Revenue Procedure 68-10 ¹, 1968-1 CB 758

(Also Part I, Section 7425; 26 CFR 400.5-1.)
Application for release of right of redemption in respect of a tax lien under section 7425(d) of the Internal Revenue Code of 1954.

[Text]

SECTION 1. PURPOSE.

This Revenue Procedure contains the information which is required by a district director in an application by any person with a proper interest for release of the right of redemption under section 7425(d) of the Internal Revenue Code of 1954.

SEC . 2. BACKGROUND.

Pursuant to section 7425(d) of the Code and paragraph (d)(4) of section 400.5-1 of the Temporary Regulations, T.D. 6944, page 854, this Bulletin, under the Federal Tax Lien Act of 1966, P.L. 89-719, C.B. 1966-2, 623, a district director may, in his discretion, issue a release of the right of redemption of the United States with respect to real property sold in a nonjudicial sale described in section 7425(b) of the Code and section 400.5-1(b) of the regulations.

SEC . 3. APPLICATION FOR RELEASE OF RIGHT OF REDEMPTION.

Any person desiring a release of the right of redemption of the United States described in section 7425(d) of the Code with respect to any real property shall submit a dated written application, containing the information set forth in section 4 of this Revenue Procedure, in triplicate to the district director (marked for the attention of the chief, special procedures section) for the internal revenue district in which the real property is located. The application shall be made under penalties of perjury and shall request that the release be issued. The application will be considered only if the applicant has a proper interest in the real property sought to be released.

SEC . 4. INFORMATION REQUIRED IN APPLICATION.

.01 The name and address of the applicant.

.02 A description of the real property with respect to which the release is sought including the following information--

(1) The street address, city, and State and the same description as is contained in the title or deed to the property (or, in the alternative, a copy of the title or deed to the property), and

(2) A description of the use of the property at the time of the nonjudicial sale (such as personal residence, rental property, commercial property, unimproved property, etc.).

.03 The following information with respect to the nonjudicial sale (such as a foreclosure sale, an execution sale, a State or local tax sale, etc.)--

(1) The date the sale was held,

(2) The name and address of the district director to whom notice of sale under section 7425(c) was sent,

(3) The name and address of the purchaser, and

(4) The purchase price.

.04 The name and address of the present owner of the property, if different from the purchaser at the nonjudicial sale described in section 4.03.

.05 A list of the encumbrances upon the real property which are to be considered by the district director in valuing the right of redemption showing for each encumbrance--

(1) The name and address of the holder of the encumbrance,

(2) A description of the encumbrance,

(3) The date the encumbrance arose,

(4) If recorded, the date and place of recordation,

(5) The original principal amount of the encumbrance and the rate of interest,

(6) If known, the principal amount due as of the date of application (with a separate statement of costs and accrued interest), and

(7) The family relationship, if any, of the applicant to the holder of any other encumbrance on the property.

.06 A copy of each Notice of Federal Tax Lien (Form 668) affecting the real property, or the following information with respect to each such Notice of Federal Tax Lien:

(1) The internal revenue district named thereon,

(2) The name and address of the taxpayer, and

(3) The date and place of filing of each notice.

.07 An estimate by the applicant of the fair market value of the real property with respect to which the release is sought.

.08 Any other information which in the opinion of the applicant might have a bearing upon the determination to be made.

.09 The name and address of the applicant's attorney or representative, if any.

.10 The signature of the applicant.

SEC . 5. PAYMENTS.

.01 Since the amount to be paid for issuance of a release under section 400.5-1(d)(4) of the regulations is a matter for determination by the district director after consideration of the facts and law involved, no sum of money or check should be submitted with an application.

.02 In the case of a release under section 400.5-1(d)(4) of the regulations, the district director will, after approval and upon receipt of the amount to be paid to the United States , issue a release. All remittances should be in cash, or by a certified or cashier's check drawn on any bank or trust company incorporated under the laws of the United States, or under the laws of any State or possession of the United States, or by bank, express, telegraph, or United States postal money order. If the remittance is not in the form described in the preceding sentence, the issuance of the release will be held in abeyance pending clearance of the tendered remittance.

SEC . 6. ADDITIONAL INFORMATION.

In addition to the information required to be submitted under section 4 of this Revenue Procedure, after submission of the application the district director may require the applicant to furnish such additional information as the district director may deem necessary.

SEC . 7. APPLICATION FOR RELEASE PURSUANT TO JUDICIAL PROCEEDINGS.

An application for the release of the right of redemption of the United States, where the United States has been properly named a party defendant in a judicial proceeding under section 2410 of Title 28, United States Code, is to be obtained from the office of the United States Attorney for the judicial district in which the property subject to the right of redemption is located.

