Judicial/Nonjudicial Foreclosures

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Internal Revenue Code 6321
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Certificate of Discharge from Tax Lien
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Lien Notice Requirements and Appeals
Tax Lien Certificate
6325 Regulations
Action to quiet title
Burden of Proof
Collateral Estoppel
Discharge of Bankruptcy
Effect of Partial Abatement
Certificate of release of tax lien
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Claim for Damages
Choate Requirement - State Law
Suit to Cancel Lien
Certificate of Subordination
Effect of Discharge
7425 Statute
7425 Regulations
Judicial Sales
Non-judicial Sales
Notice of Sale
Notice Requirement
Period of Redemption p1
Period of Redemption p2
Redemption Payment
Release of Right of Redemption
Scope of Redemption
After Foreclosure Result
Foreclosure Sales
6320-Applicability of Statute
6321 - After Aquired Property p1
6321 - After Aquired Property p2
6321 - After Aquired Property p3
6321 - After Aquired Property p4
6321 - Applicability of Statute
6321 - Collection Due Process Hearings
6321 - Annuities
6321 - Bank Deposits p1
6321 - Bank Deposits p2
6321 - Bankruptcy p1
6321 - Bankruptcy p2
6321 - Bankruptcy p3
6321 - Bankruptcy p4
6321 - Bankruptcy p5
6321 - Bankruptcy p6
6321 - Conveyances to Related Parties p1
6321 - Conveyances to Related Parties p2
6321 - Conveyances to Related Parties p3
6321 - Conveyances to 3rd Parties p1
6321 - Conveyances to 3rd Parties p2
6321 - Conveyances to 3rd Parties p3
6321 - Conveyances to 3rd Parties p4
6321 - Community Property p1
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6321 - Community Property p3
6321 - Employee Pension Plans
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6321 - Creation of Lien p3
6321 - Creation of Lien p4
6321 - Creation of Lien p5
6321 - Debts Owed to the Taxpayer p1
6321 - Debts Owed to the Taxpayer p2
6321 - Debts Owed to the Taxpayer p3
6321 - Debts Owed to the Taxpayer p4
6321 - Debts Owed to the Taxpayer p5
6321 - Debts Owed to the Taxpayer p6
6321 - Escrow Accounts
6321 - Foreign Property
6321 - Forfeited Property
6321 - Fraudulent Conveyances Part1 p1
6321 - Fraudulent Conveyances Part1 p2
6321 - Fraudulent Conveyances Part1 p3
6321 - Fraudulent Conveyances Part1 p4
6321 - Fraudulent Conveyances Part1 p5
6321 - Fraudulent Conveyances Part1 p6
6321 - Fraudulent Conveyances Part1 p7
6321 - Fraudulent Conveyances Part1 p8
6321 - Fraudulent Conveyances Part1 p9
6321 - Fraudulent Conveyances Part1 p10
6321 - Fraudulent Conveyances Part1 p11
6321 - Fraudulent Conveyances Part1 p12
6321 - Fraudulent Conveyances Part2 p1
6321 - Fraudulent Conveyances Part2 p2
6321 - Fraudulent Conveyances Part2 p3
6321 - Fraudulent Conveyances Part2 p4
6321 - Fraudulent Conveyances Part2 p5
6321 - Fraudulent Conveyances Part2 p6
6321 - Fraudulent Conveyances Part3 p1
6321 - Fraudulent Conveyances Part3 p2
6321 - Fraudulent Conveyances Part3 p3
6321 - Fraudulent Conveyances Part3 p4
6321 - Fraudulent Conveyances Part3 p5
6321 - Fraudulent Conveyances Part3 p6
6321 - Funds on Deposit p1
6321 - Funds on Deposit p2
6321 - Funds on Deposit p1
6321 - Homesteaded Property p1
6321 - Homesteaded Property p2
6321 - Homesteaded Property p3
6321 - Insurance p1
6321 - Insurance p2
6321 - Insurance p3
6321 - Insurance p4
6321 - Licenses 2 - p1
6321 - Licenses 2 - p2
6321 - Licenses 2 - p3
6321 - Legal Obligations
6321 - Partnerships p1
6321 - Partnerships p2
6321 - Partnership Property
6321 - Other State Created Exemptions
6321 - Property Rights of 3rd Parties p1
6321 - Property Rights of 3rd Parties p2
6321 - Property Rights of 3rd Parties p3
6321 - Prior Law p1
6321 - Prior Law p2
6321 - Property rights of a nondeclared spouse p1
6321 - Property rights of a nondeclared spouse p2
6321 - Property rights of a nondeclared spouse p3
6321 - Property rights of a nondeclared spouse p4
6321 - Property Seized During Arrest
6321 - Stolen Property
6321 - Rent
6321 - Stock Certificates
6321-Unperfected interests p1
6321-Unperfected interests p2
6321-Unperfected interests p3
6321-Unperfected interests p4
6321-Unperfected interests p5
6321-Tangible property in the taxpayer's possession
6321-Trusts for third parties p1
6321-Trusts for third parties p2
6321-Trusts p1
6321-Trusts p2
6321-Trusts p3
6321-Trusts p4
6321-Trusts p5
6321-Trusts p6
6321-Trusts p7
6321-Property transferred during divorce (2) p1
6321-Property transferred during divorce (2) p2
6321-Real property p1
6321-Real property p2
6321-Real property p3
6321-Real property p4
6321-Real property p5
6321-Real property p6
6321-Real property p7
6321-Real property p8
6321-Relinquishments and disclaimers
6332 - Annotations- Exclusiveness of Remedy
6332 - Annotations- Evidence of Debts
6332 - Annotations- Garnishment
6332 - Annotations- Levy and Demand
6332 - Annotations- Insurance Policy 1 p1
6332 - Annotations- Insurance Policy 1 p2
6332 - Annotations- Insurance Policy 1 p3
6332 - Annotations- Insurance Policy 2
6332 - Annotations- Interest and Penalties
6332 - Annotations- Leasehold Interest
Taxpayer's Property in Possession of Thrid Party p1
Taxpayer's Property in Possession of Thrid Party p2
Taxpayer's Property in Possession of Thrid Party p3
6322-Limitations p1
6322-Limitations p2
6322-Prior law
6322-Relation-back doctrine
6322-Release of liens
6322-State law
6322 - Nevada


