A.L.E.R.T.
(America Law Education Rights & Taxation)
10-31-2001
The Limited Power
Of Levy
Foreword from Gordon Phillips --
In our last A.L.E.R.T. we shared the story of the overtaxed (sorry) IRS agent in Nevada who went temporarily berserk, using an office chair to bludgeon an educated citizen who simply demanded that the agent produce the law that authorized the filing of a lien. Apparently, a lawful response was beyond the capacity of the Stepford Agent's programming subroutines and he blew a transistor.
Today, courtesy of two pieces produced by members of The Save-A-Patriot Fellowship, we visit what the law actually says with regard to the levy power. For some of you, this may sound as mind numbing as watching paint dry (or Dubya concentrate). But it's not. It's rather exciting! After all, knowledge is always the first step to freedom.
After digestion, please consider taking a few minutes to forward these tidbits to area employers, local bankers, public officials and media outlets.
Remember (paraphrasing Smokey the Bear): 'Only YOU can prevent tyranny.'
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HOW THE IRS ILLEGALLY APPLIES THE LIMITED POWER OF LEVY (SEIZURE)
IRS FRAUDULENTLY MISAPPLIES THE LAW -- Black's Law Dictionary (Fifth Edition) defines the word 'levy' as follows: 'A seizure. The obtaining of money by legal process through seizure and sale of property ... '. The Internal Revenue Service routinely misapplies its statutorily-limited levy authority. The provisions in the Internal Revenue Code are implemented (given the force of law) by related regulations published in the Federal Register by the IRS.
This article explains the limited applications of both the IR code sections and their implementing regulations. These provisions show that use of 'Notice of Levy' form for the collection of income fax by the IRS is a fraudulent act because the levy authority does not extend to income taxes imposed under Subtitle A of Title 26 of the United States Code. Let us start with an examination of the statutory limitations on the power of levy.
The IR Code, Section 6502(b) states:
The date on which a levy on property, or rights to property Is made shall be the date on which the Notice of Seizure provided in Section 6335(a) is given.
Section 6335(a) states:
As soon as practicable after seizure of property, notice in writing shall be given by the Secretary to the owner of the property... '.
These provisions clearly show that there must first be a 'seizure', followed by a 'Notice of Seizure' in order for a 'levy' to be created. However, when the IRS agent mails the 'Notice of Levy' form which contains false statements that a levy has been made, in order to induce the recipient of the notice to voluntarily surrender the individual's money to the IRS, the agent clearly ignores the statutory requirements in the IR Code sections 6502(b) and 6335(a) which show that when no seizure has been made and the required Notice of Seizure has not been sent no levy is created.
Other statutory limitations on the IRS' power of levy are contained in Code section 7608 which authorizes seizures. Under subsection (a) of section 7608, the seizure authority is limited to enforcement of alcohol, tobacco and firearms taxes. The seizure authority for other than alcohol, tobacco and firearms taxes (e.g. gambling machines under subtitle D) is contained in subsection 7608(b) which states:
Section 7608. Authority of Internal Revenue enforcement officers.
(b) Enforcement of laws relating to Internal revenue ~
(1) Any criminal Investigator of the Intelligence Division or of The Internal Security Division of the Internal Revenue Service ... (is) authorized to perform the functions described in paragraph (2):
(2) The functions authorized under this subsection to be performed by an officer referred to in paragraph (1) are -
(C) To make seizures of property subject to forfeiture under the Internal revenue laws.
Note that subsection 7608(b) does not state that it applies to subtitle A income tax. As shown in subsection (b)(1) above, only criminal investigators (special agents, not revenue agents) of the IRS have seizure authority; that seizure authority is limited to 'property subject to forfeiture'.
Such property is limited and defined in code sections 7301(a), (b), (c), (d) and (e) and in sections 7302 and 7303. Section 7301, which defines properties subject to seizure, states that seizures may be made of taxable property upon which tax has not been paid which is held 'for the purpose of being sold or removed', and raw materials, equipment, packages and conveyances used in the manufacture or transport of such taxable property. Property subject to forfeiture does not include monies held by banks, employers, agents, creditors, etc. which are due or owing to any individual.
On the basis of these code sections, a Notice of Levy sent to such parties demanding the turnover of money for income tax is fraudulent because it contains a false statement that a levy has been made when such is not the case because no notice of seizure was sent as required by section 6335(a) in order to create a levy as provided in section 6502(b).
An obvious intentional deception is also practiced by the IRS on the Notice of Levy form which they send to employers, banks or others (such as Social Security) holding monies for the account of the (alleged) 'taxpayer'. On the back of the Notice of Levy form, the IRS prints parts of section 6331 which authorizes levies but completely omits subsection 6331(a) which contains vitally important limitations upon the application of all of the provisions in section 6331.
The omitted sub-section 6331 (a) states:
If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax ... by levy upon all property and rights to property ... belonging to such person or on which there is a lien provided in this chapter for the payment of such tax.
