example illustrates the manner in which interest accrues. Assume:

(1) the original assessment, for 1987 federal income tax in the amount of $20,000 (including any assessed interest and penalties), was made on May 15, 1988;

(2) the taxpayer paid $5,000 on September 12, 1991(reducing the unpaid assessed balance to $15,000), and an additional $3,000 on January 5, 1995 (further reducing the unpaid assessed balance to $12,000);

(3) a judgment for the unpaid balance is to be entered on June 15, 1996.

The Government is entitled to interest as follows:

(a) on the full $20,000 from the date of assessment (May 15, 1987) until the date of the $5,000 payment (September 12, 1991) which payment reduces the unpaid assessed balance to $15,000;

(b) on the unpaid assessed balance of $15,000 and all interest accrued pursuant to paragraph (a), above, from September 12, 1991, until the date of the $3,000 payment (January 5, 1995) which payment further reduces the unpaid assessed balance from $15,000 to $12,000;

(c)on the unpaid assessed balance of $12,000 and all interest accrued pursuant to paragraphs (a) and (b),above, from January 5, 1990, until payment.

The best method for drafting the judgment (and the underlying complaint) to ensure accuracy and completeness is to set forth the date(s) and amount(s) of all assessment(s) and payment(s) in the text of the judgment itself (or in a chart in the judgment if more than one tax period or type of tax is involved) and then add the operative language as follows⁽⁸⁾:

Judgment is entered in favor of the United States and against John Doe for the unpaid assessed balance of 1987 federal income tax and related interest and penalties in the amount of $12,000, [plus all penalties accruing under law after the date of assessment (May 15, 1988)] plus interest accruing after the date of assessment (May 15, 1988) pursuant to 26 U.S.C. §§6601, 6621, and 6622, and 28 U.S.C. § 1961 until paid.

Note that in the above example the amount actually due on the date of entry of the judgment, June 15, 1996 (including interest accrued to that date), exceeds $39,000, yet the only dollar amount mentioned in the judgment is $12,000. That is why it is essential to be very precise in specifying in the judgment how, and from what date, interest and penalties accrue. If the above judgment merely stated that it was for "$12,000 plus interest according to law" the court and the taxpayer might erroneously assume from that somewhat vague language that interest accrued only from the date of entry of judgment, since that is the general rule in nontax cases pursuant to 28 U.S.C. §1961(a). Attached as Exhibits 3 and 4 are sample forms of judgment. Attached as Exhibits 5 and 6 are stipulations for entry of judgment requiring payment to the Government pursuant to a settlement.

It is also acceptable to draft a judgment that includes all unassessed interest and penalties that have accrued from the date(s) of assessment to the date of entry of judgment (or a date near the date of entry of judgment), and provides for additional interest (and, if applicable, penalties) accruing after the specified date. This can only be done, however, when there is an up-to-date computation of all unassessed but accrued interest(and, if applicable, penalties). Attached as Exhibits 7 and 8 are sample forms of judgment that employ this method.

If a judgment is entered as security against default under a settlement, draft the judgment in the expectation that the worst will happen--the taxpayer will default before making any of the installment or collateral agreement payments called for under the settlement. Accordingly, if settlement is based solely on collectibility, the settlement should provide that the amount of the judgment should be the full amount of our claim, including accrued interest and penalties as set forth above (and not any lesser amount due under the settlement). If settlement is based partially on litigating hazards and partly on collectibility, the amount of the judgment should be at least the maximum amount of our claim that we could sustain in litigation, plus interest and penalties as specified above. Either the judgment itself or our letter to the taxpayer's attorney accepting the offer should state that (1) we will agree not to collect on the judgment for as long as the taxpayer is not in default as to obligations under the settlement, including any collateral agreement and (2) we will supply the taxpayer with a satisfaction of judgment upon the taxpayer's completion of all obligations under the settlement, including any collateral agreement.

We generally should not set out the terms of the settlement in the judgment. If there is a default on the settlement obligations, we want to execute on the judgment, and the terms of settlement are academic. The exchange of correspondence (offer and acceptance letters) which constitutes the settlement agreement is a contract, which protects the taxpayer. The judgment for the full amount of the liability is to protect the Government in case the taxpayer defaults on obligations under the settlement. When the judgment is for the full amount sought from the taxpayer instead of the lesser amount accepted under the settlement, the judgment also serves to give the taxpayer a strong financial incentive to comply with the terms of the settlement.

A judgment securing installment payments (or collateral agreement payments) under a settlement should be entered immediately, and the abstract of judgment filed promptly to create a judgment lien.

C. The Judgment Should Include an Award of Costs

D. Ten-Percent Surcharge for Costs of Collection

The Department of Justice takes the position that the § 3011 surcharge is recoverable in any affirmative collection suit brought by the United States, including all tax collection suits and counterclaims that result in a money judgment. A number of district courts, however, have held that the surcharge is not applicable unless and until the Government has availed itself of one of the pre- or postjudgment collection tools provided under subchapters B or C of the Federal Debt Collection Procedures Act(28 U.S.C. §§ 3101-3206).⁽⁹⁾ See e.g.,Rendleman v. Shalala, 864 F. Supp. 1007, 1012-13 (D. Ore. 1994); United States v. Smith,862 F. Supp. 257, 263-64 (D. Haw. 1994); United States v. Maldonado, 867 F. Supp. 1184, 1199 (S.D.N.Y. 1994); United States v. Mauldin, 805 Supp. 35 (N.D. Ala. 1992). As the Rendleman court pointed out, however, as soon as the Government files its abstract of judgment under 28 U.S.C. § 3201 to obtain a judgment lien, the Government is entitled to the surcharge because the §3201 judgment lien is a judgment collection tool available under subchapter C of the Federal Debt Collection Procedures Act. Because the Tax Division will promptly file an abstract of judgment in all or virtually all cases where it has obtained a judgment, the holdings of cases such as Rendleman and Mauldin may in fact pose only a minor obstacle in the Division's path to obtaining the § 3011 surcharge.

Consistent with the Department's interpretation of § 3011, all complaints and counterclaims brought by the Division seeking money judgments should specify that the United States seeks the §3011 surcharge as part of its judgment. Similarly, the surcharge should be sought in all summary judgment motions in such affirmative collection cases and should be requested in all other judgments to be entered in favor of the Government in such cases. If a court declines to include the surcharge in the initial judgment, following the reasoning of Mauldin, Rendleman, and similar cases, then the surcharge should be sought again after an abstract of judgment has been filed. This can (and should) be done promptly in a post-judgment motion that establishes that the abstract of judgment has been filed in accordance with 28 U.S.C.§ 3201.

When the § 3011 surcharge has been obtained, and after the full amount of the underlying judgment (including all accrued interest and penalties) has been collected, the extra ten percent, to the extent it is collected, should not be paid to the IRS and applied to the delinquent taxpayer's account. Rather, amounts collected towards the ten-percent surcharge should be paid to the Department of Justice in the same manner as is done with attorneys' fees, sanctions, and other such amounts collected by the Department.

The § 3011 surcharge can be a very useful collection tool in many of the Division's cases. Trial attorneys and paralegals need to be aware of how the surcharge provision works and should be mindful of how the surcharge can best be used to assist in collecting delinquent taxes.

E. Stays of Collection

1. Automatic Stay of Collection of a Judgment

Fed. R. Civ. P. 62(a) provides, in pertinent part, that "no execution shall issue upon a judgment nor shall proceedings betaken for its enforcement until the expiration of 10 days after its entry."⁽¹⁰⁾ Thus, no action may be taken to enforce a money judgment in favor of the United States by execution or other proceedings for a period of ten days. The ten-day period of the stay commences on the day the judgment is entered as provided in Rule 58. No action is required by the judgment debtor to create the stay, since it is automatic.

2. Motions to Stay Collection of a Judgment

Fed. R. Civ. P. 62(b) provides that if a timely motion is filed under the provisions of Rules 50, 52(b), 59 or 60, the court, in its discretion, may also stay the execution of, or any proceeding to enforce, a judgment pending the disposition of the motion, but the stay is not automatic.⁽¹¹⁾

If no stay has been granted by the district court, action to collect the judgment can be taken upon the expiration of the ten-day automatic stay period irrespective of the filing of an appeal. If the judgment is satisfied, the appeal by the judgment debtor may not be rendered moot. See, Cahill v. New York, N.H. &H. R.R., 351 U.S. 183 (1956); In re Latham, 823 F.2d 108 (5th Cir. 1987). Once the automatic ten-day period has expired and proceedings for enforcement have begun, any action taken by the judgment creditor to enforce the judgment will not be invalidated by a subsequent stay as the stay is not retroactive. 7 James Wm. Moore, Moore's Federal Practice, ¶ 62.06 at pp. 62-35 through 62-36 (2d ed.1996).