Judicial/Nonjudicial Foreclosures

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5.12.4  Judicial/Nonjudicial Foreclosures  (05-28-1998)
Foreclosure Proceedings

  1. Foreclosing mortgagees should be encouraged to request discharges rather than join the United States in a judicial proceeding (IRC 6325(b)(2)). It would be to their advantage to eliminate the Government's right of redemption and to the Government's advantage to eliminate lengthy litigation.
  2. A commitment letter will be furnished to foreclosing parties within thirty days of receipt of their application. Certificates will be issued after receipt of proof that the taxpayer has been removed of right, title or interest in the property.
  3. A commitment letter should not be issued to parties who are nonjudicially foreclosing and have given adequate notice to the Area Director under IRC 7425. If they wish to eliminate the Government's right of redemption, they should be advised of the procedure for obtaining a release of that right. The instructions for application are in
    Publication 487.
  4. If a Federal agency has foreclosed nonjudicially and given adequate notice, they may feel that the lien remains a cloud upon the title. As an accommodation to that agency, a discharge will be issued.  (05-28-1998)
Judicial Foreclosures

  1. Section 2410 of Title 28 of the United States Code is the authority under which the United States consents to be sued in suits to quiet title, to foreclose a mortgage or other lien upon, to partition, to condemn, or interpleader suits, or suits in the nature of interpleader with respect to Property on which the United States has or claims a mortgage or other lien.
  2. A Certificate of Discharge will not be issued during the pendency of litigation without the prior approval of Area Counsel.  (05-28-1998)
Processing Joinders in Judicial Foreclosures