The wording 'liable to pay any tax' in sub-section 6331(a) raises another question of who is liable to pay any Federal tax. The United States Court of Appeals for the second circuit stated in the decision of Botta v. Scanlon, 288 F2d. 504 (1961) 506:
'Moreover, even the collection of taxes should be expected only from persons upon whom a tax liability is imposed by some statute.'
This Court decision clearly shows that the only way anyone can be made liable for any Internal Revenue tax is by means of some law (statute) which imposes liability upon him or her. This fact was emphasized in the decision of Higley v. Commissioner, 69 F2d. 160 where the Court stated:
'Liability for taxation must clearly appear from statute imposing tax.'
Illustrating the Higley v. Commissioner Court quotation above, there are various sections in the IR Code which impose liability for various Federal taxes. Some of these sections are '4401(a), 5005(a), 5703(a) and 1461, which in clear, understandable words make certain 'persons' liable for payment of wagering tax, distilled spirits tax, tobacco tax, and 'income' tax respectively.
The word 'liable' in each of these code sections is used. Section 1461 Is the ONLY section in the IR Code imposing a liability on anyone for payment of an 'income' tax.
Section 1461 states in part as follows:
'Every person required to deduct and withhold any tax under this chapter is hereby made liable for such tax ...'.
A simple reading of this code section shows that the 'person ... made liable' by the statute is the one who is 'required to deduct and withhold ... under this chapter' (Chapter 3). In that chapter the only 'person required to deduct and withhold' is identified in Code section 1441(a) which states in part as follows:
Except as otherwise provided in sub-section (c), all persons, in whatever capacity ... having the control, receipt, custody, disposal, or payment of any of the items of income specified in subsection (b) (to the extent that any of such items constitute gross income from sources within the United States), of any non-resident alien individual, or of any foreign partnership shall deduct and withhold from such items a tax equal to 30% thereof ...'.
So it is easy to see from this statutory wording that these two IR Code sections (1441 and 1461) are tied together in that section 1441 states that those who have control of monies owed to nonresident aliens or foreign partnerships shall deduct and withhold a tax of 30% from money owed to such foreign persons.
Because of the prohibition against involuntary servitude of individuals in the 13th Amendment of the U.S. Constitution, withholding requirements are restricted to 'persons' acting on behalf of government-created entities such as corporations and limited partnerships as defined in section 7343 which limits the definition of the term 'person' subject to criminal penalties as follows:
Section 7343. Definition of term 'person'.
The term 'person' as used in this chapter includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs.
Code section 1461 makes the person required to deduct and withhold (a withholding agent) in section 1441 'liable' for the 30% deduction which is required to be made under section 1441. Otherwise stated, section 1441 identifies the withholding agent and his responsibility to deduct from foreign persons or entities only and Section 1461 makes such withholding agent 'liable' for the 30% deduction required under Section 1441.
Again, however, section 1461 is the ONLY section imposing liability for the payment of an 'income' tax and that section applies only to these required to withhold from 'income' paid to foreigners. Unless one is in the status of 'withholding agent', he cannot be liable for payment of income tax.
In the United States Supreme Court decision in Gould v. Gould. 245 U.S. 151, the Court said:
'In the Interpretation of statutes levying taxes, it is the established rule not to extend these provisions beyond the clear import of the language used or to enlarge their operations so as to embrace matters specifically not pointed out. In case of doubt, they are construed most strongly against the government and in favor of the citizen.'
This clearly means that there can be no implied liability beyond that which is specifically stated in the statute. In the Botta v. Scanlon decision mentioned earlier, the Court also stated:
'However, a reasonable construction of the taxing statutes does not include vesting any tax official with absolute power of assessment against individuals not specified in the statutes as persons liable for the tax without an opportunity for judicial review of this status before the appellation of 'taxpayer' is bestowed upon them and their property seized and sold.'
We note that the one word term 'taxpayer' (not the two words 'tax' and 'payer') is defined in IR Code section 7701 (a)(14) as follows: The term 'taxpayer' means any person subject to any Internal Revenue tax.
This definition shows that the term 'taxpayer' applies only to persons subject to ('liable for') any tax. The United States Appellate Court in the decision in Houston Street Corporation v. Commissioner, 34 F2d. 821 (1936) held that in tax matters the words 'subject to' mean the same as 'liable for' (a tax) when they stated: We see no distinction between the phrases 'liable for such tax' and 'subject to' a tax.
The Botta v. Scanlon court decision, quoted earlier, further stated: It is equally well-settled that the revenue laws apply only to 'taxpayers'.
The Botta Court's use of the one word 'term' 'taxpayer' clearly establishes that the I.R. Code applies only to those made liable for a tax by law. This holding is also supported by statements in the following decision: Long v. Rasmussen, Collector of Internal Revenue, et al, 281 F.236 (1922) which further stated:
'The revenue laws are a code or system in regulation of tax assessment and collection. They relate to taxpayers, end not to non-taxpayers. The latter are without their scone. No procedure is prescribed for non-taxpayers, and no attempt is made to annul any of their rights and remedies in due course of law.'
