Where the United States asks, by way of affirmative relief, for foreclosure
of its own lien, and property is sold to satisfy a first lien held by the United
States, the United States may bid at the sale such sum, not exceeding the amount
of its claim with expenses of sale, as may be directed by the IRS. See USAM 6-5.113.
- Notice to Tax Division and IRS.
In
foreclosure, partition, condemnation and, except as provided in
paragraph B, most quiet title actions, it is not necessary to forward
the summons and complaint to the local District Counsel or the Tax
Division, but the local IRS Special Procedures Function should be asked
to provide the information necessary to prepare an answer. A copy of the
government's answer should not be forwarded to the Tax Division. It is
unnecessary for the United States Attorney to correspond with the Tax
Division with regard to these cases unless an offer in compromise is
submitted or an appellate issue arises. These matters and any questions
should be directed to the Chief of the appropriate Civil Trial Section
(the former Tax Lien Unit has been abolished and its remaining duties
transferred to the various Civil Trial Sections).
Quiet title actions. Tax protesters frequently use quiet
title actions in an attempt to remove federal tax liens from real
property. These types of quiet title actions are brought either by the
taxpayer or by the nominee who is holding title on behalf of the
taxpayer. The taxpayer is often attempting (improperly) to contest the
merits of the tax assessment. The plaintiff may properly use Section
2410 to contest the procedural validity, or, in the case of a nominee,
to contest the validity of the IRS' alter ego/nominee determination.
These quiet title actions and any other quiet title actions raising
substantive tax issues should be referred to the appropriate Civil Trial
Section for handling.
Offer in Compromise. If an offer in compromise is made,
promptly submit the matter to the Chief of the appropriate Civil Trial
Section, with your recommendation and sufficient supporting data. A copy
of any compromise offer together with a copy of the complaint, should at
the same time be forwarded to the local IRS District Counsel. This
procedure is not applicable to those applications for release of the
government's right to redemption with respect to which authority has
been delegated to United States Attorneys. See USAM 6-6.140 and 6-6.700. See also the Tax Resource Manual at 51-52 for the
appropriate form application and instructions.
Appeal. If an appeal is taken by another party to the
proceeding, the United States Attorney should promptly advise the Chief
of the appropriate Civil Trial Section and inform us of the time
limitation involved. If a decision is rendered adverse to the government
on an issue contested by your office, please submit your recommendation
with sufficient data to evaluate the question of appeal.
Priority. Please note that 26 U.S.C. § 6323 will govern
the determination of the priority of the federal tax lien in most of
these cases. The Chief of the appropriate Civil Trial Section should be
contacted should any interpretative problems arise concerning the
priority to be accorded to the tax lien. The local District Counsel of
the IRS may also be called upon for advice.
Closing. The United States Attorney should notify the IRS
Special Procedures Function when the case is closed.
Most cases under 28 U.S.C. § 2410 are filed in the state
courts. The United States as a general rule does not seek to remove such
cases to the federal courts unless there is a real dispute respecting
the rights of the United States and a substantial amount or important
principle is involved. Where it appears to be desirable to remove an
action involving tax claims to a federal court and circumstances permit,
the matter should be discussed with the Tax Division. Since 28 U.S.C.
§ 1446(b) provides only 30 days in which to remove a case, the suit
should be brought to the attention of the Tax Division at the earliest
possible moment. The judgment of the United States Attorney is relied
upon in deciding whether to remove, but removal should not be effected
without prior approval of the Chief of the appropriate Civil Trial
Section.
Section 7421(a), 26 U.S.C., provides, generally, that no suit
for the purpose of restraining the assessment of any tax shall be
maintained by any person in any court, whether or not such person is the
person against whom such tax was assessed. In light of 26 U.S.C. §
7421, injunctive relief may be had only upon satisfaction of the twofold
test laid down in Enochs v. Williams Packing & Navigation Co.,
370 U.S. 1 (1962).
Since injunction cases are often set for hearing on very short
notice, the Tax Division, in some instances, will consent to a status
quo arrangement whereby the District Director will agree to take no
collection activity for a specified period of time in order to afford
the IRS an opportunity to conduct an investigation and prepare a defense
letter. On occasion, however, it may be necessary to consent to a
temporary restraining order to accomplish the same purpose. See
Fed.R.Civ.P. 65(b). In either case, prior authorization should be
obtained from the Chief of the appropriate Civil Trial Section. Of
course, any suit attempting to restrain the collection of taxes must be
served upon the Attorney General. The United States Attorney, however,
should immediately notify the appropriate Civil Trial Section when
served with such a suit; if a temporary restraining order is set for
hearing or an early hearing on a preliminary injunction is set, please
telephone the Chief of the appropriate Civil Trial Section so that the
necessary pleading can be prepared and forwarded to the United States
Attorney.