  1. The U.S. Attorney will forward a copy of the summons and complaint, along with a request for the information needed to prepare an answer, to the area director, Attention: Manager, Technical Support, when the United States or the Area Director is joined in a suit to foreclose a mortgage or other lien (Section 2410 (Title 28, USC)).
  2. The request will be promptly screened against the Notice of Federal Tax Lien files to determine the balance due on the lien(s) which involved the United States in the proceedings. In cases where records indicate no outstanding liability, the area director will advise the U.S. Attorney, and the U.S. Attorney will file a disclaimer on behalf of the United States.
  3. In all other cases, Technical Support will establish a file and furnish any information requested by the U.S. Attorney that may be obtained without a formal investigation. The U.S. Attorney will take the legal action deemed appropriate.
  4. In areas where experience has shown that judicial foreclosures are consistently non-productive in terms of surplus sale proceeds or redemption potential, the U.S. Attorney should be encouraged to file the most brief answer possible. This could possibly be as little as an acknowledgment that the liens are still in existence, a reference to attached copies of the NFTL and a statement that the current balances due on the NFTLs will be furnished at such time that the court may request. Once a response has gone to the U.S. Attorney, you are authorized to close the case unless it meets the criteria for a redemption investigation. The U.S. Attorney will continue to receive requested information even though the case is closed.
  5. Technical Support will follow up with the U.S. Attorney or the clerk of the court until a date of sale is established, unless a redemption investigation is not required.
  6. Each area is responsible for establishing the time frame and methodology for following up. The established procedures should strive to provide a minimum of 90 days remaining available to conduct a redemption investigation.  (05-28-1998)
Right to Redeem Property Sold at Judicial Sale

  1. When a foreclosure action, to which the United States has been made a party, involves an encumbrance which is prior in right to the Government's NFTL, the judicial sale has the same effect on the Government's lien as it would on any other junior lien under local law in the place where the property is situated, i.e., the junior tax lien is extinguished on that particular property. The law of the United States with respect to a FTL arising under the Internal Revenue laws allows a period of not less than 120 days or the period allowable for redemption under State law, whichever is longer, to exercise its right of redemption in the case of real property.
  2. If the foreclosure action involves an encumbrance which is junior to the Government's FTL/NFTL, the sale of the property shall be made without disturbing the FTL/NFTL of the United States unless the United States agrees that the property be sold free and clear of its liens, in which event the proceeds are distributed according to the priorities of the interests of the various parties involved.
  3. While the sale of property under 28 USC 2410 by the holder of a superior lien has the effect of discharging property involved from the Federal tax lien/NFTL, the Government's rights have not ended at this point. In many cases the property will be sold for an amount more than sufficient to satisfy the mortgage or other liens which are prior to those of the United States. In such cases action should be taken to obtain the surplus proceeds for application to the taxpayer's account.
  4. This still does not terminate the Government's rights; 28 USC 2410(c) provides that where a sale of real estate is made to satisfy a lien prior to that of the United States, the United States shall have not less than 120 days from the date of sale within which to redeem. This provision gives the Service time to investigate and determine whether it would be to the advantage of the United States to redeem the property so that it might be resold for more than the cost of redemption with the resulting benefit to the Government. A principal consideration in such an investigation entails a determination as to whether the value of the property sold in the foreclosure proceeding is reasonably in excess of the amount required to effect the redemption.
  5. Technical Support generally will not issue a courtesy investigation, for the purpose of determining whether or not to exercise the right of redemption, more than 30 days prior to the scheduled date of sale. An effort should be made to issue the investigation no more than 30 days after the sale is completed, thus allowing the maximum amount of time to complete the redemption process.
  6. Revenue officers will provide to the Manager, Technical Support by the date specified in the Form 2209:
    • a completed Form 4376, Report of Investigation (IRC 7425 or 2410 USC), or
    • memorandum in accordance with IRM,
    • the original history sheet, and
    • any other information requested by the U.S. Attorney.