The fact that the IR code applies only to those who are in the status of 'taxpayer' (those who are made liable for payment of tax by some provisions in the code) is also stated by other Federal Courts in the following decisions: Stuart v. Chinese Chamber of Commerce of Phoenix, 168, F.2d 712 (1948), First National Bank of Emlenton, Pa. v. U.S., 161 F. Supp. 847 (1958) and Economy Plumbing v. U.S., 470 F.2d 589 (1972)
Consultation with attorneys and accountants and careful study of Title 26 of the United States Code makes it clear that the only section in subtitle A of the IR Code relating to income taxes which imposes liability upon anyone for the payment of income taxes is section 1461 of said Internal Revenue Code. Because of this, in respect to income tax, only those required to deduct and withhold tax from foreigners under section 1441 are in the status of 'taxpayer' as that term is used and defined in IR Code section 7701(a)(14) quoted above.
There is a very simple reason why there is no law making individuals in general liable for payment of income tax. Our Federal Constitution prohibits the imposition of any direct tax on citizens of the fifty states of the union under the provisions of Article 1, Section 2, Clause 3 and Article 1, Section 9, Clause 4. The U.S. Supreme Court has repeatedly ruled that these tax prohibitions are still in force and that the 16th Amendment did not nullify or change them.
It is because of these constitutional prohibitions that the income tax sections of the IR Code are correctly written so as not to apply to the general citizenry of the fifty states; therefore, the 1040 form is a voluntarily-filed form on which a non-resident alien individual or his agent may claim exemptions and deductions under the provisions of IR code section 874 from the 30% tax withheld by the withholding agent so that a tax refund may be obtained.
Recently (1997) retired IRS Commissioner Margaret Milner Richardson, being apparently aware of these Constitutional limitations of the taxing authority, stated at the time of her resignation as head of the IRS that she was concerned about the continued bashing of her agency and expressed fears that such criticism 'may undermine Americans' willingness to pay taxes voluntarily. She further stated:
'Ultimately I worry it may have some impact on our self-assessment system.'
Thus ex-Commissioner Richardson expressed her knowledge of the voluntary nature of the personal income tax as respects individuals who are not withholding agents for foreigners.
Also being aware of these Constitutional taxing restrictions, Mr. Dwight Avis, a former head of the Alcohol Tax Division of the Internal Revenue Service stated before a Congressional committee that the income tax was a '100% voluntary tax' in contrast to mandatory alcohol, tobacco and firearms taxes which are imposed under subtitle E of Title 26 of the internal Revenue Code.
Such taxes are enforced under the regulations published by the Internal Revenue Service for Title 27 of the IR Code. These Title 27 regulations apply only to alcohol, tobacco and firearms taxes. Even more proof of the truth of Ms. Richardson's and Mr. Avis' statements that for individuals the income tax is 100% voluntary can be shown by an examination of Supreme Court rulings, the Code of Federal Regulations and other supporting documents.
The Supreme Court stated, in the case of Caha v. U.S.. 152 U.S. 211 (1894):
'Regulations prescribed ... by the head of departments ... may thus have, in a proper sense, the force of law... '.
The Supreme Court in the decision in California Banking Association v. Schultz, et al.. 416 US 21 (1974) referring to the Secretary of the Treasury stated:
'... we think it's important to note that the Act's civil and criminal penalties attach only upon violation of regulations promulgated by the Secretary; if the Secretary were to do nothing, the Act would impose no penalties on anyone.'
So, the Supreme Court said that if there is no regulation enforcing the statute, the statute itself has no authority or force of law. The Supreme Court made very clear, in these two decisions, the necessity for a published regulation to enforce any section of the IR code which requires or authorizes any act or action by anyone - either a 'taxpayer' or the Secretary or his delegate. In conformity with these Supreme Court Rulings, IR code section 7805 states as follows:
Except where such authority Is expressly given by this title to any person other than an officer or employee of the Treasury Department, the Secretary shall prescribe all needful rules and regulations for the enforcement of this title ....
The IRS publishes its own regulations to implement the various Code sections and these are published in the Federal Register as required by law. As shown on page 1, middle column, section 7608(c) clearly limits the seizure authority to 'property subject to forfeiture.'
The CFR Index and Findings Aids Section of the Code of Federal Regulations (revised 1/1/97) lists IR Code sections 7608 and 8331 as being implemented by regulations published in 27 CFR only (alcohol, tobacco and firearms).
Thus the provisions of sections 7608 and 6331 have no enforcement authority for income tax. These provisions apply only to alcohol. tobacco and firearms taxes which are enforced under 27 CFR. Further proof of this fact is also supported by Volume #1 of the five volumes of regulations published by the IRS itself in connection with taxes imposed in Title 26 of the United States Code.
At the very start of this Volume #1 is a table entitled 'Regulation Status Table'. This table uses the word 'none' to indicate that no regulation has been issued or proposed for use in the regulations relating to Title 26 of the United States Code governing income taxes. The word 'none' is listed in this table next to IR Code Section 7608, clearly showing, as stated by the Supreme Court's ruling in California Banking Association v. Schultz. et al, previously mentioned, that there is no enforcement authority for this section as respects income tax.