3. Posting a Bond as a Condition of a Stay

Upon the expiration of the ten-day period, Rule 62(d) allows a party appealing the entry of a money judgment to prevent enforcement of the judgment by furnishing an appropriate supersede as bond or other security.⁽¹²⁾ The purpose of the supersede as bond is to preserve the status quo of the parties during appeal, thereby avoiding the risk of restitution if the appeal is successful while, at the same time, protecting the rights of the judgment creditor against any loss resulting from the failure to enforce the judgment during the pendency of an unsuccessful appeal. Poplar Grove Planting and Ref. Co. v. Bache Halsey Stuart, Inc., 600 F.2d 1189 (5th Cir. 1979). Although the approval of a supersedeas bond precludes further proceedings to enforce the judgment, the other legal consequences of the entry of the judgment are not suspended. The bond may be given at or after the time of filing the notice of appeal and the stay is effective upon approval of the supersedeas bond by the court.⁽¹³⁾ Any application for approval of a supersedeas bond must ordinarily be addressed first to the district court, and, if unsuccessful, then to the appellate court.⁽¹⁴⁾

In view of the purpose of the supersedeas bond, the amount of the bond should be the full amount of the judgment together with the estimated costs of the appeal and interest which may accrue during the pendency of the appeal. The amount of the bond and the adequacy of the surety ordinarily will be determined by the district court under Rule 62(d).⁽¹⁵⁾ As the extent of the liability of the surety is determined by the terms and conditions of the bond, care should be exercised to ensure that the bond clearly provides for the payment of the full amount of the judgment, costs on appeal and interest in the event the judgment is affirmed, in whole or in part, or if the appeal is dismissed.⁽¹⁶⁾

F. Judgment Lien

1. United States District Courts

The entry of judgment alone does not create a judgment lien. A judgment lien comes into existence only when a certified copy of the abstract of judgment is properly filed. 28 U.S.C. §3201.⁽¹⁷⁾ Accordingly, a trial attorney must take the steps necessary to obtain the judgment lien. An abstract of judgment form, cover letter to the United States Attorney and instructions are attached as Exhibit 10. Unlike a tax lien, which attaches to all of the taxpayer's property, a judgment lien attaches only to real property of the judgment debtor. Section 3201(a) requires the filing to be made in the same manner as a notice of tax lien is filed under I.R.C. § 6323(f)(1) and (2). Thus, a certified copy of the abstract of judgment should be filed in the appropriate location(s) where all real property of the judgment debtor is located. See pp. 31-33, infra, for discussion of the proper place to file a notice of federal tax lien pursuant to I.R.C. §6323(f)(1) and (2).

For tangible and intangible personal property, a judgment lien can be obtained only by seizing the property under the judgment enforcement procedures.

Creation of a judgment lien in favor of the United States is especially important in those cases in which the underlying liability of the judgment debtor is not secured by a federal Tax lien, for example liability under §§ 3505 and 6332 of the I.R.C. and liability for erroneous refunds. A judgment lien is effective for 20 years and, with the approval of the court, may be renewed once for an additional 20 years.⁽¹⁸⁾ 28 U.S.C. § 3201(c).

2. The Court of Federal Claims

3. United States Bankruptcy Courts

IV. Collecting the Judgment

A. An Overview

1. Ask the judgment debtor for payment and work with the debtor, if requested, to ascertain the viability of a payment plan or compromise on the basis of collectibility;

2. If payment is not made or arranged for, attempt to locate the judgment debtor's assets and sources of income;

3. Evaluate the priority and value of the Government's claim to those assets that are located and the feasibility of collecting future income;

4. Where worthwhile, liquidate assets and collect income and apply the proceeds to the judgment;

5. If the above steps are insufficient to satisfy the judgment and it is apparent that further collection is not feasible, transfer the judgment to the IRS or United States Attorneys as appropriate for collection and close the Tax Division file.⁽¹⁹⁾

Once a trial attorney determines that enforced collection will be necessary, the trial attorney should look to the IRS for assistance in locating assets and income and seizing them and liquidating them. At your request, IRS Special Procedures⁽²⁰⁾ will assign a revenue officer to the collection matter (if one is not already assigned) to act as your field representative.

This person is your nuts and bolts contact and can do much legwork, such as conducting an assets investigation, checking land records, preparing and serving IRS levies, and advising you of other local developments which bear on your collection efforts.

Similarly, you may be able to obtain substantial assistance from the United States Attorney's office. Indeed, after a judgment is entered, you should keep the United States Attorney's office advised of what is being done.⁽²¹⁾ Most United States Attorneys' offices have Assistant United States Attorneys and paralegals who specialize in judgment collection. These people are a valuable source of information on matters of local law and custom.

Before assuming that enforced collection will be necessary, however, let us explore some means of obtaining a voluntary payment of the judgment.

B. Demand for Payment and Instituting Rule 69 Discovery

The first step in the collection process is simply to ask the debtor to pay.⁽²²⁾ The first demand for payment of a judgment should be made by letter ten days after judgment has been entered in favor of the Government in the district court.⁽²³⁾ This is so regardless of whether the taxpayer intends to appeal, unless the taxpayer has successfully invoked the supersedeas bonding procedures and obtained a stay of collection.⁽²⁴⁾ A sample of a first demand letter is attached as Exhibit 13.⁽²⁵⁾

If payment is not received within the 21-day period specified in the first demand letter, try to reach the attorney for the taxpayer by telephone. The second demand letter should be sent 30 days after the date of the first letter. See Exhibit 14.

The second demand letter should again ask for payment and should also, if it has not already been done, either request that the judgment debtor fill out a Tax Division, Department of Justice Form DJ-TD 433 (1996) (Statement of Financial Condition and Other Information) within 21 days or be accompanied by Rule 69 interrogatories and a document request seeking information as to financial condition. See Exhibit 15 for a copy of Tax Division Form DJ-TD 433 (1996) ⁽²⁶⁾ and Exhibits 16 and 17 for sample Rule 69 interrogatories and a document request.

Rule 69 interrogatories can seek the same financial information as is sought by a Form DJ-TD 433 (1996). The only significant difference between a Form DJ-TD 433 (1996) and Rule 69 interrogatories, then, is that a debtor cannot be compelled to submit a Form DJ-TD 433 (1996) and has no enforceable deadline for completing the form. In contrast, answers to Rule 69 interrogatories (and document requests) are due 30 days after the interrogatories (and document requests) are served and can be compelled pursuant to Fed. R. Civ. P. 37 in the same manner that prejudgment discovery can be compelled. (See Exhibit 18 for A sample motion to compel responses to Rule 69 interrogatories and a document request.) On balance, then, Rule 69 interrogatories are preferable unless there is good reason to believe that a completed Form DJ-TD 433 (1996) will be promptly submitted.

Obviously, a necessary starting point both for evaluating collection potential and instituting collection activity is knowledge of the taxpayer's financial situation. A complete Form DJ-TD 433 (1996) or Rule 69 interrogatory answers may be the starting point for negotiating a compromise of the judgment on the basis of collectibility.

If the trial attorney has not previously obtained copies of the taxpayer's income tax returns, beginning with the year to which the liability relates and going forward to the present or for some shorter period, a request to the IRS for such returns should be made to the appropriate IRS Service Center no later than the time the second demand letter is sent. At a minimum, the trial attorney should obtain copies of the taxpayer's five most recently filed returns.

The attached sample demand letters are most appropriate where the person writing the letter has had no previous discussion or contact with the taxpayer's representative or the taxpayer concerning collectibility. To the extent feasible, demand letters (and Rule 69 interrogatories) should be adapted and personalized to suit the particular case, in light of what the trial attorney knows about the case's collection potential.

Accordingly, if administrative collection is possible, remind the taxpayer of that in the letter. If the taxpayer owns a home which normally would be exempt from creditors' process, remind the taxpayer (although not in the first letter) that state exemption statutes do not bind the United States.⁽²⁷⁾ If there is a potential for recovering the 28 U.S.C. § 3011 ten-percent surcharge(discussed on pp. 50-51, infra), say so. The less your demand letters look like standard boilerplate, which may be safely ignored, the more effective your request for payment will be.