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¹ Also released as Technical Information Release 963, dated Jan. 26, 19 68.

[74-1 USTC ¶9114]Jerry Bain v. United States of America

U. S. District Court, East. Dist. Tex. , Tyler Div., No. TY-73-CA-70, 9/25/73

[Code Sec. 7425]

Civil suits: Discharge of liens: Redemption by the United States.--A parcel of real property which had been sold at a foreclosure sale on December 5, 1972, was encumbered by three Federal Tax liens and was redeemed by the United States . Since two Federal Tax liens were assessed and filed against the transferors of real property and attached to the property on the date title to the property was reconveyed to them, and a third Federal Tax lien attached subsequent to the reconveyance and prior to the foreclosure sale, the property was encumbered by the tax liens and was subject to redemption. Also, the Government's good faith tender of $30,711.24 within 120 days of the foreclosure sale was sufficient to preserve redemption rights although the check was rejected.

Jerry Bain, 237 S. Broadway, Tyler , Tex. , for plaintiff. Roby Hadden, United States Attorney, Houston Abel, Assistant United States Attorney, Tyler, Tex., for defendant.

Findings of Fact

JUSTICE, District Judge:

The parties have stipulated to the following facts:

(1) On May 4, 19 65, the property that is the subject of this civil action (hereinafter "the King property") was encumbered by a deed of trust in favor of East Texas Savings and Loan Association by its owners, Kenneth R. King and Neva J. King (hereinafter "the Kings"). See Exhibit 1.

(2) On February 24, 19 69, the Kings purported to convey the King property to John Cowan. On December 10, 19 69, Cowan purported to re-convey the King property to the Kings. See Exhibit 5.

(3) As reflected in exhibits 2, 3, and 4, federal tax liens were assessed and filed against the Kings as follows:

                             Assessed                 Filed            Amount

Mr. King ......         
June 19, 19
69         
June 20, 19
69         $8,925.59

Mrs. King .....         
June 19, 19
69         
June 30, 19
69          6,719.96

Mr. & Mrs.

King ..........          May 29, 1972         Oct. 17, 1972          1,039.77

(4) On December 5, 1972 , after giving proper notice to the Internal Revenue Service as provided by the Tax Lien Act of 1966, East Taxes Savings and Loan Association foreclosed its deed of trust on the King property and sold the property, at a foreclosure sale, to Jerry Bain, Esquire (hereinafter "Bain"), for $30,010.00. See Exhibit 6.

(5) On January 8, 1973, Glenn Ray (hereinafter "Ray"), an agent of the Internal Revenue Service, requested by letter certain information from Bain regarding expenses and income in the King property. See Exhibit 7. Bain responded by letter to this request on January 12, 1973 (see Exhibit 8) and responded to a subsequent request for updating of expenses and income on March 26, 1973 (see Exhibit 9). As reflected in both Exhibits 8 and 9, Bain makes the following claims:

1. Cash advanced to East Texas Savings and Loan Association

at foreclosure sale .............................................                        $30,010.00

Six percent interest from Dec. 5, 1972 ..........................                            600.20

2. Preparation of trustee's deed ................................                             30.00

3. Preparation of note and deed of trust to Tyler bank ..........                             30.00

4. Homestead designation ........................................                             25.00

5. Title opinion on property in question ........................                            150.00

6. Recording fees ...............................................                             11.50

7. Fire and Extended Coverage Insurance on the

property in question (annual premium $215)--two

months short-term cancellation rate .............................          58.05

Additional premium ..............................................          37.95              96.00

8. Fair market rental value ($350 per month) ....................         700.00

Additional rental value (2 mo.) .................................         700.00           1,400.00

9. Time and effort expended in his own behalf in connection

with review and research of applicable law and conference

with Internal Revenue Service officials .........................                            500.00

10. Trips to the house to light the furnace and drain

the faucets to protect the property from freezing

(7 trips at $10.00 ea.) .........................................          70.00

2 additional trips ..............................................          20.00              90.00

11. Taxes (contingent liability) as of November 30, 1972 ........                          3,598.44

12. Repair of the roof ..........................................                             40.00

(6) On March 28, 1973, two officers of the Internal Revenue Service appeared at Bain's office and placed a check for $30,711.24 on his desk. Bain refused to accept the check. See Exhibit 10.

(7) On March 28, 1973, Bain filed with the County Clerk of Smith County an affidavit contesting any Internal Revenue Service certificate of redemption on the King property. See Exhibit 11 (Deed Records, volume 1444, page 833).

(8) On March 29, 1973, the United States filed a certificate of redemption with the County Clerk of Smith County . See Exhibit 12.