Please note that the CFR Index Chart shows that the authority for the making of returns, assessments, liens, levies, seizures, and also civil suits is limited to enforcement of alcohol, tobacco and firearms taxes in 27 CFR. It does not apply to income taxes under 26 CFR. Note: The wording of the PARALLEL TABLE OF AUTHORITIES AND RULES which states: Entries in the table are taken directly from the rulemaking authority citation provided by a Federal agency in their regulations.
The IRS itself is the Federal agency which creates and publishes in the Federal Register the tax regulations for the enforcement of the IR Code.
* * *
COURT RULINGS STRIKE AT AUTHORITY TO LEVY
The Internal Revenue Code (Title 26) is the body of law that contains the legal authority for the Secretary of the Treasury to administer provisions pertaining to the collection of income taxes. It is, however, not unusual for the Service to cite the Internal Revenue Manual as their legal authority for various aspects of a collection procedure. At least six Courts have now ruled that the manual is only 'directory' in nature and that it does not convey any such legal authority. This article will demonstrate how devastating such rulings are to the IRS. It will also relate the specific effect that this will have on agency employees who fail to recognize the limited nature of their authority and other provisions pertaining to, for example, liens and levies.
The Levy
It goes without saying that one of the most dreaded forms that any person can receive from the IRS is the Form 668-W. This form is the 'Notice of Levy' that is sent to third parties for the purpose of collecting taxes that are allegedly owed. The legal authority for its use is extremely limited, but since the general public is unaware of the statutory provisions for 'levying' upon the wages, accrued salary, or other property of an individual, the legal impotence of the IRS is unknown to them.
The reason is: when the form was designed, the cite of authority that would reveal its limited application was conveniently omitted; a cite that must, by law, accompany the notice but then again, if the IRS actually cited the authority for the levy on the form, it is doubtful they could coerce people into honoring the levy.
The individual who actually receives the 'Notice of Levy' is of course a third party. But rarely, if ever, does that third party realize the responsibility for correctly determining the validity of the levy is theirs. Nor do they fully realize the importance of making a correct legal determination, since an incorrect determination can lead to a personal liability.
Even worse, it could lead to a criminal charge called 'conversion of property.' The majority of people have little or no understanding of the law and so they are not cognizant of the requisite statutory authority or its limitations.
As far as the 'Notice of Levy' is concerned, most people assume that the responsibility for these determinations rests with the IRS. It naturally follows, in their mind, that the IRS is then legally responsible for that 'determination.' What they fail to consider, is that, since they are in possession of the property, it is they who are ultimately responsible for any determination having to do with its disposition, not the IRS.
The agent who sends a levy is merely acting on the 'presumption' that the authority may be valid. If the agent was knowledgeable, it might be considered unethical, but unless the agent had full knowledge of all of the circumstances and the actual limitation of the authority in question, his or her actions could be considered to be within the law.
It is easy for someone who is cognizant of the limitations to jump to conclusions and assume that such action is illegal. Maybe it is, but did the IRS agent ever suggest that the authority for the levy was valid or applicable? Probably Not! Nor did he or she necessarily suggest that the property of the individual that was under the control of the third party was 'subject to levy.' For that matter, the agent was probably as ignorant of the law as the third party who received the levy! It was not the agent's responsibility to tell the third party that the levy was invalid without the necessary court order, and more than likely, the agent didn't even know that himself. Rather, because the third party is in control of the property, it is their responsibility to know the law and act in accordance with the law, or, if unfamiliar with the law, to seek competent legal advice (assuming any can be found).
The bottom line is, were it not for the many parties involved and the various legal aspects that seem to confuse the average attorney, it would be impossible for the IRS to seize property under the guise of collecting taxes. The question that most people ask is: who is to blame? Is the agent at fault because his or her training was incomplete? Was it their instructor's fault, or was the instructor only doing what he or she was told?
To a large degree the 'misperceptions' we've discussed result from ignorance that has been perpetuated as much by natural processes as by any design, and it has gone on for such a long time that no one is willing to admit that they really can not explain why certain actions and procedural anomalies (for which they may be responsible) seem to conflict with the law.
The best that any IRS employee can hope to do, is pretend that they know what their doing and hope that they can convince everyone else that what they have been doing is proper and lawful. Is the third party to blame? Perhaps, but then, how can anyone expect the average person to understand these limitations when the agents themselves do not understand? The lawyers that are called upon to give legal advice concerning levies have virtually no experience in tax law and end up calling the very agents that were just mentioned because they don't know either.
Ironically, everyone seems to have a sincere desire to obey the law, even many of the agents. They just refuse to believe that what they've been doing for years is outside the law -- surely there must be some other law that would permit them to continue doing things the way they were told! Like the childrens' fairy tale about the emperor who had no clothes, the people involved just can't believe their own eyes. The lower level agents believe their supervisors wouldn't lie to them, and the supervisors believe that what they have been told is correct and on up the ladder it goes.