A fundamental aspect of judgment collection work is that you will destroy any credibility your requests for payment and financial information have unless they are immediately followed by action.

If the taxpayer does not respond to the second demand letter, and administrative collection is an option, request the IRS to commence collection efforts, including a financial investigation, and give them what pertinent information you can.

As soon as you get financial information, whether in the form of Rule 69 interrogatory answers, recent income tax returns, or a Form DJ-TD 433 (1996), promptly evaluate the information and take appropriate action to initiate collection of assets and/or income that is disclosed. If the amount of the judgment exceeds $50,000, you should request the IRS to verify the Rule 69 interrogatory answers or Form DJ-TD 433 (1996) unless you have determined from sources independent of the mere say-so of the taxpayer or the taxpayer's attorney that the financial information provided is substantially correct. If you have determined that IRS verification is unnecessary, you should prepare a memorandum to the file indicating how and why you came to this conclusion. In all other cases the attorney should request verification of the financial information by the IRS and should consider additional informal and formal discovery.

Be sure that any Rule 69 interrogatory answers or Form DJ-TD 433 (1996) that you obtain are made part of the Department of justice (DJ) file. Often in the past, collection efforts have been hampered because Form DJ-TD 433 (1996), Rule 69 interrogatory answers, and other financial information have been lost or mislaid, particularly in situations where one or more trial attorneys have left the Department before collection efforts have been completed. The original should always go directly to the DJ file, with copies going to the trial attorney's personal file and to the IRS for verification.

If you request the IRS to verify Rule 69 interrogatory answers or a Form DJ-TD 433 (1996), follow up to make sure that the IRS is acting on the request and that the case has been assigned to a revenue officer and, if so, discuss the case with the revenue officer.

Even if the taxpayer has submitted Rule 69 interrogatory answers or a Form DJ-TD 433 (1996), you should proceed with informal or formal discovery to supplement and verify the information provided.

At any stage when assets and/or income are located, immediate efforts should be made to collect them by administrative or judicial action unless negotiations are being diligently pursued by the taxpayer or the taxpayer's counsel to arrange for payment of the judgment from particular assets or overtime. Thus, if Rule 69 interrogatory answers reveal substantial assets, and you have forwarded the answers to the IRS for verification, you need not and should not await the verification before proceeding against those assets that have been disclosed. Similarly, you may proceed immediately with additional Rule 69 discovery, such as depositions and document requests.

C. More on Finding Taxpayers' Assets

1. Tax Returns

2. Additional Rule 69 Discovery

Rule 69, Fed. R. Civ. P., provides that a judgment creditor may obtain discovery from any person, including the judgment debtor, "in the manner provided in these rules" in aid of collection of a judgment.⁽²⁸⁾ This means that a judgment creditor may use the full panoply of discovery as provided in Fed. R. Civ. P. 26 through 36 and may enforce a failure to comply with discovery in the manner provided in Rule 37. Moreover, nonparty witnesses may be subpoenaed to attend a deposition (and produce documents) pursuant to Rule 45.

The ability to conduct (and, if necessary, compel) discovery in aid of collection pursuant to Rule 69 is a key collection tool that is not available to the IRS when it is pursuing administrative collection efforts.⁽²⁹⁾ Accordingly, as soon as it is apparent that a judgment debtor does not intend to satisfy a judgment voluntarily, a trial attorney should begin to plan how to use the available discovery tools to locate income and assets. In most cases, interrogatories to the judgment debtor are the recommended first step. These can generally be prepared by a collection paralegal with relatively little assistance from the trial attorney.⁽³⁰⁾ Nevertheless, if the trial attorney knows or suspects that the debtor has certain assets or income, the Rule 69 interrogatories should be tailored to fit the circumstances of the case.

Frequently, Rule 69 interrogatories are not answered within the 30 days allowed by Rule 33 or are not answered at all. Accordingly, if the interrogatories are not answered within the allowed 30 days, the trial attorney, with the assistance of a collection paralegal, should promptly request answers and, if necessary, follow up with a motion to compel answers. It is very important to follow up promptly if the interrogatories are not timely answered, since ignoring a failure to answer sends a message to the debtor that the Government is not serious about collecting the debt. Again, a motion to compel answers can be prepared by a paralegal with relatively little assistance from the trial attorney. (See Exhibit 18 for a sample motion to compel responses to Rule 69 interrogatories and document request.)

Most important, once the interrogatory answers are received, the paralegal and trial attorney should promptly review them and determine whether any income or assets are identified that might be a possible source of collection. In most cases, the answers should be forwarded to the IRS for verification, but there is no need to wait for the IRS's response before taking action based on information reported in the answers. Indeed, it is essential to act promptly when income or assets are discovered. The paralegal and trial attorney should also review the interrogatory answers with a view towards pursuing additional discovery, such as depositions and document requests.

As in pretrial discovery, depositions are one of the most effective postjudgment discovery tools. A Rule 69 deposition of the debtor (and possibly third parties) is advisable if:

(1) the amount of the judgment exceeds $50,000; or

(2) the trial attorney suspects that the debtor has the ability to satisfy the judgment; or

(3) the attorney suspects that assets or income have been or are being concealed or fraudulently transferred.

A document request should accompany the deposition notice. Among the documents you will usually want to seek are the debtor's bank statements, loan applications, documents evidencing consideration allegedly furnished for property transferred by the debtor, and documents indicating amounts held in IRAs, pension plans, mutual funds, and the like. In many cases depositions of (or document subpoenas issued to) the debtor's employer, bank(s), and possible transferees of assets are also advisable.⁽³¹⁾

3. Fraudulent Conveyances

For purposes of determining whether a debtor's transfer of an asset rendered him insolvent,⁽³²⁾ a liability accrues when it is incurred. For example, a liability for the trust fund recovery penalty with respect to employment taxes for the last quarter of 1996 accrues in the last quarter of 1996, rather than in some subsequent period or periods when the underlying employment tax assessment or the trust fund recovery assessment is made, or when the assessment is reduced to judgment. United States v. Edwards,572 F. Supp. 1527 (D. Conn. 1983).

The federal fraudulent conveyance statute is based upon the Uniform Fraudulent Transfer Act, but it contains relatively short statutes of limitations, 28 U.S.C. § 3304, generally six years after the transfer (plus, for intent to defraud, two years after the transfer reasonably should have been discovered). These statutes of limitation will be troublesome in a tax context because the legislation does not include any suspension during periods in which a criminal investigation or litigation in the Tax Court is pending. Accordingly, a fraudulent conveyance case brought by the Tax Division will normally be based on state law, instead of the federal statute. While the federal legislation is the exclusive remedy for most Government claims, state remedies are still available in aid of collection of taxes, 28 U.S.C. § 3003(b)(1), and state statutes of limitation do not bind the United States.⁽³³⁾ A state law statute of limitations extinguishing a claim after a certain period of time likewise is not binding on the United States.⁽³⁴⁾

4. Use of Computerized Database Services to Locate Debtors' Assets

* The CD-Rom telephone number database in the Tax Division library has addresses and phone numbers of millions of individuals and businesses, searchable by city, state, or region. The database is updated several times a year. Use of this system is free.

* LEXIS AND WESTLAW each have extensive databases of public records information that can be searched separately or in combination.

* The Dialog service provides access to Dun & Bradstreet reports, various databases with biographical information, and databases with information on corporate offices.

* The World Wide Web (WWW) offered through the Internet can provide a vast amount of information free of charge. For example the Securities and Exchange Commission's EDGAR (http://www.sec.gov) has SEC corporate filings such as 10K, 10Q, 13G, 13D, and other reports which offer valuable insight on publicly held corporations. Many other databases on the WWW which can locate people and corporations can be identified using Yahoo (http://akebono.stanford.edu/yahoo). Yahoo lists more than 25,000 WWW locations worldwide, and can be searched by keyword. The Tax Division library staff and the Division's administrative office can assist with searches on the WWW.

* The Antitrust Division Library and the Main Justice library have access to additional specialized business databases, including many on CD-ROM that can be used at no charge. Tax Division library staff can assist you in determining whether one of these services would be helpful to you.

D. Evaluating Collection Potential

Once the trial attorney finds assets, the next step is to ascertain whether they are available for collection. Some assets or income may be exempt from collection or subject to the prior claims of other creditors.

In evaluating collection potential you must take into account, among other things:

(1) the priority of the Government's underlying federal Tax lien, and whether a notice of federal tax lien has been timely filed and remains perfected;

(2) the protection afforded by the judgment lien;

(3) the effect, if any, of state exemption statutes; and

(4) the extent to which the tax claims covered by the judgment will survive bankruptcy.