Suits under the Freedom of Information Act (FOIA), 5 U.S.C.
§ 552 et seq., against the IRS and against the Tax
Division are handled exclusively by the Tax Division's Civil Trial
Section, Eastern Region.
Because under 5 U.S.C. § 552(a)(4)(C) an answer or other
pleading to the complaint must be served within 30 days after the
complaint is served upon the defendant, it is imperative that the Civil
Trial Section, Eastern Region, receive immediate notice of the filing of
such a suit. Specifically, the United States Attorney's Office should
immediately notify that section by telephone when served with the
complaint in such a suit. The appropriate pleading will be prepared by
the Tax Division and forwarded to the United States Attorney for filing.
Suits under the Privacy Act against the IRS and the Tax Division are
also handled by the Civil Trial Section, Eastern Region, and when the
USAO is served with the complaint in such a suit, immediate written
notice thereof should be given to that section. The appropriate
responsive pleading will be forwarded to the United States Attorney.
Frequently, subpoenas are served upon revenue agents and other
employees of the IRS in cases not involving federal taxes, and in which
the United States is not a party, requiring them to appear in court to
produce official documents and records or to testify with respect to
matters which have come to their attention in their official capacity.
Section 301.9000-1, 26 C.F.R., provides that in such cases the
internal revenue officer should appear in court and respectfully decline
to produce the records or to give the testimony called for on the ground
that he/she is prohibited therefrom by the Treasury Regulations.
Instructions have been issued to IRS personnel regarding these
procedures. In most cases, if there is sufficient time, the Commissioner
will issue specific instructions to the employee and request that these
be exhibited to the United States Attorney.
The validity of the Treasury Regulations has been upheld and
approved by the Supreme Court, Boske v. Comingore, 177 U.S. 459
(1900); cf. Touhy v. Ragen, 340 U.S. 462 (1951), involving
a subpoena served upon an employee of the Department.
In the event the IRS employee is served with a subpoena and
contacts the United States Attorney for the purpose of protecting
his/her interests and those of the government, the United States
Attorney should appear, if necessary, with the individual employee
before the court out of which the subpoena was issued. The United States
Attorney should also give notice of the subpoena matter to the Civil
Trial Section, Eastern Region. If the necessity arises, the matters set
out above should be submitted to the court. Frequently, this will not be
necessary since experience has demonstrated that if this prohibition is
explained to the attorney who is responsible for the issuance of the
subpoena, the attorney will voluntarily release the IRS employee from
responding without requiring the United States Attorney to seek the aid
of the court.
The Tax Division is charged with the responsibility of
representing the interests of government agencies and officers in
contesting the improper imposition of state or local taxes. Requests for
assistance frequently come directly from government contractors and
members of the Armed Forces, as well as from government agencies.
Because of their sensitive nature and the need for their close
coordination, all such matters are handled directly by the Tax Division.
All requests, whether to institute litigation or merely for advice or to
persuade taxing authorities not to impose a tax, should be promptly
referred to the Civil Trial Section, Eastern Region.
The field offices of the IRS file proofs of claim for unpaid
taxes in bankruptcy proceedings, state court receivership and insolvency
proceedings, and probate proceedings. The Tax Division is ordinarily not
notified of the filing of these claims and the United States Attorney
may or may not be advised of the filing of a proof of claim. Where a
controversy arises and the United States Attorney is requested to take
any action or make a court appearance, the Chief of the appropriate
Civil Trial Section should be notified as soon as possible, by telephone
if necessary, and prior to the filing of any pleading or the making of
any court appearance, except in direct referral bankruptcy cases.
See USAM 6-5.522.
If an objection to a proof of claim is filed, no action should
be taken without prior consultation with the Tax Division. The necessity
for prompt action will frequently require a telephone consultation with
the Chief of the appropriate Civil Trial Section.
It is the practice in bankruptcy cases for the District
Directors through the Special Procedures Function to file proofs of
claim for taxes. The United States Attorney may be furnished with a copy
of the proof of claim. In many cases this ends the matter so far as the
United States Attorney is concerned because the claim will be allowed
and paid by the trustee in bankruptcy as a matter of course from the
bankrupt's estate to the extent that funds are available.
In contested cases and adversarial proceedings any pleading
involving matters relating to the internal revenue laws should be
promptly forwarded to the Tax Division, the District Counsel and the IRS
Special Procedures Function.
