Liens--Final Regulations Under Section 6326

 [4830-01]

 ACTION: Final regulations

 SUMMARY: This document contains final regulations that provide for the administrative appeal of the erroneous filing of a notice of federal tax lien. The right to an administrative appeal of the erroneous filing of a notice of federal tax lien was established by the Technical and Miscellaneous Revenue Act of 1988. The regulations set forth the situations in which persons may appeal the erroneous filing of a notice of federal tax lien, the office to which appeals may be made, and the information and documents that must be submitted with an appeal.

 EFFECTIVE DATE: The regulations providing the right to an administrative appeal of the erroneous filing of a notice of federal tax lien are effective July 7, 1989.

 FOR FURTHER INFORMATION CONTACT: Kevin B. Connelly, 202-535-9682 (not a toll-free call).

SUPPLEMENTARY INFORMATION:

BACKGROUND

This document contains final regulations amending the Procedure and Administration Regulations (26 CFR part 301) under section 6326 of the Internal Revenue Code. The regulations reflect the amendment of section 6326 by section 6238 of the Technical and Miscellaneous Revenue Act of 1988 (Pub. L. No. 100-647).

EXPLANATION OF PROVISIONS

 The Internal Revenue Service published a temporary regulation and a notice of proposed rulemaking by cross-reference to the temporary regulation in the Federal Register on May 8, 1989 [54 FR 19568, 19578]. The Internal Revenue Service gave the Small Business Administration the opportunity to comment prior to publication of the regulation.

 Numerous parties submitted written comments concerning the regulation. Each of the issues raised in the public comments either had been considered prior to the publication of the temporary regulation, or falls outside the scope of the regulation. Several of the comments received by the Internal Revenue Service are discussed below. No changes have been made in the final regulation.

 Section 6238 of the Technical and Miscellaneous Revenue Act of 1988 (Pub. L. No. 100-647, 102 Stat. 3342) redesignated section 6326 of the Internal Revenue Code as section 6327 and added a new section 6326. Section 6326(a) provides that the Secretary shall prescribe regulations that provide for the administrative appeal of the erroneous filing of a notice of federal tax lien. Section 6326(b) provides that if the Secretary determines that the Internal Revenue Service has erroneously filed a notice of federal tax lien, the Secretary must expeditiously, and, to the extent practicable, within 14 days after such determination, issue a certificate of release of the lien. This certificate must include a statement that the filing was erroneous.

 The regulations provide that a person may file an administrative appeal of the erroneous filing of a notice of federal tax lien in any of the following situations: (1) the tax liability that gave rise to the lien was satisfied in full prior to the filing of notice; (2) the underlying liability was assessed in violation of the deficiency procedures set forth in section 6213 of the Internal Revenue Code; (3) the underlying liability was assessed in violation of Title 11, i.e., the Bankruptcy Code; or (4) the statute of limitations for collection expired prior to the filing of notice.

 The legislative history of section 6326 indicates that the administrative appeal is intended to be used only for the purpose of correcting publicly the erroneous filing of a notice of federal tax lien, not to challenge the underlying deficiency that led to the filing of a lien. In addition to the three situations specifically enumerated in the legislative history, to which section 6326 is meant to apply, the Internal Revenue Service considers it in keeping with the spirit of the Taxpayer Bill of Rights also to allow an appeal when the statute of limitations on collection expired prior to the filing of notice of federal tax lien. This additional situation also involves an erroneous filing of a notice of federal tax lien.

 Some situations that commenters suggested should be covered by section 6326 already are covered under other sections of the Internal Revenue Code. For example, several parties who submitted comments suggested that the filing of a federal tax lien against a person with the same or a similar name as the liable taxpayer is erroneous and should be covered by section 6326 and these regulations. As discussed in the preamble to the temporary regulations, however, this situation is covered by section 6325(e) of the Internal Revenue Code, which gives the Secretary the authority to issue a certificate of nonattachment of lien if, because of confusion of names or otherwise, any person (other than the person against whom the tax was assessed) is or may be injured by the appearance that a notice of lien filed under section 6323 of the Code refers to such person. Section 6325(e) is available to a nonliable spouse who has been named on a notice of federal tax lien filed against a liable spouse as well as to same or similar name situations.