1. Priority: The Federal Tax Lien

In collecting a judgment for taxes, the trial attorney can rely upon either the judgment lien or the federal tax lien, or both.⁽³⁵⁾ Since the federal tax lien will usually pre-date the judgment lien, normally the United States will rely upon the federal tax lien.⁽³⁶⁾ Thus, the trial attorney must be familiar with when a federal tax lien arises and the filing requirements relative to federal tax liens.

The first step in the creation of a federal tax lien involves the making of an assessment. An assessment of a federal tax is made by recording the liability of the taxpayer in the office of the Secretary of the Treasury. I.R.C. § 6203. Pursuant to the Treasury Regulations, an assessment is made by an assessment officer signing the summary record of assessment. Treas.. Reg. §301.6203-1. Section 6303 of the I.R.C. provides that as soon as practicable, and within 60 days after the making of an assessment, notice of the assessment and demand for payment of the assessment must be given to the taxpayer.⁽³⁷⁾

If the taxpayer neglects or refuses to pay the tax after demand, then, pursuant to I.R.C. §§ 6321 and 6322, a federal Tax lien comes into existence and attaches to all property and rights to property belonging to the taxpayer. The tax lien dates from the date of assessment, and continues until the tax liability has been satisfied or becomes unenforceable by reason of lapse of time. The federal tax lien attaches not only to all property or rights to property belonging to the taxpayer on the date the tax lien arose, but also attaches to all after-acquired property or rights to property. Glass City Bank v. United States, 326 U.S. 265 (1945).

State law determines the nature of the interest the taxpayer has in property, but once it has been determined that the taxpayer has an interest in property under state law, federal law determines the priority of competing liens asserted against the taxpayer's property. Aquilino v. United States, 363 U.S. 509(1960).

Except as provided under I.R.C. § 6323, in order for a state-created lien to compete against a federal tax lien, the state-created lien must be "choate." A state-created lien is choate when the identity of the lien or, the property subject to the lien and the amount of the lien have all been established. United States v. New Britain, 347 U.S. 81 (1954). Once a state-created lien has become choate, then the priority between the state-created lien and the federal tax lien is determined by the principle that the first in time is the first in right. New Britain, 347 U.S. at 85.

With respect to certain interests listed in I.R.C. § 6323(a), the federal tax lien imposed by § 6321 is not valid until such time as a notice of federal tax lien has been filed. The interests are those of a purchaser, holder of a security interest, mechanic's lienor, and judgment lien creditor. Once a notice of federal Tax lien has been filed, the priority of the listed interest with respect to the federal tax lien is determined by the same principle of "first in time is first in right." In deciding whether the federal tax lien is first in time, however, you look to the date the notice of federal tax lien was filed, not the date the federal tax lien arose under § 6322.⁽³⁸⁾

The notice of federal tax lien is filed in the one office within the state (or the county or other governmental subdivision) designated by the laws of that state where the property is situated.⁽³⁹⁾ I.R.C. § 6323(f)(1)(A). Real property is deemed to be situated at the place of its physical location.⁽⁴⁰⁾ I.R.C. § 6323(f)(2)(A). Personal property is deemed to be situated at the residence of the taxpayer at the time the notice of federal tax lien is filed. I.R.C. § 6323(f)(2)(B). The residence of a corporation or partnership is deemed to be the place at which their principal executive office is located. id. The residence of a taxpayer whose residence is outside of the United States is deemed to be the District of Columbia. id. If the state in which the property is situated fails to designate the one office required by § 6323(f)(1)(A), then the notice of federal tax lien must be filed in the office of the clerk for the United States District Court for the judicial district in which the property is located. I.R.C. §6323(f)(1)(B).

In order for the notice of federal tax lien to remain effective, it must be refiled during the refiling period specified in I.R.C. § 6323(g)(3).⁽⁴¹⁾ The first refiling period is the one-year period ending 30 days after the expiration of ten years after the date of the assessment of the tax. The second refiling period, as well as all other subsequent refiling periods, is the one-year period ending with the expiration of ten years after the close of the preceding required refiling period.

Thus, if a federal tax assessment is made on March 1, 1989, the first refiling period for any filed notice of federal tax lien with respect to that tax would be April 1, 1998 through March 31,1999. The second refiling period would be from April 1, 2008, through March 31, 2009. A timely refiled notice of federal tax lien is effective as of the date the original notice of federal tax lien to which the refiled notice relates was effective. Treas. Reg. § 301.6323(g)-1(a)(2). If the notice of federal Tax lien is filed after the required refiling period, then the notice of federal tax lien will only be effective from the date of the subsequent refiling.

2. Priority: The Judgment Lien

3. Effect, if any, of State Exemption Statutes

At the election of a debtor under 28 U.S.C. § 3014 Government claims generally will be subject to the various exemptions from creditor's process enacted in each state or to the federal exemptions specified in § 522(d) of the Bankruptcy Code.⁽⁴²⁾ However, with respect to federal taxes, the only exemptions generally available (outside of bankruptcy) are those provided under § 6334 of the I.R.C. This is particularly significant in jurisdictions which have a generous homestead provision. While property listed in § 6334 is exempt from levy, it is the Government's position that it is not exempt from the federal tax lien which is created at the time of assessment.

Some of our collection cases do not involve an assessed tax so that a tax lien does not exist and the IRS does not have the power to levy. Examples are suits to enforce levies, actions under I.R.C. § 3505 (relating to derivative liability for withholding taxes), actions to recover erroneous refunds, and tortious conversion of lien suits. In attempting to effect collection of judgments in such cases, the state exemption rules may apply pursuant to 28 U.S.C. § 3014. The state exemption provisions likewise will apply to the use of judgment enforcement procedures to collect costs, sanctions, and attorney's fees. An alternative course of action for avoiding the state exemption rules when collecting costs, sanctions, and attorney's fees is to request their assessment and collection by the IRS under I.R.C. § 6673(b). Collection of these amounts by levy is not subject to state exemptions, but only to the I.R.C. § 6334 exemptions.

4. Extent of Survival of Tax Claims After Bankruptcy

Whether certain taxes of an individual are dischargeable in a bankruptcy proceeding sometimes depends upon whether the proceeding is one under Chapter 7, 11, 12 or 13. Section 523(a) of the Bankruptcy Code provides exceptions to the normal discharge provisions with respect to an individual in a case under Chapter 7,11 or 12.⁽⁴³⁾ Pursuant to § 523(a), a tax claim which is entitled to priority under § 507(a)(8) of the Bankruptcy Code will not be discharged in a proceeding under Chapter 7, 11 or 12.⁽⁴⁴⁾ Further, tax claims will not be discharged in an individual's case under Chapter 7, 11 or 12 if the claims relate to a tax debt with respect to which a return, if required, was not filed or was filed late and two years or less before the date of the filing of the bankruptcy petition. Section 523(a) also provides for the nondischarge of certain tax penalties.

A discharge granted under § 1328(a) of the Bankruptcy Code is different. A debtor who receives a discharge under § 1328(a) is discharged, with certain exceptions not applicable to this discussion, from all debts provided for by the plan or disallowed under § 502. Thus, 100% penalty liabilities have been held to be discharged in a Chapter 13 proceeding when the plan provided for payment of the liability, but, because the IRS's proof of claim had not been timely filed, the liability did not in fact have to be paid. See In re Tomlan, 102 B.R. 790 (E.D. Wash. 1989), aff'd per curiam, 907 F.2d 114 (9th Cir. 1990).

A corporation is not entitled to a discharge in a Chapter 7 proceeding. Bankruptcy Code § 727(a)(1). A corporation will also not be able to discharge its tax liabilities in a Chapter 11 proceeding if the plan provides for the liquidation of all or substantially all of the property of the estate and the corporation does not engage in business after consummation of the plan of reorganization. Bankruptcy Code § 1141(d)(3).⁽⁴⁵⁾ If a corporation files a Chapter 12 proceeding, Bankruptcy Code § 1228(a)(2) provides for the nondischarge of any debt of the kind specified in § 523(a).