  7. In cases where it appears that redemption may be feasible, revenue officers will retain:
    • the Form 2209,
    • the original Form 4376 and,
    • send a copy of the Form 4376, and any other information requested by the U.S. Attorney to the Manager, Technical Support by the due date of the Form 2209. The procedures in IRM will be followed after the sale is held.  (05-28-1998)
Nonjudicial Foreclosures

  1. Property can be discharged from the effects of a FTL/NFTL when the holder of a superior lien forecloses by a nonjudicial sale under IRC 7425(b). A foreclosure by a junior lienholder does not affect the FTL/NFTL.  (05-28-1998)
Notice of Nonjudicial Sale

  1. Except for perishable goods, a notice of a sale will be given, in writing, by registered or certified mail or by personal service, not less than 25 days prior to the sale, to the Area Director, Attention: Manager, Technical Support, in the area where the sale is to be held. (See IRC 7425(c)(1)).
  2. Persons seeking information on when or how to submit a notice of nonjudicial sale should be furnished a copy of Publication 786, Instructions for Preparing Notice of Non-judicial Sale of Property and Application for Consent to Sale.
  3. In situations where a notice of Federal tax lien has not been filed or has been filed less than 31 days before the sale, it is not necessary to notify the Area Director's office of a sale of the taxpayer's property. In these situations, the sale shall have the same effect with respect to the discharge of the Federal tax lien/NFTL as provided by local law with respect to junior liens.
  4. When the sale is postponed, the seller of the property is required to give notice of the postponement to the area director in the same manner required under local law with respect to other secured creditors.
  5. Notice of sale is required to be given even though such notice was not originally required because no NFTL was filed less than 31 days before the scheduled date of sale, if the postponed sale date is more than 31 days from the lien filing date.
  6. In cases of forfeiture of land sales contracts, Area Counsel should be consulted to determine if the Service has a redemption right.  (05-28-1998)
Review of IRC 7425 Notice

  1. Prior to determining the adequacy of the 7425 notice Technical Support will consider, based on the information provided with the notice, whether or not there is a need to work a Right of Redemption. Technical Support will follow instructions in IRM
  2. No formal investigation will be required when the items to be sold are consumer goods. A copy of the notice of sale should be given to the person charged with the balance due to decide what further action is required, if any.


    If the case does not appear on IDRS, has been reported currently not collectible or is assigned to ACS, note the Technical Support file.  (05-28-1998)
Adequacy of IRC 7425 Notice

  1. Once it has been determined that an investigation will be worked, only those notices will be reviewed for adequacy.
  2. The notice will be considered adequate if it contains the information shown below.
    1. The name and address of the person submitting the notice of sale.
    2. A copy of each Notice of Federal Tax Lien (Form 668(Y)) affecting the property to be sold, or the internal revenue area named, the name and addresses of the taxpayer, and the date and place of filing of the notice.
    3. With respect to the property to be sold, a detailed description, including location, of the property affected by the NFTL (in the case of real property, the street address, city, and State and the legal description contained in the title or deed to the property and, if available, a copy of the abstract of title); the date, time, place, and terms of the proposed sale of the property; and in the case of a sale of perishable property described in IRM 5.12.4–8, a statement of the reasons the property is believed to be perishable.
    4. The approximate amount of the principal obligation, including interest, due the person selling the property and a description of the other expenses (such as legal expenses, selling costs, etc.) which may be charged against the sale proceeds.


  3. The notice will be considered inadequate if it does not contain the information described in (2) above. Written notification of the items of information which are inadequate will be given to the person who submitted the notice. Use Pattern Letter 1840(DO), Exhibit 5.12.4–1.
  4. In any case where it has been determined that the government has no interest in the property, and the Right of Redemption will not be exercised, no written notification of inadequacy should be sent to the person who submitted the notice.
  5. In case of an inadequate notice, the Area Director may, in his or her discretion, consent to the sale of the property free of the lien or title of the United States even though notice of the sale is not given 25 days prior to the sale.
  6. In any case where the person who submitted a timely notice does not receive written notification that the notice is inadequate more than five days prior to the date of the sale, the notice will be considered adequate.  (05-28-1998)
Acknowledgment of Notice

