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Court Blesses The Appointment of A Receiver To Sell A Taxpayer’s Personal Residence

Posted on Apr. 14, 2023

It is not that often that the IRS will go after a taxpayer’s personal residence to satisfy a tax debt but it does occasionally happen. About a year or so in Principal Residences as Collection Target: TIGTA Criticizes IRS Practice I discussed how TIGTA had identified how the IRS pursued judicial lien foreclosure suits rather than administrative collection tools when it targets a taxpayer’s principal residence to satisfy an assessed liability. As I noted, there are differing procedures and statutory rules with respect to the administrative versus judicial collection path, including that before conducting the administrative seizure of a principal residence the IRS must obtain written approval from a federal district court judge that includes a more formalized consideration of whether the seizure would create a hardship.

In US v Mikulin, a taxpayer filed a motion in objection to the government’s motion to vacate his personal residence and appoint a receiver to sell that residence, arguing in large part that the TIGTA report showed that the IRS violated his rights by pursuing his residence via judicial collection rather than by administrative seizure. Mikulin sought relief from the prior order under Federal Rule of Civil Procedure 60(b), claiming that by pursuing a judicial path to going after his residence the government ignored his age and the hardship that he would experience if the IRS were able to sell his house.

In a brief opinion, a federal district court in Texas noted that the argument was brought too late, but it also addressed using the taxpayer’s attempt to use a TIGTA report in support of an affirmative request for relief. It noted that the “report carries no statutory or legal authority and is merely a report of an audit conducted by the Treasury Inspector General For Tax Administration.” In addition, Mikulin had expressed the view that TIGTA’s report was akin to an admission by the IRS that by pursuing a judicial remedy it acted contrary to his rights, but the opinion emphasized that TIGTA reports, other than the “management responses” within, do not reflect IRS policy.

Moreover, the court noted that even if the report suggested that the government should never foreclose on a personal residence  to satisfy a tax obligation, which it noted that it did not, Mikulin “cites no authority which accords the [TIGTA] report the force of law nor does he provide any evidence demonstrating how it would have changed the judgment obtained by the United States in this case.”

The court eventually granted the government’s request to appoint a receiver to sell the residence, which the government alleged had a value of over $1 million. In the meantime, the case reflects the differing requirements associated with judicial collection of residence, though it is not clear that there would be a different outcome of the government had pursued Mikulin’s house only via an administrative seizure.

It is perhaps worth a reminder that in its report last year TIGTA, echoing a prior TAS recommendation, suggested that IRS should work with Treasury to propose a legislative amendment that would “amend the law (I.R.C. § 7403) so that taxpayers are afforded the same rights and protections whether the IRS is conducting a Federal tax lien foreclosure or a seizure on their property”. The report perhaps one day Congress will assist but as Mikulin shows that is of little solace to someone who faces a judicial collection suit that targets a personal residence.

And, as Keith has reminded me, the issue as to whether a judicial approach penalizes a taxpayer is more nuanced than the opinion and the taxpayer suggest. The failure by the IRS to seek administrative seizures probably benefits taxpayers more than it harms them. For example, the judicial route brings into play the Rodgers factors that applies to selling jointly owned property, which an administrative sale does not. (for a discussion of Rodgers see one of our many posts on the topic, such as this). And the taxpayer has the right to bring up the underlying liability. On the downside is that a suit brings more publicity potentially and the suit also allows the IRS the opportunity to obtain a judgment, which it will almost always (and should always) request if the sale of the property does not fully satisfy the outstanding liability. And an administrative sale might lead to a depressed sales price, because of the uncertainties of the “as is” title that the IRS gives in an administrative sale as well as the depression on the price that the right of redemption offers, a right that arises in administrative but not judicial sales.

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