E. Liquidating Assets

There are a number of different tools which can be used by the United States to liquidate assets. In many Tax Division cases, it will be most advantageous to collect the judgment through the "judicial sale" procedures, 28 U.S.C. § 2001, or by means of an IRS levy. The Federal Debt Collection Procedures Act of 1990, 28 U.S.C. §§ 3001 through 3308, provides other powerful tools for the enforcement of judgments--execution, garnishment, and installment payment orders.⁽⁴⁶⁾

1. The IRS's Ability to Collect Administratively

A suit to reduce an assessment to judgment must be brought, or a counterclaim filed, prior to the expiration of the ten-year period provided under § 6502, I.R.C., or the extension of that period (by agreement or by operation of law).⁽⁴⁷⁾ During this period the IRS has the power to seize property by levy⁽⁴⁸⁾ and distraint. I.R.C. §§ 6331-6344. If a collection suit is timely filed, the IRS power to levy is extended for as long as the suit is pending and for as long as any judgment resulting from the suit remains enforceable.

Thus, IRS levy procedures are available for collecting judgments in any case where the underlying liability has been assessed by the IRS. An IRS levy has a number of advantages over judgment execution procedures. First, a levy is a quick, efficient, and effective means of seizing property in order to satisfy a tax liability. Judgment execution procedures are somewhat more cumbersome, requiring more paperwork and the involvement of the court or the marshal. Second, some types of property can be reached with a levy, such as a taxpayer's interest in an IRA or qualified pension or profit-sharing plan, that might not be subject to judgment execution processes because of state exemption provisions. A levy can even be made on Social Security payments, although such levies are made only in abusive situations. Third, the property exempt from an IRS levy is very limited in comparison to property exempt from judgment execution procedures.

When property of the taxpayer is located and the trial attorney determines that an IRS levy is the best method of collection, the trial attorney should call either the District Counsel attorney, the revenue officer assigned to the case, or the local Special Procedures office to explain the situation and request a levy, and should follow up with a letter requesting the levy. If the request is made directly to a revenue officer or Special Procedures, District Counsel should always be kept informed and provided with copies of all correspondence

2. Judicial Sales and Execution Sales

a. Distinction Between Judicial Sales (28 U.S.C. §§ 2001, 2002, and 2004) and Execution Sales (28 U.S.C. § 3203)

b. More on Judicial Sales Under 28 U.S.C. §§ 2001 and 2004

c. More on Execution Sales Under 28 U.S.C. § 3203

Section 3203, 28 U.S.C., sets forth procedures for judgment execution. The first step is filing an application with the court seeking a writ of execution.⁽⁴⁹⁾ Information specific to the case must be included in the writ, including the last known address of the debtor, the amount due as of the date the writ is issued, and the interest rate. In addition, the writ directs the United States marshal to satisfy the judgment by levying on and selling property in which the debtor has a substantial nonexempt interest, but not to exceed property reasonably equivalent in value to the aggregate amount of the judgment, interest, and costs.

The rules for levy and return of levy applicable to prejudgment attachments under 28 U.S.C. § 3102 also apply to levy of execution. A levy is made on real property by posting the writ and notice and on personal property by taking possession of the property or by attaching to it a copy of the writ and notice of levy. The marshal cannot enter a residence or other building unless authorized by the writ or other order of the court.

An execution lien is created at the time a levy is made on property levied under a writ of execution. For real estate, the execution lien relates back to the date of the judgment lien.

Until the execution sale, the debtor can obtain return of the property by satisfying the judgment, including interest and costs, or providing a bond.

Detailed procedures for conducting execution sales are specified in 28 U.S.C. § 3203(g). The usual form of sale is by public auction. Notice of the sale must be given by publication for real estate and posting notice for personal property, as well as service of the sale notice. Detailed procedures for the sale and for postponement of the sale are also provided, and should carefully be followed.

Proceeds are distributed first to satisfy the debtor's exemption claim, and then to the costs of sale and the judgment.

3. The Federal Debt Collection Procedures Act

The Act eliminated many of the procedural disparities by providing uniform prejudgment remedies, judgment execution procedures, and fraudulent transfer rules, for judgments entered in favor of the United States.⁽⁵⁰⁾ However, state limitations on collection from jointly owned property, such as tenancies by the entirety, and state exemption laws have not been preempted and will continue to apply to such judgments.

While the Act is generally the exclusive remedy for the collection of judgments in favor of the United States, it provides special treatment for collecting taxes. Pursuant to 28 U.S.C. § 3003(b), the remedies contained in the I.R.C. and state judgment collection remedies are still available for the collection of taxes, in addition to the procedures contained in the Act. Moreover, the Act does not affect either federal tax liens or the procedures relating to "judicial sales" although it does provide new federal provisions for "judgment execution sales." See discussion, pp. 36-39, supra.

Some of our suits do not involve assessed tax and, accordingly, the tax lien and levy procedures are not available to collect the judgments in those cases. Examples of such suits are failure to honor levy cases, actions to enforce § 3505 liability (relating to derivative liability for withholding taxes), erroneous refund suits, and tortious conversion of lien cases. In the absence of an I.R.C. remedy, such judgments must be collected under the procedures contained in the Federal Debt Collection Procedures Act (or under procedures provided by state law).

The policy of the Tax Division is that even when a notice of federal tax lien has been filed, the trial attorney should record the judgment in order to perfect a judgment lien as well. A judgment is recorded by filing a certified copy of the abstract of the judgment in the same manner as a tax lien. 28 U.S.C. §3201. See Exhibit 10. The lien attaches only to real estate and the abstract should be recorded as a matter of routine in the jurisdiction where the taxpayer resides and must also be recorded in any jurisdiction where the taxpayer is known to own realty.

A judgment lien is valid for 20 years, and may be refiled with leave of court to make it effective for an additional 20 years. 28 U.S.C. § 3201(c).

The provisions of the Federal Debt Collection Procedures Act dealing with judgment enforcement, including execution, installment payment orders, and garnishment are discussed, infra.

4. Federal Debt Collection Procedures Act Remedies: Garnishment, Court-Ordered Installment Payments, and Notice Procedures

a. Notice and Other Preconditions

b. Garnishment

In contrast to these procedures, an IRS levy requires a 30-day notice of intent to levy, but neither the taxpayer nor the person upon whom the levy is served have a right to a hearing. Nor does the I.R.C. contain formal requirements about accounting for proceeds. Another difference is that the formula for exempt wages under the I.R.C. is based on the standard deduction and exemption⁽⁵¹⁾ rather than fixed at 25% of disposable income. Also, the remaining property exempt from levy under I.R.C. § 6334 is less generous than the exemption provisions under most state laws.

c. Court-Ordered Installment Payments

5. Collecting Specific Assets

a. IRAs And Other Retirement Funds

b. Securities and Notes

c. Wages

d. Co-owned Property

While co-ownership of property between a taxpayer/debtor and a non-debtor complicates the Government's efforts to sell the property in order to collect the delinquent tax, the Government may be able to sell the entire property in a judicial sale, and then allocate the sale proceeds between the taxpayer's interest (which goes to the Government) and the interest of the non-debtors who have an interest in the property. (Almost always, a sale of the entire property with an allocation of the sale proceeds commensurate with the co-owners' interests will yield the Government a greater amount than could be obtained by a sale of only the taxpayer's interest in the property.)

I.R.C. § 7403(a) authorizes the United States to bring an action in Federal District Court to enforce a federal tax lien "or to subject any property, of whatever nature, of the delinquent [taxpayer], or in which he has any right, title, or interest, to the payment of such tax or liability." (Emphasis added.) The Supreme Court, in United States v. Rodgers, 461 U.S. 677, 692-94(1983), held that § 7403, as a general rule, allows the Government to sell the entire property in which the delinquent taxpayer has "an interest."⁽⁵³⁾ The Court noted, however, that §7403 "does not require a district court to authorize a forced sale under absolutely all circumstances, and ... some limited room is left ...for the exercise of reasoned discretion." Id. at 706. The Court provided examples of factors a district court should consider in exercising its limited discretion not to order a sale of the entire property. Id. at 709-11. See United States v. Bierbrauer, 936 F.2d 373 (8th Cir. 1991), for an analysis of the application of these factors in a particular case.

Before bringing a § 7403 lien foreclosure suit in a situation where non-liable third parties have ownership interests in the property along with the taxpayer, a Tax Division trial attorney should consider the factors listed in Rodgers.