(9) On April 3, 1973, Bain requested by letter to Ray that the Internal Revenue Service revoke its certificate of redemption. See Exhibit 13.

(10) No tender was made by the defendant to Bain before March 28, 1973; and no tender has been made to Bain since March 28, 1973.

(11) Under the ordinary and customary real estate practice in Texas , the expense of preparing the promissory note, deed of trust, homestead designation, and title opinion are borne by the buyer and the expense of preparing the trustee's deed is borne by the seller.

(12) The property is not needed by the United States for any area crucial to national defense or for other public purposes.

Conclusions of Law

(1) This court has jurisdiction of this civil action to quiet title to property under 28 U. S. C. A. §1346(f) (Supp. 1973). See also 28 U. S. C. A. §2409(a) (Supp. 1973) (waiver of immunity by the United States ).

(2) Assuming for purposes of this action that title to the King property was conveyed by the Kings to Cowan on February 24, 19 69, and from Cowan back to the Kings on December 10, 19 69, the two federal tax liens assessed and filed against the Kings during this interim of Cowan ownership nevertheless attached to the King property on the date title was reconveyed to the Kings, i. e., December 10, 19 69. See Glass City Bank v. United States [45-2 USTC ¶9449], 326 U. S. 265 (1945).

(3) The third federal tax lien assessed and filed against the Kings subsequent to December 10, 19 69, but prior to the foreclosure sale on December 5, 1972, attached to the King property on the date of assessment, i. e., May 29, 1972. 26 U. S. C. A.

(4) Since title to the King property was held by the Kings on the date of the foreclosure sale, December 5, 1972, and the property was encumbered by the three federal tax liens on that date, such property was subject to redemption by the United States . 26 U. S. C. A. §7425.

(5) The tender in good faith of a check for $30,711.24 by Ray to Bain, on March 28, 1973, within 120 days of the foreclosure sale, was sufficient, despite the rejection of such check by Bain, to preserve the redemption rights of the United States . See Equity Mortgage Corporation v. Loftus [70-2 USTC ¶9722], 323 F. Supp. 144 (E. D. Va. 1970) (dispute between United States and purchaser at foreclosure sale over the amount required for redemption does not give rise to a waiver of redemption rights by the United States).

(6) In order to satisfy the amount specified for redemption in 28 U. S. C. A. §2410(d), the United States must pay the following amounts:

1. The actual amount paid by the purchaser at such sale, i. e., $30,010.00;

2. Interest on the amount paid by the purchaser at such sale at 6 percent per annum from the date of such sale;

3. The amount equal to the excess of (A), the expenses necessarily incurred in connection with such property, over (B), the income from such property plus (to the extent such property is used by the purchaser) a reasonable rental value of such property, as follows:

(A) The expenses necessarily incurred in connection with such property:

(i) Note, deed of trust--$30.00

(ii) Homestead designation--$25.00

(Although the matter is not entirely free from doubt, the court concludes that the inclusion of Bain's expense for the promissory note, deed of trust, and homestead designation in financing his purchase that is, under Texas practice, normally incurred by the buyer, is reasonable and is an expense necessarily incurred in connection with the property. Performance of this legal work by Bain, an attorney, for himself as client, does not change the result.)

(iii) Recording fees--$11.50

(iv) Fire and extensive coverage insurance--$96.00

(v) Repair to the roof--$40.00 (By agreement of the United States )

(B) Since the statute allows only those expenses in Section A that exceed the income from the property plus (to the extent such property is used by the purchaser) a reasonable rental value of such property, and since the reasonable rental value claimed by Bain of $1400.00 clearly exceeds the total expenses claimed in Section (A) of $202.50, it is clear that, under Bain's interpretation, he would be entitled to no reimbursement under this third section. Nevertheless, since no evidence was introduced at the hearing that would indicate that Bain either rented or used the property, and since the court agrees with the United States that Bain merely misinterpreted Section (B), the court concludes that it would be unfair to penalize Bain for his misinterpretation.

Thus, all the expenses listed above in Section 3(A) will be included among those to be borne by the United States .

(7) Bain's claim of $30.00 for preparation of a trustee's deed is disallowed on the ground that this expense is not, under Texas practice, normally incurred by the buyer and therefore does not constitute an expense necessarily incurred in connection with the property.

(8) Bain's claim of $150.00 for preparation of a title opinion was not shown by credible evidence at the hearing to be the result of an agreement to pay such sum or the result of an actual out-of-pocket expense and is therefore disallowed.

(9) Bain's claim of $500.00 for conferences with agents of the Internal Revenue and $90.00 for trips to the King property was not shown to be either reasonable or necessarily incurred in connection with the property and are therefore disallowed.