In the case of the fairy tale emperor, the people just couldn't believe that the emperor was really as naked as their eyes would seem to suggest. After all, there must be some other explanation. Surely he (or in this case the average IRS agent) wasn't that gullible! The real problem is that none of the authorities involved are willing to admit the possibility that they are wrong. That would be dangerously close to admitting that they had been needlessly destroying the lives of their fellow countryman, and the more evidence that surfaces to prove or disprove the various points in contention, the more obsessive the bureaucrats desire to blindly, and without basis, insist otherwise.
The funny thing about a lie, is that, the more a person repeats it, the greater the tendency there is to believe it. For some, the misapplication of the income tax has been a nightmare, not a fairy tale, but it has been perpetuated by what in some cases seem to be well meaning, yes, bureaucrats. Consider former Commissioner Shirley Peterson's recent speech at SMU. She blasted the income tax and said that it must be done away with, echoing none other than former president Jimmy Carter's own words when he said 'the income tax is a disgrace to the human race.'
It was once difficult for us to believe that officials as high as Ms. Peterson were capable of such gross ignorance of the law, but in a recent court ordered interrogatory she stated that 'wages' and 'salaries' were clearly includable in section 61(a)' (gross income). We pointed out to the present commissioner that not only were 'wages' and 'salaries' not mentioned in the text of section 61, which is subtitle A, but that they were by definition, strictly limited to subtitle C. Moreover, a person cannot even have what is legally defined as a 'wage' unless he has applied to participate in the entitlement programs. We added that: knowing she would not deliberately lie to the court, her statements could only result from gross ignorance of the law. That being the case, it may be that even the highest level officials within the IRS may be under the false impression that they are in compliance with the law (as hard as that may be for some to believe).
In the fairy tale, you may recall, it was the innocent admission of a young boy who pointed to the emperor and asked where his clothes were. The boy was unconcerned with any potential fear of reprisal and his candid observation 'exposed' the bare truth for all to see. Of course, everyone already knew that the royal rascal was buck naked because they could see it with their own eyes. They were just unwilling to admit it because they were afraid of what the emperor might do. Everyone was astounded by the youngsters honesty and when everyone began to admit the truth the emperor had no choice but to realize he had been rather foolish.
The binding psychological principle that is at work here is not dissimilar with the authority, the misapplication, and the subsequent 'I'm just doing what I was told' response that is usually received when government employees are confronted with the facts in question. Pride, fear, and confusion do not allow the ego-driven authoritarian (i.e. in this case the professional bureaucrat) to admit that they are wrong. To do so, would be to subject themselves to the embarrassment and ridicule that would deflate the ego-trip that is the driving force behind this type of individual, and to admit to such utter negligence or ignorance is simply unthinkable. But just like in the fairy tale, when everyone was forced to confront the naked truth, the emperor had no recourse but to admit that he had been the fool. So just how naked is the emperor?
The Authority for the Levy
The authority to levy is restricted to and contained within section 6331(a) of the Internal Revenue Code.
'6331. Levy and distraint (a) Authority of Secretary
If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax (and such further sum as shall be sufficient to cover the expenses of the levy) by levy upon all property and rights to property (except such property as is exempt under section 6334) belonging to such person or on which there is a lien provided in this chapter for the payment of such tax. Levy may be made upon the accrued salary or wages of any officer, employee, or elected official, of the United States, the District of Columbia, or any agency or instrumentality of the United States or the District of Columbia, by serving a notice of levy on the employer (as defined in section 3401(d)) of such officer, employee, or elected official. If the Secretary makes a finding that the collection of such tax is in jeopardy, notice and demand for immediate payment of such tax may be made by the Secretary and, upon failure or refusal to pay such tax, collection thereof by levy shall be lawful without regard to the 10-day period provided in this section.'
Section 6331 is the only authority in the entire IR Code that provides for the levy of wages and salaries etc., and the 'limitation' of that authority should be rather obvious since it pertains ONLY to certain officers, employees, and elected officials of the government and of course their employer, the government.
We say 'certain' officers, employees and elected officials because in this particular section the applicable definition of 'United States' restricts the list of government agencies to those operating within the geographical confines of territories such as Guam, American Samoa, etc. There are at least three definitions of 'United States' in the code and it is important to know which definition is in operation with respect to any given section.
Editors note: There are those who suggest that the existence of three or more definitions of 'United States' within the various codes suggests that there is some sort of conspiracy to defraud or oppress the general public. That contention is wholly without merit. While there may be various cafeteria- style socialist agendas in conflict with the Constitution, the law is nevertheless constitutional and appropriate. The distinction must be made between the authority of the federal government in the various territories (remember when Sewell made the Louisiana purchase and there was more territory than states) and the authority of the federal government in the 50 states. The law must make this distinction; it does so by definition; there are no secret laws; nothing is 'hidden'; and no established principles of law are violated. If anything is out-of-sync, it is the thought processes of anyone who would suggest such an idea in the first place. If people are confused by the concept then it is their own fault for lack of education, and they certainly can't blame that on anyone but themselves.