6. Ten-Percent Surcharge for Costs of Collection

The Department of Justice takes the position that the § 3011 surcharge is recoverable in any affirmative collection suit brought by the United States, including all tax collection suits, counterclaims, erroneous refund suits, failure-to-honor-levy suits, and IRC § 3505 suits that result in a money judgment. A number of district courts, however, have held that the surcharge is not applicable unless and until the Government has availed itself of one of the pre- or postjudgment collection tools provided under subchapters B or C of the Federal Debt Collection Procedures Act(28 U.S.C. §§ 3101-3206).⁽⁵⁴⁾ See, e.g.,Rendleman v. Shalala, 864 F. Supp. 1007, 1012-13 (D. Ore. 1994); United States v. Smith, 862 F. Supp. 257, 263-64 (D. Hawaii 1994); United States v. Maldonado,867 F. Supp. 1184, 1199 (S.D.N.Y. 1994); United States v. Mauldin,805 F. Supp. 35 (N.D. Ala. 1992). As the Rendleman court pointed out, however, as soon as the Government files its abstract of judgment under 28 U.S.C. § 3201 to obtain a judgment lien, the government is entitled to the surcharge because the § 3201 judgment lien is a judgment collection tool available under subchapter C of the Federal Debt Collection Procedures Act. Because the Tax Division will promptly file an abstract of judgment in all or virtually all cases where it has obtained a judgment, the holdings of cases such as Rendleman and Mauldin may in fact pose only a minor obstacle in the Division's path to obtaining the § 3011 surcharge.

Consistent with the Department's interpretation of § 3011, all complaints and counterclaims brought by the Division seeking money judgments should specify that the United States seeks the § 3011 surcharge as part of its judgment. Similarly, the surcharge should be sought in all summary judgment motions in such affirmative collection cases and should be requested in all other judgments to be entered in favor of the Government in such cases. Trial attorneys should request that the final judgment in favor of the government in all affirmative collection cases include a provision for the ten-percent surcharge. In most instances it is probably best not to provide a specific dollar amount for the surcharge, because the dollar amount of surcharge that we are entitled to collect ultimately depends on the amount of interest on the underlying debt that we recover. Thus, a typical judgment might provide for "judgment in favor of the United States in the amount of $100,000 in tax and assessed interest, plus interest thereon pursuant to law accruing after the date of assessment, plus the ten-percent surcharge provided by 28 U.S.C. § 3011(a)." If a court declines to include the surcharge in the initial judgment, following the reasoning of Mauldin, Rendleman, and similar cases, then the surcharge should be sought again after an abstract of judgment has been filed. This can (and should) be done promptly in a post-judgment motion that establishes that the abstract of judgment has been filed in accordance with 28 U.S.C. § 3201.

When the § 3011 surcharge has been obtained, and after the full amount of the underlying judgment (including all accrued interest and penalties) has first been collected, the extra ten percent, to the extent it is collected, should not be paid to the IRS and applied to the delinquent taxpayer's account. Rather, amounts collected towards the ten-percent surcharge should be paid to the Department of Justice in the same manner as is done with attorneys' fees, sanctions, and other such amounts collected by the Department.

The § 3011 surcharge can be a very useful collection tool in many of the Division's cases. Trial attorneys and paralegals need to be aware of how the surcharge provision works and should be mindful of how the surcharge can best be used to assist in collecting delinquent taxes.⁽⁵⁵⁾

V. Settlements⁽⁵⁶⁾

A settlement based on a taxpayer's inability to pay the entire amount of the liability may be entered into either before or after entry of judgment. Before negotiating the terms of a settlement, the trial attorney must obtain information as to the taxpayer's financial situation.

A. Sources of Financial Information

1. Statement of Financial Condition and Other Information (DJ-TD 433 (1996))

2. Income Tax Returns

3. Applications for Loans

4. Taxpayer Owned Businesses

B. Terms of Settlement

1. Cash Payments

2. Collateral Agreements

a. Contingent Payments Based on Future Income

(a) Nothing on the first $25,000 of annual income;⁽⁵⁷⁾

(b) 20 percent of annual income more than $25,000 and not more than $30,000.

(c) 30 percent of annual income more than $30,000 and not more than $40,000.

(d) 40 percent of annual income more than $40,000 and not more than $50,000; and

(e) 50 percent of annual income more than $50,000.

For a corporation, the usual threshold or floor is $10,000, and the agreement usually provides for the payment of 30% of annual income more than $10,000 and less than $15,000, and 50% of annual income exceeding $15,000.

Future income collateral agreements, for both individuals and corporations, usually run for a period of ten taxable years. A shorter period (no less than five years) can be considered in individual cases where, for example, the taxpayer is elderly and retired or will soon retire.

The term "annual income" is defined in the text of the collateral agreement itself to include, inter alia, all nontaxable income, including the fair market value of gifts, bequests, devises and inheritances. Annual income is reduced by federal, state, and local income taxes reportable for the year for which annual income is being computed, provided that such taxes have been reported and paid. Annual income is further reduced by any regular monthly, annual, or other periodic payment made under the settlement for the year in which such payment is made. It is usually advisable to use the standard definition on the collateral agreement form.

A future income collateral agreement is appropriate in those situations where it appears reasonably likely that the taxpayer will have future annual income over and above the taxpayer's necessary living expenses during the period of the agreement. Therefore, if a taxpayer is presently unemployed but is still able to work and has an employment history showing the ability to command annual income greater than the threshold amount, a collateral agreement should be negotiated. On the other hand, If the taxpayer has a lengthy work history and has never earned income greater than the threshold amount, a collateral agreement may not be in the Government's best interests. Generally, where the taxpayer is making a lump sum payment and has no prospects of future earnings, collateral agreements will not be required merely because an unlikely event may occur, such as the winning of a lottery or the unexpected inheritance of assets in the future (although it may be appropriate if the inheritance is substantial and appears reasonably likely to occur during the period of the collateral agreement).

Under the terms of the future income collateral agreement, each year the agreement is in force the taxpayer is required to submit to Special Procedures a sworn statement of annual income and a copies of the taxpayer's current federal, state, and local income tax returns for the year for which annual income is being computed. Copies of the annual income forms for individuals and corporations are attached as Exhibits 24 and 25.

After the trial attorney has received the executed collateral agreement, the trial attorney should send the original and two copies of the executed collateral agreement to IRS Special Procedures for monitoring of the agreement. A copy of a form letter is attached as Exhibit 26. Copies of the agreement should be placed in both the DJ file and the trial attorney's personal file.

b. Waiver of Carryover of Losses and Credits

3. Waiver of Deductions

4. Security for Amounts Due Under Compromise

The settlement should provide that the judgment will be marked satisfied after the judgment debtor has completed all obligations under the settlement, including any collateral agreement.

The settlement should set forth the Government's options in the event of default by the taxpayer. These options are set forth in the collateral agreement form. If the taxpayer will not be executing a collateral agreement as a part of the settlement, the settlement should set forth the appropriate options.

C. Form Acceptance Letters and Stipulations

D. Settlements Requiring Payments to the Government

E. Closing Cases After Settlement

F. When Full Payment is Made

G. Default on a Settlement

VI. Alternative Dispute Resolution

On April 6, 1995, the Attorney General signed an order promoting broader use of Alternative Dispute Resolution in civil cases as a tool for resolving disputes between the government and its citizens in as prompt, efficient, and inexpensive a manner as possible. As used here, Alternative Dispute Resolution (ADR) is any non-binding dispute resolution process facilitated by a third-party neutral. ADR methods include, but are not limited to, arbitration, mediation, early neutral evaluation, and neutral expert evaluation.⁽⁵⁹⁾ ADR may be conducted pursuant to the agreement of the litigants, or it may be court-mandated.

The Tax Division always has had, and continues to have, a policy of settling cases, where appropriate, as early in the litigation as reasonably possible. To further this policy, incases where the attorney assigned to the case in consultation with his or her reviewer, believes that ADR may be appropriate, he or she should consider using an independent third-party neutral through a court-sponsored program, from another government agency, or from outside of the government. Where court-sponsored and/or court-annexed ADR programs are available, Division attorneys are expected to utilize and participate fully in such programs in all appropriate cases.

ADR is not a substitute for traditional negotiation, but rather provides attorneys with additional tools to facilitate settlement of cases on an appropriate basis at the earliest stage at which such a settlement reasonably can be reached.

Attached as Exhibit 40 is a statement setting out Tax Division Case Selection Criteria for Alternative Dispute Resolution. Note that many of the factors favoring and disfavoring ADR are the same factors favoring or disfavoring traditional settlement. However, there are additional factors favoring ADR as opposed to traditional settlement, either as a means to reach any settlement or as a means to reach settlement more quickly than is anticipatable using traditional settlement methods.