The IRS will directly refer to the United States Attorneys
bankruptcy matters involving:
- Complaints or other pleadings to sell property;
- Cash collateral hearings;
- Conversion from chapter 11 or 13 to chapter 7, or dismissal of chapter 11
or 13 case;
- Motions to compel distribution and accounting;
- Motions to pay taxes or stop pyramiding of taxes;
- Motions for a more particularized disclosure statement;
- Motions for relief from the automatic stay to permit
commencement or continuation of proceedings before the United States Tax
Court;
- Objection to confirmation of a plan;
- Motion by the United States to vacate or modify the automatic
stay where all the other parties agree to the relief requested;
- Motion for order compelling production of records and/or filing
of pre-petition tax returns;
- Motion for order compelling the filing of post-petition tax returns;
- Motion for order requiring segregation and/or deposit of post-petition
trust fund taxes.
In a number of Districts, IRS attorneys have been appointed
Special Assistant United States Attorneys under a program for handling
bankruptcy cases. In Districts having such a program, the following
matters will also be directly referred to the United States Attorney:
- Cases involving dischargeability (except those involving
fraud or novel issues);
- All motions to lift the stay;
- Turn-over hearings where the government's defense is limited to
adequate protection; and
- Objections to proofs of claims (except those involving
responsible person liability, the merits of the debtor's tax liability,
evidentiary hearings as to disputed matters, or important or novel
issues).
All other tax-related bankruptcy matters will be referred by the
IRS to the Tax Division, including matters required to be reviewed by
the IRS National Office, cases in which the debtors are prominent
individuals or major corporations, and any matters not subject to the
direct referral procedure.
The United States Attorney should promptly notify the Chief of the
appropriate Civil Trial Section by telephone and advise the District
Counsel of adverse decisions, and take the necessary steps, including
the filing of a notice of appeal to protect the government's interest.
The time for appeal from an order of a bankruptcy court is only 10 days,
but the time may be extended by the court for an additional 20 days.
Because of this short time limit, it is usually advisable for the United
States Attorney to obtain an extension of time concurrently with advice
of the matter to the Tax Division.
The decision on whether to appeal an adverse bankruptcy court
decision is made by the Tax Division, and appeals for such decisions are
handled by the Tax Division. As to the procedure for appeals from orders
of a United States District Court, see USAM
6-5.720.
The IRS District Counsel will directly file an acceptance or
rejection of a plan of reorganization after notifying the United States
Attorney. The Tax Division will be alerted by District Counsel if the
debtor is a prominent individual or major corporation and will be
consulted in the event the Tax Division is involved in litigation that
would be affected by the plan.
Where receivers for the taxpayer are appointed in a state or
federal court, the IRS immediately assesses any tax owing and files
proofs of claim, as provided by 26 U.S.C. § 6871(a). In such cases
the receivership court has jurisdiction to hear and determine objections
to the merits of the tax claim. The priorities of the United States in
receivership proceedings are asserted under 31 U.S.C. § 3713.
Whenever a contest develops as to the merits or priority of the
claim, the United States Attorney should notify the Tax Division
immediately and furnish all relevant pleadings and information. In such
proceedings in state courts, the United States is generally required to
abide by the procedural rules and time limits of the court.
Where assessments have been made against the decedent in his/her
lifetime, or are made thereafter, notice of the assessment in the form
of a proof of claim is brought to the attention of the personal
representative of the decedent. The United States Attorney may be
furnished with a copy of the proof of claim. Generally, such a claim is
allowed and paid in due course of administration and no further
questions arise.
When further action to collect the claim is desired, the
District Counsel will request the Tax Division to take such action. If
the request is approved, the Tax Division will send appropriate
instructions and pleadings to the United States Attorney to be filed and
a discussion of the facts and the law involved.
Occasionally it will be necessary for the United States Attorney
to seek to control action of the personal representative through the
processes of the probate court. Sometimes, if there is insolvency, the
threatened action of the personal representative (such as failure to
recognize the government's priority) can be discouraged by calling
his/her attention to the provisions of 31 U.S.C. § 3713. In other
cases, the supervisory authority of the probate court, provided by most
state codes or statutes, will ordinarily be adequate.
Whenever a contest develops, or whenever it becomes necessary to
compel the personal representative to act on a claim of the United
States, the United States Attorney should notify the Chief of the
appropriate Civil Trial Section and furnish any papers or information
which may be germane to the question raised. Because of the differences
in probate law in the several states, it is the general policy of the
Tax Division to rely heavily in probate court proceedings on the
experience of the United States Attorney concerning the laws of that
jurisdiction.