In this case, the ONLY government 'employer' under such an obligation and legally bound to honor the levy would be a federal agency outside of the 50 states. We make the distinction because there are many federal officers, employees, and elected officials working for government agencies within the 50 states who might otherwise think that the law provides for a levy from their own agency. They are concerned because they are employed within the 50 states, but no other 'third party' is identified by this section, and thus, no other third party may be served with such notice.
The technical aficionado who might question this should note that this section identifies the subject of a levy by specifying the 'employer as defined in 3401'. Section 3401 is in subtitle C (social security) and the 'employer' referred to is of course an entity that is defined for the purpose of administering subtitle C provisions. An 'employer' is NOT the 'taxpayer' under subtitle A. Rather, he, she or it is an entity that is defined for the purpose of administering the provisions of subtitle C only, and who, by the definition contained within section 3401, employs other participants (defined as employees) within the geographic confines of the insular island possessions or territories of the United States.
Thus, the 'employer' for purpose of this section is a territorial government agency. Since this geographic area is outside the borders of the 50 states, the law makers were not, (when they wrote the law) and still are not, under any constitutional prohibition regarding direct or indirect taxation, or any restriction pertaining to the rules of apportionment and uniformity.
As far as the average person is concerned, it is completely inapplicable to those who have not voluntarily applied to obtain a benefit in the entitlement programs or who have revoked their application to participate based on the fact that their signatures were obtained via a constructively fraudulent process wherein they were lead to believe that participation was required.
We continue to explain to members with social security numbers that an application to participate in a program that is administered according to a body of law that need not be restricted by constitutional limitation subjects the applicant to a wide variety of requirements that would otherwise not apply. Those who participate are NOT under the protection of the Constitution with regard to any legal requirements that would pertain to mandatory participants in the territories.
In any case, regardless of whether they applied for benefits or not, the authority for the levy is still limited to those 'employers' who are, as just explained, government agencies employing participants in the territories. Does the IRS contain itself within the limitations of this authority? Not very often!
Moral Responsibility vs. Legal Obligation
It could be said that the IRS has a moral responsibility to do so, however, in reality, there is a difference between a moral responsibility, and a legal obligation. Therefore, such ethical questions may be reduced to the actual 'intent' or the 'frame of mind' of any given agent who mistakenly exercises such authority. Certainly, the IRS agent has a moral responsibility to refrain from misusing authority, but if he or she is unaware of the limitations of that authority, then technically, the actual legal obligation to make a correct determination and accept that authority (if appropriate) or not accept that authority (if inappropriate) remains that of the third party.
It is equally important to understand that despite this ethical 'loop hole' which would seem to exonerate and provide an escape for an agent errantly exercising a 'presumed' authority, there are other provisions that do hold him responsible for its administration. Specifically, these provisions deal with what are called delegation orders because no agent may administer a provision of law without a proper order delegating such authority.
The Delegation Order
The authority to 'administer' the provisions of section 6331, regardless of its applicability, is further restricted by national and local delegation orders designed to ensure agency compliance with the limited application of the law. As with all authority under the IR Code, it is the Secretary who must administer the provisions for the levy or delegate the authority if and when appropriate. The delegation orders that do exist for liens and levies are remarkably limited.
As an example, the delegation orders (DO) for the Baltimore offices pertaining to the lien and levy process do not actually contain the authority to levy (i.e. section 6331 (a)) that we have been examining. Interestingly, the back of the levy form itself also shows a similar peculiarity. On the 668-W levy form the authority listed includes 6331(b) through 6331(e) but omits the elusive 6331(a) which is the actual authority for a levy and the section upon which the others rely and refer to. Why is it not cited on the form?
In the delegation order, the remainder of the cite references the Internal Revenue Manual which is of course only 'directive' in nature. Since it is not the law, it cannot possibly convey actual legal authority. It can only clarify, for the benefit of agents seeking to identify such authority, what that authority is, or how it is limited, and whether they would be acting within their authority when administering its provisions.
A search of each delegation order nationwide reveals that section 6331(a) has indeed been omitted from each and every one, but then again, if the authority for the levy pertains only to government agencies within the territories (which is what it actually says), then it should certainly come as no surprise that delegation orders pertaining to service centers and district offices within the 50 states cannot authorize such a levy. If an agent is puzzled by this, his only other source for clarification is the Internal Revenue Manual.
The Internal Revenue Manual
As long as there is some illusion of authority, it is easy for an IRS agent to justify (in his or her own mind) that certain actions are within the scope of their authority, and as mentioned previously, the delegation orders do list another 'authority,' specifically the IR Manual. But now that research has revealed that at least 6 courts have ruled that the manual does not have the force of law, these agents are going to have to swallow one more wake-up pill.
The courts have correctly ruled that the provisions of the Internal Revenue Manual are only directory in nature and not mandatory. See Lurhing v. Glotzbach, 304 F.2d 360 (4th Cir. 11962); Einhorn v. DeWitt, 618 F.2d 347 (5th Cir. 1980); and United States v. Goldstein, 342 F. Supp. 661 (E.D.N.Y. 1972). Courts have also held that the provisions of the Internal Revenue Manual are not mandatory and lack the force of law. Boulez v. C.I.R. 810 F.2d 209 (D.C. Cir. 1987); United States v. Will, 671 F.2d 963, 967, (6th Cir. 1982).