Bear in mind that a settlement is a settlement, whether or not achieved through ADR. Accordingly, the same jurisdictional lines for approving settlement are applicable, and the IRS recommendation must be obtained in Standard cases, whether the settlement is reached through traditional negotiation or ADR.

Before engaging in ADR (other than ADR imposed by the Court) the Trial Attorney must obtain from the taxpayer a Consent to Disclosure pursuant to I.R.C. § 6103 as a condition of the government's agreement to participate in such ADR. In the absence of such a Consent, the government would not be able to make a full factual disclosure to the third-party neutral, which would substantially undermine the utility of the ADR process.

VII. Reporting Collection Activities to the Case Management System

Just as the Tax Division's prejudgment actions in a case are reported on the Tax Division's "Attorney Activity Reporting Form" (sometimes referred to as an "IBM card"), judgments and postjudgment collection activities are also reported, using four-digit reporting activity codes. See Exhibit 34 for a list of activity codes related to judgment collection.

The information on these cards is entered into the Division's case management system computer. It is essential that all pertinent information concerning collection and payment activities be accurately and timely reported. First, the monthly collection monitor report (the monitor) provided by the computer to Tax Division managers is only as accurate, up-to-date, and complete as the information being reported. The Division relies on the monitor to ensure that important deadlines in the judgment collection process are not missed. Second, accurate, up-to-date, and complete information reporting ensures that the Division management is aware of the total amount of outstanding judgments and the status of the Division's efforts to collect those judgments.

One of the most important items to be reported to the case management system is the amount of incoming payments and whether the payments are pursuant to a settlement or a judgment. Generally, payments received directly by the Tax Division are recorded on the system by the trial section's front office data technician shortly after receipt. The system also has codes, however, to record payments received by the IRS or the United States Attorney's office while the case is still open in the Tax Division. Generally, however, payments made to the IRS or the United States Attorney are not made known to the trial section data technician unless and until the trial attorney brings it to the technician's attention. The best way to do this is to send a letter to the IRS or United States Attorney confirming that they have received a payment of the specified amount in the case on a specified date and that the Tax Division is recording the payment. The letter, along with the trial attorney's submission to the data technician of an Attorney Activity Reporting Form reporting the proper payment code, will ensure that the Tax Division's files and case management computer system reflect the payment.

It is also important that paralegal and attorney time spent on judgment collection efforts be reported properly on timesheets. The Tax Division's attorney timesheet has a separate column for time spent on collection activities. This is important for purposes of advising Tax Division management of the amount of attorney time devoted to collection work and can be important for purposes of enabling the Tax Division to obtain adequate budgetary resources to carry out its judgment collection duties successfully.

Similarly, when the Tax Division's collection activity ceases and a case is closed, either because the judgment has been fully collected or because the uncollected judgment is being transferred to the IRS or the United States Attorney for further collection, it is essential that the proper closing codes be reported to the case management system.

VIII. Closing of Cases and Reference of Judgments for Further Collection Activity

A. When and Where

B. Steps to Refer the Judgment to the IRS

C. Steps to Refer the Judgment to the United States Attorney

4. The most common situation where this arises is trust fund recovery suits where several responsible persons are joined as defendants on the Government's complaint or counterclaim. Often the Government obtains a default judgment or summary judgment against one defendant, but has to proceed to trial before obtaining judgment against others.

5. Some penalties accrue periodically until reaching a specified maximum. See, e.g., I.R.C. § 6651. Frequently the amount of these penalties that is assessed is not the maximum but, rather, the amount that had accrued as of the date of assessment. Nevertheless, like accrued but unassessed interest, the accrued but unassessed penalties that accrue after the date of assessment can and should be included in the judgment.

6. Judgments entered after litigation should also provide for the award of costs. See pp. 13-14, infra.7. Because the rate of interest is subject to change, the rate should not be specified in the judgment.

8. Because the correct drafting of a judgment in a tax collection case is complex and somewhat technical, especially with respect to accrued interest and penalties, a trial attorney should generally offer to draft a proposed judgment for the court incases where the interest computations are complex. Be aware, however, that Fed. R. Civ. P. 58 provides that "[a]ttorneys shall not submit forms of judgment except upon direction of the court, and these directions shall not be given as a matter of course." See 6A James Wm. Moore, Moore's Federal Practice ¶ 58.02.1[3] at 58-21 (2d ed. 1996); Gold v. United States, 552 F. Supp. 66 (D.Colo. 1982) (in tax refund suit, judge directed that attorneys submit forms of judgment, where the computations necessary for judgment were complex and the attorneys were familiar with the computations.)

9. The collection procedures authorized by §§ 3101-3206 are: (1) Prejudgment Attachment (§ 3102); (2) Prejudgment Receivership (§3103); (3) Prejudgment Garnishment (§ 3104); (4) Prejudgment Sequestration (§ 3105); (5) Enforcement of Judgment Lien (§3201); (6) Postjudgment Execution (§ 3203); (7) Postjudgment Installment Payment Order (§ 3204); and (8) Postjudgment Garnishment (§ 3205).10. See generally 7 and 9 Moore's Federal Practice (2d ed. 1996),pertinent to Fed. R. Civ. P. 62 and Fed. R. App. P. 8(a); Charles A. Wright, Arthur R. Miller, & Mary Kay Kane, Federal Practice and Procedure, § 2901 et seq. (1995).

11. Fed. R. Civ. P. 62(b). Note that a supersedeas bond(see pp.16-17, infra) may be imposed as a condition of the stay.

12. The granting of a stay of execution of a judgment, except as provided in Rule 62, may constitute an abuse of discretion. Compare Geddes v. United Fin. Group, 559 F.2d 557 (9th Cir. 1977)with Trans World Airlines, Inc. v. Hughes, 515 F.2d 173 (2d Cir.1975), cert. denied, 424 U.S. 934 (1976). See also Federal Presc. Serv., Inc. v. American Pharm. Ass'n, 636 F.2d 755 (D.C.Cir. 1980).

13. See Fed. R. Civ. P. 62(d).

14. See Fed. R. App. P. 8(a).

15. See Fed. R. App. P. 8(a).16. See Fed. R. Civ. P. 65.1 for the procedure to enforce the liability of the surety on the bond, should such action be required.17. Before the enactment of 28 U.S.C. § 3201, in order to obtain A judgment lien it was necessary to register or record the judgment in accordance with state law applicable to state judgments. See28 U.S.C. § 1962.18. Contrast the judgment lien with I.R.C. § 6322, which provides that a federal tax lien is not merged in a judgment and continues until satisfied or rendered unenforceable by reason of lapse of time. See United States v. Bank of Celina, 823 F.2d 911 (6th Cir. 1986); United States v. Overman, 424 F.2d 1142 (9th Cir.1970); United States v. Hodes, 355 F.2d 746, 749 (2d Cir. 1966),cert. granted, 384 U.S. 968 (1966), cert. dismissed, 386 U.S. 901(1967).

19. Tax Division procedures for transferring the judgment and closing the file are described on pp. 60-62, infra.

20. Special Procedures is a part of the IRS Collection Division located in major cities throughout the country. It is staffed by Collection Division revenue officers who are very knowledgeable about IRS collection procedures. 21. In some districts, the United States Attorney's office may routinely open a file on a judgment obtained in that district by the Tax Division and may also initiate collection efforts even though the matter has not been referred to that office. When this occurs a letter in the form attached as Exhibit 11 should be sent to the United States Attorney to advise that the Tax Division will undertake collection activity.

22. If a taxpayer cannot be located and is believed to have left the United States, the trial attorney can request the Immigration and Naturalization Service to notify the Tax Division should the taxpayer return. A sample letter requesting a border check is attached as Exhibit 12.

23. For ten days, the automatic stay on execution of a judgment is in effect. Fed. R. Civ. P. 62(a). See p. 16, supra.

24. Likewise, if a taxpayer takes a case to the Tax Court, assessment (other than jeopardy assessment) is prohibited only until the Tax Court enters its decision. Once the Tax Court decision is entered, the IRS makes its assessment and will proceed to collect the deficiency unless the taxpayer files a bond pending appeal.25. Frequently in the course of obtaining the judgment you may ascertain that the taxpayer has no intention of paying anything towards any judgment that may be entered. If so, early service of Rule 69 interrogatories (seeking information as to financial condition, see discussion of Rule 69 discovery, pp. 22-27,infra)will eliminate wasted time and start the running of the taxpayer's 30-day period for answering much sooner. Thus, although not required at this point, you should consider sending Rule 69 interrogatories with the first demand letter or shortly after it is sent. Of course, if the debtor satisfies the judgment within the 21-day period as requested in the demand letter the interrogatories need not be answered.