  1. A written request that the receipt of a notice of sale be acknowledged will be honored if the notice of sale is submitted in duplicate.
  2. The authority to acknowledge IRC 7425 Notices, and to reject them because of inadequacies, is delegated to the Area Director. It is suggested that this authority be redelegated to the Field Territory Manager and Manager, Technical Support.  (05-28-1998)
Disclosure of Adequacy of Notice

  1. The Area Director is authorized to disclose to any person who has a proper interest, whether an adequate notice of sale was given. Disclosure may be made either before or after the sale.
  2. Any person desiring this information should submit to the Area Director a written request which clearly describes the property sold, identifies the applicable NFTL, gives the reasons for requesting the information, and states the name and address of the person making the request.  (05-28-1998)
Notice of Nonjudicial Sale of Perishable Goods

  1. IRC 7425(c)(3) provides that, the notice requirements discussed above, a sale described in IRC 7425(b) of property liable to perish or become greatly reduced in value by keeping, or which cannot be kept without great expense, shall discharge or divest such property of the NFTL or title of the United States if notice of the sale is given, in writing, by registered or certified mail, or by personal service to the Area Director's office, Attention, Manager, Technical Support, before such sale. The proceeds (exclusive of costs) of the sale shall be held as a fund, for not less than 30 days after the date of the sale, subject to the FTL/NFTL and claims of the United States, in the same manner and with the same priority as the liens and claims of the United States had with respect to the property sold.
  2. The notice of sale of perishable goods shall contain the same information required in IRM
  3. If the seller fails to hold the proceeds of the sale in accordance with the provisions of IRC 7425(c)(3), the seller shall be personally liable to the United States for an amount equal to the value of the interest of the United States in the fund. However, even if the proceeds of the sale are not so held by the seller, but all the other provisions are satisfied, the buyer of the property at the sale takes the property free of the liens and claims of the United States.
  4. In the event of a postponement of the scheduled sale of perishable goods, the seller is not required to notify the area director of the postponement. For provisions relating to the authority of the area director to discharge property subject to a NFTL in the case where the proceeds of the sale are held as a fund subject to the liens and claims of the United States, see new IRM 5.1(General).  (05-28-1998)
Definition of Perishable Goods

  1. The term "perishable goods" means any personal property which, in the reasonable view of the person selling the property, is liable to perish or become greatly reduced in price or value by keeping, or cannot be kept without great expense.  (05-28-1998)
Consent of Nonjudicial Sale of Property Free of Lien

  1. A nonjudicial sale of property will discharge or divest the property of the lien or title of the United States if the area in which the sale occurs consents to the sale of the property free of the NFTL or title.
  2. Consent to the sale may be given when adequate protection is afforded the FTL/NFTL or title. Protection is considered adequate if,
    1. taxpayer has no equity in the property,
    2. proceeds of sale are substituted as provided in IRC 6325(b)(3),
    3. taxpayer's interest in property is assigned to the area director,
    4. assignment of proceeds in excess of prior encumbrances is secured, or
    5. any other circumstances acceptable to the area.


  3. The consent will be effective only if given in writing and shall be subject to such limitations and conditions as may be required by the area and may not be given after the date of the sale.
  4. The right to redeem remains even though a consent to the sale is given.
  5. The consent to a sale will be approved by the area director (IRC 7425). It is suggested that this authority be redelegated to the Field Territory Manager and Manager, Technical Support.  (05-28-1998)
Application for Consent

  1. Any person desiring the area director's consent to sell property free of a NFTL or a title derived from the enforcement of a NFTL of the United States in the property shall submit an original and 2 copies of the information required in Publication 786.  (05-28-1998)
Processing Applications

  1. As a general rule, consent may be given without a field investigation if the property is of nominal value, is consumer goods or if the property is real in nature and the Government's interest is less than the criteria established under IRM for redemption investigations.
  2. If the property is real in nature and the Government's interest is more than the redemption investigation criteria, the application for consent should be investigated to determine the most feasible administrative action to be taken.  (05-28-1998)
Determining the Date of Nonjudicial Sale

