|Liens and Levies|
IRS Liens and Levies
Many of us are only too familiar with the story of a friend or family member who went to an ATM machine to take out some cash only to discover that their balance had somehow dropped to "$0.00". The IRS, without warning, had emptied their bank account. Others may have had their weekly paycheck "attached" by the IRS. Such individuals, in describing their intense feelings of anger and frustration over the apparent outright theft of their personal property, speak of having been "robbed," yet seemingly have no legal recourse.
In fact, there is recourse under the law for those Americans willing to pursue their legal rights to their property - namely, their money, the heard-earned fruits of their labor. 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. The following article which appeared in a recent issue of "Reasonable Action", the membership newsletter of the Save-A-Patriot Fellowship, 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.
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 [i.e., a bank manager]. But rarely, if ever, does that third party realize the responsibility for correctly determining that 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 they're 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 children's' 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 Southern Methodist University. 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 youngster's 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.
IRC 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. [Emphasis Added]
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.
MORAL RESPONSIBILITY VS. LEGAL OBLIGATION
It could be said that the IRS has a moral responsibility, however,in reality, there is a difference between a moral responsibility, and a legal obligation. Therefore, 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. 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 theelusive 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 mention 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 Code" are only "directory in nature" and NOT mandatory. [See Lurhing v. Glotzbach, 304 F.2d 360 (4th Cir. 1962); 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. [See 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 nonjudicial 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 Blackstone 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.
"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 IRS for its failure to comply with the 6303(a) notice and demand requirement is to take away its awesome non-judicial collection powers."
Myrick v. United States, [62-1 USTC 9112],
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