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Corporation LeviesIt is the present position of the IRS and
Treasury, that a levy cannot be halted on a corporation even if the levy
is causing a “hardship” to the business, as defined in §6343(a)(1)(C)
of the Code[1].
Section 6343 of the Code provides in part: 6343(a)(1) IN GENERAL. --Under
regulations prescribed by the Secretary, the Secretary shall release
the levy upon all, or part of, the property or rights to property
levied upon and shall promptly notify the person upon whom such levy was
made (if any) that such levy has been released if – * * *
* * 6343(a)(1)(D) the
Secretary has determined that such levy is creating an economic
hardship due to the financial condition of the taxpayer *
* * *. The mandatory levy release statute does not
distinguish between businesses and individuals. It is the position
of the IRS that a tax levy must be released if it creates a financial
“economic hardship” for an individual but not for a business.
It is the tax policy of the IRS and Treasury that a business cannot
suffer a hardship within the meaning of §6343(a)(1)(D). Section 301.6343-1(b)(4) states: (4) Economic hardship (i) General rule. --The levy
is creating an economic hardship due to the financial condition
of an individual taxpayer. This condition applies if satisfaction of the
levy in whole or in part will cause an individual taxpayer to be unable
to pay his or her reasonable basic living expenses[2].
The determination of a reasonable amount for basic living expenses will
be made by the director and will vary according to the unique
circumstances of the individual taxpayer. The regulations do not address corporations.
They only address individuals. However, there is an expedited
procedure under §301.6343(d) of the regulations that include, in part,
a definition of essential business property defined, as
follows: (2) Essential business property defined.
--For purposes of this section, essential
business property means tangible personal property used in carrying
on the trade or business of the taxpayer which when levied upon prevents
the taxpayer from continuing to carry on the trade or business. The following observations are made from the
statement of the law dealing with the mandatory release of a lien under
§6343 of the Code and its underlying regulations: 1. The statute provides a mandatory
release of a tax levy for “economic hardship” without distinguishing
between and individual and a corporation. There is no statutory
mandate to deny corporations the hardship relief rules of §6343(a)(1)(D). 2. The regulations that define “economic
hardship” for individuals are conditioned by the term General
rule. The term “general rule” means that other rules
can apply and suggest that other rules will be forthcoming. 3. The regulations take into account that
special consideration should be given to essential business
property needed to carry on a trade or business so that the
trade or business can be continued. The tax policy is to recognize
"essential business property" necessary for ongoing business.
This concept is identical to "economic hardship" for
corporations. Corporations conduct businesses as do
individuals. No distinction is made between individual and
corporate businesses. 4. Congress treats corporations equal to
individuals under the §7122 Offer in Compromise statute. The tax
policy stated by the Congress is to make all taxpayers economically
viable so that they can continue to work and run a business and become
compliant taxpayers. Section 7122 is an economic-hardship-relief
sttatute for individuals and corporations. The purpose of §7122
is to resolve an “economic hardship” to a corporation unable to pay
a tax liability that it could never afford to discharge. 5. Congress allows a corporation the right
to enter into an Installment Agreement when full payment cannot be made. 6. Congress allows a corporation to appeal
a tax lien under §6320 and appeal a levy under §6330§[3].
These statutes permit a corporation the right to provide alternatives to
collection in a Collection Due Process hearing. The purpose of
these rules is to prevent an economic hardship. 7. Congress cannot be deemed to condone a levy
of a corporation’s accounts receivable, bank accounts and other business
property that prevents the taxpayer from continuing to
carry on the trade or business. No business can survive if
the IRS is able to file a continuous levy against all of the
corporation’s accounts receivable. The economic policies of the
Congress do not encourage failures of corporate businesses attributable
to a levy of accounts receivable (gross income). Congress cannot
be deemed to favor a garnishment of a corporate bank account with money
in that account to pay for its current tax liability, payroll, and other
operating and administrative expenses. A levy of corporate
accounts receivable, bank accounts and other essential business property
is a fast track to a forced closure of a business[4].
There is no Congressional tax policy to either force corporations to
close their businesses or give preferential hardship rules to
individuals and not to corporations. 8. The position of Treasury is
economically counter-productive. A closed business cannot generate
tax revenue for Treasury. A closed business will add employees to
unemployment rolls. Treasury loses revenue when a viable corporation is
put out of businesses with a continuous levy on money essential to
running a business. The position of Treasury does not distinguish
between a viable business that has profit potential and one without
profit potential. A substantial amount of revenue is lost to
the Treasury when a viable business is closed solely due to a tax policy
that will not recognize “economic hardship” to a corporation. It is unreasonable for the IRS to find a bias
against corporation by excluding corporations from mandatory levy relief
in circumstances where a levy can cause a corporation to fail and go out
of business. The present position of the IRS and Treasury concluding
that a corporation cannot have a hardship is absurd and
perverse. If Congress wanted to treat corporations unequal to
individuals in §6343, it could and would put that bias into the
statute. Reversal of the Treasury position on corporate levies
will likely add substantial tax revernues to Treasury as the viable
corporations go on to generate income, pay taxes, and offer employment
opportunities. [1] This Article is being presented by Alvin S. Brown, Alvin Brown & Associates, LLC. I have personal knowledge of this tax policy during an appeal of a continuous levy that resulted in discussions with the National Taxpayer Advocate and a representative from Treasury. [2]
Section 301.6341-4 states that in determining a reasonable
amount for basic living expenses, the IRS will
consider: the taxpayer's age, employment status and history, ability
to earn, number of dependents, and status as a dependent of someone
else; the amount reasonably necessary for food, clothing, housing
(including utilities, home-owner insurance, home-owner dues, and the
like), medical expenses (including health insurance),
transportation, current tax payments (including federal, state, and
local), alimony, child support, or other court-ordered payments, and
expenses necessary to the taxpayer's production of income (such as
dues for a trade union or professional organization, or child care
payments which allow the taxpayer to be gainfully employed); The
cost of living in the geographic area in which the taxpayer resides;
the amount of property exempt from levy which is available to pay
the taxpayer's expenses; any extraordinary circumstances such as
special education expenses, a medical catastrophe, or natural
disaster; and any other factor that the taxpayer claims bears on
economic hardship [3] Sections 6320 and 6330 grant the right to appeal to a “person.” A “person” is defined in §7701(a)(3) as a citizen, partnership or a corporation. [4] In the matter noted in footnote #1, the corporation was a Subchapter S corporation with one owner. The levy was a continuous levy on an account receivable, the only source of income for the business. As a consequence of the levy, there was no income for any employee including the owner of the corporation. The owner had no income for necessary living expenses. Therefore, the owner had no choice but to terminate the business. We have witnessed the closure of other corporations from a levy on business revenue and assets. |