  1. The date of the sale shall be determined in accordance with the following rules:
    1. in the case of divestment of junior liens on property resulting directly from a public sale, the date of sale is deemed to be the date the public sale is held, regardless of the date under local law on which junior liens on the property are divested or the title to the property is transferred,
    2. in the case of divestment of junior liens on property resulting directly from a private sale, the date of sale is deemed to be the date title to the property is transferred, regardless of the date junior liens on the property are divested under local law, and
    3. in the case of divestment of junior liens on property, not resulting directly from a public or private sale, the date of sale is deemed to be the date on which junior liens on the property are divested under local law.  (05-28-1998)
Form of Consent

  1. When consent to a nonjudicial foreclosure sale is given, the consent letter, prepared in triplicate by Technical Support, will contain the following:
    1. name and address of person requesting consent.
    2. restatement of Internal Revenue Code authority (7425(c)(2)).
    3. detailed description of property to be divested.
    4. description of lien(s) to be divested.
    5. unpaid balance of FTL/NFTL, including interest, lien fees, etc.
    6. place and date NFTL filed.
    7. statement that surplus proceeds are subject to the FTL/NFTL of the United States.
    8. signature of area director or the person delegated.


  2. Copies of the consent letter will be disposed of as follows:
    1. original and duplicate to requestor.
    2. triplicate to be associated with related NFTL.


  3. When it is determined that consent to the sale should not be given, Manager, Technical Support, will prepare in triplicate a letter of nonconsent containing the following:
    1. name and address of person requesting account.
    2. restatement of IRC 7425(c)(2).
    3. recommended alternate procedure (discharge of property, substitution of proceeds of sale, etc.)
    4. signature of Area Director or the person delegated.  (05-28-1998)
Processing Notices of Nonjudicial Sales

  1. Each area, with the concurrence of the Area Director will establish criteria for when to perform a redemption investigation. Consideration should be given to:
    • the dollar amount of the liability,
    • the type of property involved,
    • the economic condition of the particular locality,
    • the practical impact of local law, or
    • any other significant factor.



    The overall objective in establishing the criteria is to ensure that a redemption is made whenever appropriate and that unproductive investigations are kept to a minimum. The productivity of investigations should not necessarily be judged on the basis of the redemptions that such investigations generate. Frequently, our inquiries about possible redemption lead to lien payoffs and releases of our right of redemption.


  2. The only time Technical Support needs to review notices of sale is when the notice meets the criteria in (1) above.
  3. For notices of sale where investigations will be performed, Technical Support should request Area Counsel to provide the redemption periods applicable under local law, which will be used in determining the time available for a revenue officer to conduct the investigation.
  4. A copy of the Notice of Sale will be given to the person charged with the balance due to decide what further action should be taken. If the case does not appear on IDRS, has been reported currently not collectible or is assigned to ACS, the Technical Support file will be noted.
  5. The Manager, Technical Support will issue a Courtesy Investigation (Form 2209) no earlier than 30 days prior to the scheduled date of sale. Whenever possible, efforts by Technical Support should be made to determine if the fair market value of the property in question exceeds the amount required to redeem, prior to the issuance of a Courtesy Investigation. Sources from which this information can be secured varies; but examples include the tax assessor's office and the foreclosing creditor's attorney.
  6. The revenue officer need not attend the sale, unless specifically directed by Technical Support. Attendance should be requested only in unusual cases. The necessary information may generally be secured from the seller or seller's agent immediately after the sale.
  7. In the event the sale produces an amount in excess of prior encumbrances (surplus proceeds), a Notice of Levy, or other written notice of liability, may be used to reach this surplus.
  8. The Report of Investigation (IRC 7425 and 2410 USC) will be prepared to provide a basis for a recommendation to exercise the right of redemption. The redemption period may be as little as 120 days and would therefore require prompt completion of investigations and processing of recommendations.  (05-28-1998)
Right to Redeem Property Sold at Nonjudicial Sale