These decisions are of course absolutely correct. The fact is, the manual may not be relied upon as the legal authority for any part of a collection action. The only problem is, that leaves section 6331(a), as the sole authority for a levy, and as we've just seen, this section is rather severely limited. So it would seem that the awesome non-judicial collection powers of the IRS are not as awesome as some IRS officials would like the public to believe. Or is it just another case of the emperor deluding himself. Either way, it doesn't end there! The Notice and Demand is another nail in the coffin.
The Notice and Demand
The 'nonjudicial' collection authority is wholly dependent upon a statute (section 6321) which provides for a lien to automatically arise when a taxpayer fails to make payment of a tax that is demanded via a 'Notice and Demand' under section 6303. If such 'demand' is not, or cannot be made, then a lien cannot automatically arise and subsequent collection activity cannot occur. All of the available case law confirms this.
In Linwood Blackston et al., v. United States of America, 778 F.Supp 244 (D. Md. 1991) the Court held that: The general rule is that no tax lien arises until the IRS makes a demand for payment. Myrick v. United States [62-1 USTC 9112], 296 F 2d 312 (5th Cir. 1961). Without a valid notice and demand, there can be no tax lien; without a tax lien, the IRS cannot levy against the taxpayer's property. . . . this Court concludes, consistent with the views expressed in Berman, Marvel, and Chila that the appropriate 'sanction' against the I.R.S. for its failure to comply with the 6303(a) notice and demand requirement is to take away its awesome nonjudicial collection powers. (emphasis added)
Internal Revenue Code section 6303 is the law that requires a 'Notice and Demand' to be issued, however, the IRS does not issue such notices for reasons which are beyond the scope of this article.
'IRC 6303.
Notice and demand for tax (a) General Rule.-- ...the Secretary shall... give notice to each person liable for unpaid tax, stating the amount and demanding payment thereof.'
As evident from the Court case just mentioned, it would be, and is, impossible for the IRS to move forward with the legal action that is required by section 7403 if they have not issued a 'Notice and Demand.'
The 'Notice of Levy' that is given to a third party, in most if not all cases, falsely states that a 'Notice and Demand' has been issued, but if the IRS errs by failing to issue the required 'Notice and Demand' pursuant to IRC 6303, then they can not possibly obtain the necessary legal sanction through a court of law to enforce the levy. Why? Because in order to obtain the sanction of the court they would need to produce a copy of the 'Notice and Demand' that was referenced on the levy form, and they can't do that if it doesn't exist.
If the IRS is unable to send the 'Notice and Demand' then it naturally follows that it would be impossible to obtain the necessary court order. Throughout this explanation it is important to keep in mind that no single IRS official is necessarily guilty of fraud. It is more accurate to say that the process itself is constructively fraudulent. In other words it is not necessarily intentional. Whether it was designed with that in mind is not for us to say.
It is sufficient to explain that there are many IRS employees involved and that the employee responsible for any given part of the 'presumed correctness' of any given action, rarely, if ever, has any communication with any of the other employees who then act on those 'presumptions.' Those who have worked in a typical busy office environment, know that the responsibility for getting things done often falls to a low level employee who is trying to do the work of 10 people. The shortcuts they teach their fellow workers are not necessarily in the best interest of their employer but since they are unfamiliar with the details of their companies inner workings, the reason that it is a detriment is beyond their understanding.
Of course, if there is no economic detriment to their actions, the likelihood that their ingenious 'procedure' will be corrected by a superior. When new employees are hired, they learn the same defective way of doing things. The government is more prone to this situation than any business in the private sector because its employees are generally less productive. In the situation we are examining, the law is written to protect people from these inadvertent 'shortcuts' made by lower level employees, and that is why a court order is necessary to affect levy.
Court Order Necessary
Page 57(16) of the Internal Revenue Manual entitled 'Legal Reference Guide for Revenue Officers' confirms (in the upper right hand corner of the page) that a court order (warrant of distraint) is necessary. We say 'confirms' because the manual is merely referring to established principles of law, it is not in and of itself the law that requires it. Moreover, the IR Manual shows that the IRS even agrees with those established principles and encourages their agents to abide by those principles by citing the authority of United States v. O' Dell which says that a proper levy against amounts held as due and owing by employers, banks, stockbrokers, etc., must issue from a warrant of distraint (court order) and not by mere notice.
The O' Dell Court specifically stated that: 'The method of accomplishing a levy ... is the issuing of warrants of distraint ...' and that the Internal Revenue Service must also serve '...with the notice of levy, [a] copy of the warrants of distraint and [the] notice of lien.' The court emphasized that the '...Levy is not effected by mere notice.' Agents who bother to read the manual know that the 'warrant of distraint' mentioned above is the Court Order which is required pursuant to IRC 7403.
'IRC 7403. Action to enforce lien or to subject property to payment of tax
(c) Adjudication and decree
The court shall, after the parties have been duly notified of the action, proceed to adjudicate all matters involved therein and finally determine the merits of all claims to and liens upon the property.'
