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
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
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
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
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
(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
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 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 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],
296 F 2d 312 (5th Cir. 1961).
The 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
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 is slim.
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
off 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 7403.20.
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:
- 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;
- 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;
- The taxpayer has neglected or refused to pay said assessment within
ten days after notice and demand; ...
- 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
- 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 [i.e., the
bank manager] 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.
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
"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,
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.