There are various forms of insolvency proceedings in state
courts, the most frequent of which is an assignment for the benefit of
creditors. Where proofs of claim are filed in such proceedings and
litigation arises, 31 U.S.C. § 3713, relating to priorities, is
applicable. Where a contest develops, the United States Attorneys should
notify the Tax Division prior to taking any action and furnish all
relevant pleadings and information.
The six Civil Trial Sections and the Court of Federal Claims
Section are responsible for defending suits brought against the United
States for refund of taxes alleged to have been improperly assessed and
collected. The technical nature of the issues involved and the
nationwide distribution of the suits require a close coordination among
the appropriate Civil Trial Section, the IRS, and the USAO. In those
cases defended by a Civil Trial Section, the appropriate USAO will
receive information copies of the proceedings from that section.
The United States Attorney is responsible for sending a copy of
all complaints filed against the United States in tax refund suits
immediately to the Tax Division, the local IRS District Counsel, and the
Internal Revenue Service Center. In tax refund suits involving the
100-percent penalty imposed by 26 U.S.C. § 6672, the complaint
should be forwarded to the District Director to the attention of the
Special Procedures Function rather than to the Service Center.
The memorandum accompanying the copies of the complaint sent to
the Tax Division should state the date when the complaint was served and
filed.
It is essential that the Internal Revenue Service Centers be
given the earliest possible notice that a tax refund suit has been filed
with the United States District Court. This is necessary because the IRS
must, in most cases, assemble its administrative files, forward them to
Washington, D.C., and prepare an analysis of the government's litigating
position within the 60 days provided for serving an answer under the
Fed. R. of Civ. P.
No cover letter or memorandum need accompany the complaint sent
to the Service Center, but it is essential that the envelope bear the
notation REFUND LITIGATION CASE.
Contemporaneously with mailing a copy of the complaint to the
Service Center, a telephone call should be made to the appropriate
Service Center, informing the personnel there that a suit has been filed
in the United States District Court and the following information should
be furnished:
- The name and address of the taxpayer-plaintiff;
- Type of tax by form number and the taxable period involved,
e.g., Form 1040 for the calendar year 1990;
- Employer identification number or social security number, if available; and
- The Civil Action Number.
When a case is decided in favor of the government, the United
States Attorney should furnish the Tax Division with a copy of a notice
of appeal or cross-appeal filed by an adverse party as soon as possible
(preferably within 5 days of the filing of the notice).
If an appeal is noticed, the case is then transferred by the
Civil Trial Section to the Appellate Section of the Tax Division.
If the case was tried by an Assistant United States Attorney,
the pertinent documentary material and a recommendation concerning
appeal should be forwarded to the appropriate Civil Trial Section.
If the adverse decision is rendered in a state court, the United
States Attorney should advise the Tax Division as each step to perfect
an appeal is completed. For a further discussion on appeals, see USAM
Title 2 (Appeals).
The Civil Trial Section prepares its own recommendation on
whether to appeal. The recommendations and files are then sent to the
Appellate Section for further review and recommendation to the Solicitor
General.
When a judgment or order adverse to the United States is entered
which requires the United States to make a tax refund or credit, pay
attorneys' fees or costs or make some other payment, the United States
Attorney should furnish to the Civil Trial Section two certified copies
of each such judgment or order so that payment may be made promptly if
the Solicitor General decides that an appeal will not be prosecuted or
if the United States is unsuccessful on appeal.
Until the Solicitor General decides whether an appeal should be
prosecuted, the United States Attorney is responsible for protecting the
government's interest in the case by filing a timely notice of appeal
and for obtaining any needed extensions for docketing the appeal.
If the Solicitor General decides that an appeal will be
authorized, the Civil Trial Section is responsible for taking such steps
as may be necessary to perfect an appeal under the rules of the
particular court of appeals, and may request the assistance of the
United States Attorney.
If the Solicitor General decides that an appeal will not be
prosecuted, the Tax Division advises the United States Attorney
immediately of this decision. The case is then transferred to the Post
Litigation Unit of the Tax Division for processing and prompt payment of
the judgment, as set forth in USAM
6-7.200.
When applications are filed for attorneys' fees and related
expenses, copies should be forwarded to the appropriate Civil Trial
Section and to District Counsel. The transmittal letter or memorandum to
the Tax Division should indicate that a copy has been furnished to
District Counsel.
| February 1998
| USAM Chapter 6-5
|