In a more recent decision involving the tax indebtedness of Stephens Equipment Co., Inc., debtor,' 54 BR, 626 (D.C. 1985), the court said: The role of the district court in issuing an order for the seizure of property in satisfaction of tax indebtedness is substantially similar to the court's role in issuing a criminal search warrant. In either case, there must be a sufficient showing of probable cause. More importantly, the court held that in order to substantiate such an order, the IRS must present the court with certain validation.
The court stated that '...to effect a levy on the taxpayer's property [an order] must contain specific facts providing the following information:
1. An assessment of tax has been made against the taxpayer, including the date on which the assessment was made, the amount of the assessment, and the taxable period for which the assessment was made;
2. Notice and demand have been properly made, including the date of such notice and demand and the manner in which notice was given and demand made;
3. The taxpayer has neglected or refused to pay said assessment within ten days after notice and demand;...
4. Property, subject to seizure and particularly described presently exists at the premises sought to be searched and that said property either belongs to the taxpayer or is property upon which a lien exists for the payment of the taxes; and
5. Facts establishing that probable cause exists to believe that the taxpayer is liable for the tax assessed....
Is it any wonder that the IRS cannot seek a court order? Nevertheless, the 'Court Order' is a statutory requirement for the levy procedure because it establishes the validity of the IRS's claim to the third party to whom the levy is presented. Proper procedures assure the third party that the lien and subsequent levy have been executed in a lawful manner.
The 'Court Order' also protects the third party from a liability which may arise under C.F.R. 26 (Code of Federal Regulations) 301.6332-1(c) which states in part: '...Any person who mistakenly surrenders to the United States property or rights to property not properly subject to levy is not relieved from liability to a third party who owns the property...'
And, the court order prevents some agent from taking a 'shortcut' as previously discussed. These details were brought to the attention of a corporation who had received a notice of levy on one its employees by the Fellowship's National Worker's Rights Committee (NWRC).
The NWRC not only wrote to the employer, but in a telephone conversation, one of our paralegals explained the limited nature of the authority of section 6331(a). The president of the corporation was amazed and wrote to the IRS agent who had issued the levy to inform him that they were not a federal 'employer' as mentioned within that section and that they could not honor a levy without proper authority.
The agent began to harass the president of the corporation by paying a visit to each of his neighbors but the president would not budge. Instead, the president of the corporation informed the agent that if he did not stop harassing him, he would sue the agent, whereupon, the agent backed off. It is amazing what happens when people insist that the IRS obey the law, but what is more amazing is that more and more people are doing this each and every day and the political pressure is now becoming impossible for the IRS to ignore.
According to former Commissioner Shirley Peterson in a speech before the National Association of Enrolled Agents in Nevada, on August 26, 1993, as of this year 1 in 5 people have now stopped filing and the situation is out of control. We would say just the opposite it is finally becoming controllable because the public seems to have developed the will to know the law and confine the IRS within the law.
SUMMARY
In this article we have reviewed the nature of, confusion surrounding, and authority for the levy. We have examined it in light of its application, the pertinent delegation orders, the missing notice and demand that is the cornerstone of the process leading up to the lien/levy procedure, and we have shown why the IRS may not obtain the necessary court order without it. And finally, we have given an example of what happens when a third party becomes knowledgeable enough to insist that the IRS obey the law.
If we have been incorrect by assuming that high ranking IRS officials know they are in violation of the law then perhaps former Commissioner Shirley Peterson summed it up best in her speech at Southern Methodist University when she quoted former President Warren G. Harding who said:
'I can't make a damn thing out of this tax problem. I listen to one side and they seem right, and then... I listen to the other side and they seem right... I know somewhere there is a book that will give me the truth, but I couldn't read the book. I know somewhere there is an economist who knows the truth, but I don't know where to find him and haven't the sense to know him and trust him when I find him... What a job!' (Warren G. Harding conversation, 1922; reported in Joseph R. Conlin's, The Morrow Book of Quotations in American History and quoted in David F. Bradford's, Untangling the Income Tax).
Officials like former Commissioner Peterson may feel the same way, however, regardless of whether Ms. Peterson is correct or incorrect, she is at least far sighted enough to see what will happen in the next few years if the government does not do something. If they can't or won't reign in the ropes on IRS employees who refuse to obey the letter of the law, then perhaps doing away with the law is the only answer.
Public sentiment against the income tax, those who administer its provisions, and government in general (for not addressing the problem) has become so overwhelming that even the highest ranking officials within the IRS are looking for a way to get off the sinking ship. They know the situation is out of control. Ms. Peterson's speech is just one of many that will echo the same sentiments.
No man's conscience would allow such a thing to continue. The limitation pertaining to the authority to levy that was examined in this article is just one minor puzzle that they can't explain per their own errant understanding of the law, and it is one more chink in the armor of those who would ignorantly or intentionally misapply the law.
The only alternative is for the IRS to bow out gracefully and support plans for an alternative system of taxation, and in case you haven't heard, that is exactly what they are doing.