  1. IRC 7425(d) provides for the redemption by the Government of real property sold in a nonjudicial proceeding when such sale is made to satisfy a lien that is prior to the United States. The period for redemption is 120 days, or the period provided by State law, whichever is longer.  (05-28-1998)
Investigation Guidelines—Judicial/Nonjudicial Sales

  1. If the sale is of real property, the revenue officer will determine whether to recommend the exercise of the right of redemption. Form 4376, Report of Investigation (IRC 7425 or 2410 USC), will be used for this purpose. Upon completion, Form 4376 and the history sheet will be forwarded to Technical Support.
  2. When considering whether to recommend redemption,
    1. determine by observation, independent appraisal (or both), the fair market value of the property, and
    2. search local records to determine what encumbrances are prior to the foreclosing instrument, and the amounts outstanding on such encumbrances.


  3. If the amount bid on the property, plus the amount of all encumbrances prior to the foreclosing interest equals or exceeds the fair market value of the property, the revenue officer should close the investigation and report his or her findings to Technical Support.
  4. When the fair market value reasonably exceeds the sum of the amount paid by the purchaser and the amount of all liens senior to the foreclosing encumbrance, redemption of the property should be considered. At any time while redemption is under consideration, Collection personnel should be alert to whether liens prior to the foreclosing encumbrance are outstanding and, if so, whether arrangements have been made to satisfy or make payments on them. The Service has no authority to use the Revolving Fund to make direct payments on such encumbrances.
  5. Before property is redeemed, it should be reviewed for potential toxic waste problems. If the potential exists, the clean up cost should be considered before the property is redeemed.
  6. If the revenue officer decides tentatively to recommend redemption, he or she will:
    1. notify the purchaser of their rights; and,
    2. locate parties who may be interested in submitting agreements to bid for the property.  (05-28-1998)
Reimbursement for Payments to a Senior Lienor

  1. Regulations under IRC 7425(d) or 2410 of Title 28 provides that whenever redemption is contemplated, the Service must notify the purchaser (or successor in interest) of property at a foreclosure sale that:
    1. the purchaser (or successor in interest) has the right to request reimbursement for certain payments made to a senior lienor; and,
    2. if the Government redeems the property and the purchaser (or successor in interest) has submitted a reimbursement request that meets the requirements of the regulations, he or she has the right to be reimbursed for such payments.


  2. The regulations governing reimbursement for payments to a senior lienor impose certain special requirements on both the Service and the purchaser and, therefore, must be viewed separately from those that govern other amounts to which the purchaser may be entitled if the property is redeemed.
  3. The Service's notice to the purchaser must be hand-delivered or sent by certified or registered mail. Pattern Letter P–597 (Exhibit 5.12.4–2) should be used for this purpose.  (05-28-1998)
Payments to Senior Lienor for Which Reimbursement May Be Requested

  1. A purchaser (or successor in interest) of real property at a foreclosure sale may request reimbursement for:
    1. a payment of principal or interest to a holder of a lien that was, immediately before the foreclosure sale, senior to the lien foreclosed; and/or,
    2. a payment by an escrow agent of a real property tax or special assessment lien which was senior to the lien foreclosed.


  2. No later than 15 calendar days after the Service sends the notice, the purchaser's request for reimbursement must be mailed or delivered to the IRS office specified in the notice.
  3. The request must consist of a written, itemized statement, signed by the claimant, of the amount paid to the senior lienor for which reimbursement is claimed, together with supporting evidence; and, a waiver or other document that will be effective, upon redemption, to discharge the property from any interest in or lien on the property arising under local law with respect to the payment made to the senior lienor; or transfer to the United States any interest or lien.
  4. The Service will not reimburse a purchaser for payment to a senior lienor if the request is not timely mailed or delivered. However, if the purchaser shows reasonable cause, and the Area Director consents, the purchaser may request an extension for a reasonable period to submit, amend or supplement a request for reimbursement. Any such extension request must be submitted before expiration of the applicable period for redemption.
  5. If the right to redeem is not exercised or a request for reimbursement is withdrawn, the revenue officer will promptly return to the purchaser (or successor in interest) the waiver or other document referred to in (2)(b) above by certified or registered mail or by hand delivery.  (05-28-1998)
Review of Requests for Reimbursement