26. The Tax Division Form DJ-TD 433 (1996) should always be used, rather than IRS Form 433A or Form 433B. These are abbreviated versions of the former IRS Form 433, generally used by the IRS to evaluate a taxpayer's ability to pay immediately, or through installment payments. These abbreviated forms do not have sufficient detail, e.g., information concerning transfer of assets, to be useful for our purposes. Department of Justice Form OLD-500 should not be used because it is not as complete as a Tax Division form.

27. The IRS would not, of course, wish to foreclose the tax lien on a home unless there were no other assets available; however, that might, indeed, be the situation.

28. See also 28 U.S.C. § 3015(a), which specifically authorizes postjudgment discovery as to the debtor's financial condition.

29. The IRS can issue collection summonses pursuant to I.R.C.§7602, but, as a practical matter, summonses are generally considerably less effective than discovery depositions.

30. See Exhibits 16 and 17 for a suggested sample set of Rule 69 interrogatories and document request.31. When subpoenaing documents from a bank pertaining to the account of a person other than the judgment debtor, you must comply with the notice provisions of the Right to Financial Privacy Act, 12 U.S.C. §§ 3401-3412. The Act applies only to financial information about a customer who is an individual or a partnership of five or fewer individuals.

32. Under most fraudulent conveyance statutes, the party seeking to establish the existence of a fraudulent conveyance must establish that the debtor was insolvent at the time of the conveyance or that the transfer in question rendered the debtor insolvent.

33. See United States v. Bacon, 82 F.3d 822 (9th Cir. 1996); United States v. Fernon, 640 F.2d 609 (5th Cir. 1981).34. See United States v. Bantau, 907 F. Supp. 988 (N.D.Tex.1995); Stoecklin v. United States, 858 F. Supp. 167 (M.D. Fla.1994).35. The federal tax lien and the judgment lien the Government obtains when a tax assessment is reduced to judgment are separate, independent liens. See note 18, supra.

36. No federal tax lien is involved when the judgment is for an unassessed liability (e.g., for failure to honor a levy, for an erroneous refund, or for liability under I.R.C. § 3505). In such cases only the judgment lien can be relied on to establish lien priority.

37. Failure to give notice and demand does not invalidate the assessment. See United States v. Berman 825 F.2d 1053 (6th Cir.1987), on remand, 88-2 U.S. Tax Cas. (CCH) ¶ 9550 (S.D. Ohio 1988), judgment aff'd, 884 F. 2d 916 (6th Cir. 1989).38. I.R.C. § 6323(b) provides protection (known as super-priority)for certain interests even though a notice of federal tax lien was filed before those interests came into existence. Also, §6323 sets forth special rules with respect to a commercial transaction financing agreement, a real property construction or improvement financing agreement, and an obligatory disbursement agreement.

39. With respect to property situated in the District of Columbia, the notice of federal tax lien is to be filed with the Recorder of Deeds of the District of Columbia. § 6323(f)(1)(C).

40. With respect to real property in certain states, not only must a notice of federal tax lien be filed to compete against the interests set forth in § 6323(a), but the fact of filing must be entered and recorded in an index. § 6323(f)(4).

41. The place where the notice of federal tax lien must be refiled is set forth in § 6323(g)(2).

42. References in this Manual to "state exemptions" should be understood as covering as well the § 522(d) exemptions when elected by the debtor.

43. § 523(a) also applies to hardship discharges granted pursuant to the provisions of § 1328(b) of the Bankruptcy Code.

44. If a tax is not dischargeable, then the interest associated with that tax claim is also not dischargeable. In re Larson, 862 F.2d 112 (7th Cir. 1988).

45. This exception will also apply to individuals provided also that the debtor would have been denied a discharge under § 727(a)if the case were one under Chapter 7.

46. The court can issue any other writs under 28 U.S.C. §1651 to support these remedies.

47. I.R.C. § 6503 suspends the running of the period of limitations on collection by levy and on commencement of suit, where, interalia, assets of the taxpayer are in custody of a court, the taxpayer is continuously outside the United States for a period of six months, there is a wrongful seizure of property of a third party, a case is pending under the Bankruptcy Code, and other situations.

48. While a levy must be served within the period prescribed in I.R.C. § 6502, it "freezes" the corpus levied upon until a levy enforcement action is commenced. Such an action may be brought at any later date. See, e.g., United States v. Eiland, 223 F.2d 118, 121-22 (4th Cir. 1955); United States v. Weintraub, 613 F.2d 612 (6th Cir. 1979), cert. denied, 447 U.S. 905 (1980).

49. § 3202, 28 U.S.C., imposes several preconditions and restrictions on the judgment enforcement remedies available under the Act. At the time that an application is made for a writ of execution, the United States must prepare a form of notice to the taxpayer and submit the notice to the Clerk of Court for issuance. This precondition applies to garnishment and installment payment orders and is discussed on pp. 42-46, infra.50. The Act comprises Subtitle A (28 U.S.C. §§3001-3015),Definitions and General Provisions; Subtitle B (28 U.S.C. §§3101-3105), Prejudgment Remedies; Subtitle C (28 U.S.C. §§ 3201-3206),Postjudgment Remedies; and Subtitle D (28 U.S.C. §§ 3301-3308), Fraudulent Transfers.

51. The weekly exempt amount under the I.R.C. is the sum of the standard deduction and of the total amount of deductions for exemptions to which the taxpayer is entitled, divided by 52. Unless the taxpayer submits verification to the contrary, the IRS can assume that the taxpayer is married filing a separate return and has one exemption. Based on 1997 rates ($3,450 standard deduction for a married person filing separately and $2,650 deduction for an exemption), the amount exempt can be as little as $117 per week.

52. For example, as tenants-in-common, as joint tenants, or as tenants by the entirety.

53. The Rodgers Court noted that, in anadministrative seizure and sale of property by the IRS pursuant to its I.R.C. § 6331 levy power (as opposed to a judicial sale under I.R.C. § 7403), the government can sell only the interest in the property belonging to the taxpayer. Rodgers, 461 U.S. at 696. See alsoMansfield v. Excelsior Ref. Co., 135 U.S. 326, 339-41 (1890); National Bank& Trust Co. of South Bend v. United States, 589 F.2d 1298, 1303(7th Cir. 1978); Herndon v. United States, 501 F.2d 1219, 1223(8th Cir. 1974).

54. The collection procedures authorized by §§3101-3206 are: (1) Prejudgment Attachment (§ 3102); (2) Prejudgment Receivership (§3103); (3) Prejudgment Garnishment (§ 3104); (4) Prejudgment Sequestration (§ 3105); (5) Enforcement of Judgment Lien (§3201); (6) Postjudgment Execution (§ 3203); (7) Postjudgment Installment Payment Order (§ 3204); and (8) Postjudgment Garnishment (§ 3205).

55. Ironically, the Government cannot use the collection remedies provided under the Act to collect the § 3011(a) ten-percent surcharge because the surcharge is specifically excluded from the definition of a "debt" in 28 U.S.C. § 3002(3)(B), and § 3001(a)provides that the FDCPA remedies can be used only to collect a"debt" as defined in § 3002. The Department hopes to obtain a legislative fix to this problem. In the meantime, however, the Department can collect the surcharge using state-law collection remedies as authorized by Rule 69 of the Federal Rules of Civil Procedure.

56. See also the Tax Division's Settlement Reference Manual.

57. Generally, the threshold or floor amount set forth in subparagraph (a) should be no higher than the taxpayer's current income less the estimated amount of federal, state, and local income taxes. If a taxpayer is presently unemployed but is still able to work and has an employment history showing the ability to realize substantial earnings, a threshold amount may be set taking all circumstances into account.

58. Abstracts of judgments and other security received for payments, whether received before or after settlement, should be filed and/or recorded in the appropriate districts or other appropriate local offices, except if the settlement provides otherwise. Originals of legal documents, such as mortgages, notes, letters of credit, and insurance policies, should be preserved in a Tax Division safe, and the trial attorney should prepare a memorandum to the file setting forth the location of the document.

59. Although mini-trials or summary jury trials are ADR procedures, they would only be utilized if they were likely to avoid lengthy trials, and civil tax trials are very rarely lengthy. Accordingly, it would be a most unusual case where mini-trials or summary jury trials would be utilized in Tax Division cases.