 Several of the comments received by the Internal Revenue Service involved substantive challenges to the lien, which Congress did not intend to include under section 6326. For example, two parties suggested that the final regulations should provide the right to appeal the filing of nominee liens. However, whether or not a nominee lien is properly filed depends upon who actually owns the property in question, the liable taxpayer or the nominee. This is a substantive issue. Another party suggested that the regulation should allow appeals by taxpayers who are in the process of questioning their liability for a 100 percent penalty under section 6672 of the Internal Revenue Code. This too is a substantive issue.

 The regulations provide that appeals under section 6326 shall be made to the district director, attention Chief, Special Procedures Function, of the district in which the lien was filed.

 Several parties questioned the decision to give the Special Procedures function jurisdiction over administrative appeals of erroneous filings of federal tax liens. One party suggested that jurisdiction should lie with the Office of Appeals. Another party suggested that jurisdiction should lie either with the Office of Appeals or with Chief Counsel. During the formulation of the temporary regulations it was determined that Special Procedures should be given jurisdiction because Special Procedures: (1) is intimately familiar with the issues that are appealable under section 6326; (2) is in close proximity to the information on which decisions will be based under section 6326; and (3) is currently handling very similar appeals under section 401.6325-1 of the Code of Federal Regulations.

 Other parties further suggested that the regulation should provide for a hearing and a written decision. During the formulation of the temporary regulations, it was determined that the appealable issues under this statute are straightforward and relatively simple, thus obviating the need for a hearing. A provision requiring a formal hearing and a formal written opinion would needlessly delay the appeal process.

 The regulations provide that a request for appeal under section 6326 is to be submitted in writing, and is to include the identity of the appealing party, a copy of the notice of lien affecting the property, if available, and the ground upon which the release of lien is sought. If the ground for release is that the liability was paid prior to the filing, the written request must include proof of full payment. If the ground upon which the filing of notice is being appealed is that the tax liability that gave rise to the lien was assessed in violation of the deficiency procedures set forth in section 6213 of the Internal Revenue Code, the appealing party must explain how the assessment was erroneous. If the ground for appeal is that the tax liability that gave rise to the lien was assessed in violation of Title 11, the appealing party must identify the court and the district in which the bankruptcy petition was filed and provide the docket number and the date of filing of the bankruptcy petition.

 Finally, the regulations provide that the appeal provided by section 6326 and these regulations shall be a person's exclusive administrative remedy for the erroneous filing of a notice of federal tax lien.

SPECIAL ANALYSIS

 It has been determined that these rules are not major rules as defined in Executive Order 12291. Therefore, a Regulatory Impact Analysis is not required. It also has been determined that section 553(b) of the Administrative Procedures Act (5 U.S.C. Chapter 5) and the Regulatory Flexibility Act (5 U.S.C. Chapter 6) do not apply to these regulations, and, therefore, an initial Regulatory Flexibility Analysis is not required.

DRAFTING INFORMATION

 The principal author of these regulations is Kevin B. Connelly of the General Litigation Division, Office of Chief Counsel, Internal Revenue Service. However, personnel from other offices of the Internal Revenue Service and the Treasury Department participated in their development.

LIST OF SUBJECTS

26 CFR Part 301

 Administrative practice and procedure, Alimony, Bankruptcy, Child support, Continental shelf, Courts, Crime, Employment taxes, Estate taxes, Excise taxes, Gift tax, Income taxes, Investigations, Law enforcement, Oil pollution, Penalties, Pensions, Reporting and recordkeeping requirements, Statistics, Taxes.

ADOPTION OF AMENDMENTS TO THE REGULATIONS

Accordingly, title 26, part 301 of the Code of Federal Regulations is amended as follows.

Paragraph 1. The authority citation for part 301 continues to read as follows:

Authority: 26 U.S.C. 7805 *** Section 301.6326-1 is issued under 26 U.S.C. 6326.

Para. 2. Section 301.6326-1T is redesignated as section 301.6326-1, and the word "(temporary)" is removed from the section heading