  1. The revenue officer will review the request for reimbursement for adequacy and will promptly request the purchaser to correct any obvious defects. The request will then be referred through Technical Support to Area Counsel for review.
  2. In the event the Service exercises its right to redeem the property, the amount requested for reimbursement will be approved and paid from the Revolving Fund unless the Area Director notifies the purchaser that the Service has denied the amount claimed. Any such notification of denial must:
    1. be sent by certified or registered mail or hand-delivered within 30 calendar days after receipt of the reimbursement request, or 15 calendar days before expiration of the applicable period for redemption, whichever is later; and
    2. state the reason for such denial.


  3. Requests for reimbursement generally will be denied only in cases where:
    1. the reimbursement request was not timely delivered and reasonable cause was not shown; or
    2. the waiver or other document required to be submitted with the reimbursement request was not submitted or was unsatisfactory; or
    3. evidence of payment to a bona fide senior lienor was not submitted or was unsatisfactory.  (05-28-1998)
Soliciting Agreements to Bid

  1. Before recommending redemption of real property, the revenue officer must obtain at least one offer to bid on the property. The revenue officer may mail the Pattern Letter P–1879 (Exhibit 5.12.4–3) to each name shown on the public auction bidders list maintained in his/her area office to solicit these bids. The offer, which must be reduced to a written agreement to bid, should be for an amount that is sufficient to ensure that redemption will be in the Government's interest. The revenue officer should give the prospective bidder the opportunity to inspect the property and to inquire about its condition and title, and should ensure that the agreement is consistent with the method by which the Government intends to sell the property.  (05-28-1998)
Commercial Advertising

  1. The judicious use of commercial advertising to solicit bids may broaden the field of potential bidders at the sale of redeemed property. Advertising should be considered before the property is redeemed and must be approved in advance by the group manager.
  2. The advertisement, regardless of size, should be limited to a statement such as, "Prospective Purchasers of Real Property . . . the Internal Revenue Service is considering the redemption of real property located at (given address) . . .  Parties interested in purchasing the property after redemption should telephone (give number)."
  3. The expense of advertising for agreements to bid will be satisfied from the Program Costs Account, Sub-object Class 2504, Expenses of Seizure and Sale (Exhibit 5 of IRM 1623, Financial Management Code Handbook). The voucher should reflect "Direct Charge to Activity 37."
  4. The taxpayer's account will not be debited for these expenses even if the property is not sold.  (05-28-1998)
Deposit Submitted With Agreement to Bid

  1. To secure performance under an agreement to bid, a minimum deposit of 20 percent of the agreed bid is required. The agreement to bid should be similar to IRM Exhibit 5.12.4–4.
  2. A deposit of less than 20 percent may be secured, with group manager approval, but in no case should the deposit be less than $1,000 unless the deposit amount represents 20 percent of the agreed bid. A decision to accept less than the 20 percent should not be made a matter of routine as there is a greater potential for a bidder to default on an small amount. We want to avoid, at all costs, redeeming property and having to sell it at a loss for lack of a serious bidder.
  3. The deposit should be made by a certified, cashier's or treasurer's check drawn on any bank or trust company incorporated under the laws of the United States or under the laws of any state, territory, or possession of the United States, or by a postal, bank, express, or telegraph money order.
  4. Certificates of Deposit and irrevocable letters of credit are also acceptable if approved in advance by area counsel. However, care should be exercised in accepting and monitoring such instruments because of the period of time in which they are negotiable is generally limited.
  5. Upon receipt of a bid deposit, prepare Form 2276, Collateral Deposit Record, identifying the remittance as an "agreement to bid deposit." The remittance and Form 2276 will be submitted to the cashier for safekeeping.

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