Withdrawal of Notice of Federal Tax Lien in
Certain Circumstances

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 301 [TD 8951] RIN 1545-AV00

TITLE: Withdrawal of Notice of Federal Tax Lien in Certain
Circumstances

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulation.

SUMMARY: This document contains final regulations relating to the
withdrawal of notices of federal tax liens in certain circumstances.
The final regulations reflect changes made to section 6323 of the
Internal Revenue Code of 1986 by the Taxpayer Bill of Rights 2. The
final regulations affect all taxpayers seeking withdrawals of
notices of federal tax liens.

EFFECTIVE DATE: These regulations apply on or after June 22, 2001.

FOR FURTHER INFORMATION CONTACT: Kevin B. Connelly, (202) 622-3630
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to the Procedure and
Administration Regulations (26 CFR part 301) relating to the
withdrawal of notices of federal tax liens under section 6323 of the
Internal Revenue Code (Code). Section 501(a) of the Taxpayer Bill of
Rights 2 (TBOR2), Public Law 104-168, 110 Stat. 1452 (1996),.2
amended section 6323 to authorize the Secretary to withdraw a notice
of federal tax lien in certain limited circumstances. Section 501(a)
also requires the Secretary to notify credit reporting agencies,
financial institutions and creditors of the withdrawal upon the
written request of the taxpayer. On June 30, 1999, a notice of
proposed rulemaking reflecting these changes was published in the
Federal Register (64 FR 35102). Several parties commented on the
notice of proposed rulemaking and a hearing was held on November 30,
1999. The final regulations are adopted with minor changes.

Explanation of Provisions

Section 501(a) of TBOR2 amended section 6323 of the Code by
authorizing the Secretary to withdraw a notice of federal tax lien
under certain conditions and providing that upon written request of
the taxpayer the Secretary will notify any credit reporting agency
and any financial institution or creditor identified by the
taxpayer. These regulations implement section 501(a).

The proposed regulations provided that the district director had the
authority to withdraw a notice of federal tax lien if the district
director determined that one of the four conditions enumerated in
paragraph (b) of the regulations existed. Because of the
reorganization of the Internal Revenue Service (IRS), which
eliminated the district director position, the final regulations
provide that the Commissioner or his delegate (Commissioner) may
withdraw a notice of federal tax lien under the proper conditions.
The notice of federal tax lien is withdrawn by filing a notice of
withdrawal in the office in which the notice of federal tax lien is
filed and providing the taxpayer with a.3 copy of the notice.
Following the withdrawal of a notice of federal tax lien, chapter 64
of subtitle F, relating to collection, is applied as if the IRS had
never filed a notice of federal tax lien. The withdrawal of a notice
of federal tax lien does not affect the underlying tax lien. The
withdrawal simply relinquishes any lien priority the IRS had
obtained under section 6323 of the Code when the IRS filed the
notice being withdrawn.

Paragraph (b) of the regulations provides that the Commissioner has
the authority to withdraw a notice of federal tax lien if one of the
following conditions exists: (1) the filing of the notice of federal
tax lien was premature or otherwise not in accordance with the
administrative procedures of the Secretary; (2) the taxpayer has
entered into an agreement under section 6159 to satisfy the
liability for which the lien was imposed by means of installment
payments, unless the agreement by its terms provides that the notice
will not be withdrawn; (3) the withdrawal of notice will facilitate
collection of the tax liability for which the lien was imposed; or
(4) the withdrawal of notice is in the best interests of the
taxpayer and the United States.

A new example has been added (Example 1) that illustrates when the
Commissioner may withdraw a notice of federal tax lien under
paragraph (b)(1) because the IRS failed to follow administrative
procedures when filing notice. Each example now refers to just one
of the four withdrawal criteria under paragraph (b)(1). In addition,
the examples have been renumbered to correspond to the numbers of
the criteria in paragraph (b) that the examples illustrate.

One of the commenting parties recommended that the final regulations
define.4 the terms "facilitate collection" and "best interests of
the taxpayer and the United States," found in paragraphs (b)(3) and
(b)(4). The final regulations purposely do not define these terms.
Congress intended "to give the IRS discretion to withdraw a notice
of lien" in these circumstances. H.R. Rep. No. 506, 104the Cong., 2d
Sess. 32 (Mar. 28, 1996). The circumstances under which a lien may
be withdrawn are inherently factual. Further refinement of the
statutory terms may unnecessarily limit the IRS's ability to
withdraw a notice where appropriate.

A commenting party asked the IRS to add a paragraph providing that,
if the National Taxpayer Advocate (or his delegate) determines that
a taxpayer is suffering or about to suffer a significant hardship,
the National Taxpayer Advocate (or his delegate) may, in appropriate
cases, issue a taxpayer assistance order (TAO) requiring the
Commissioner to withdraw a notice of federal tax lien. This issue,
concerning whether the National Taxpayer Advocate (or his delegate)
may issue a TAO ordering the withdrawal of a notice, involves an
interpretation of section 7811, and the authority granted to the
National Taxpayer Advocate, which are not pertinent to this
regulation. The final regulations provide that a person may request
the withdrawal of a notice of federal tax lien by writing to the
Commissioner. A written request for withdrawal must include: (1) the
name, current address, and taxpayer identification number of the
person requesting withdrawal of the notice of federal tax lien; (2)
a copy of the notice of federal tax lien affecting the property, if
available; (3) the grounds upon which the withdrawal of notice of
federal tax lien is being requested; (4) a list of the names and
addresses of any credit reporting agency and any financial
institution or.5 creditor that the taxpayer wishes the Commissioner
to notify of the withdrawal of notice of federal tax lien; and (5) a
request to disclose information relating to the withdrawal to the
persons or entities listed.

The Commissioner must consider each taxpayer's request for
withdrawal of notice of federal tax lien and determine whether any
of the conditions authorizing withdrawal exist and whether to issue
a withdrawal. The Commissioner also may issue a notice of withdrawal
based on information received from a source other than the taxpayer.

If the Commissioner grants a request for the withdrawal of notice of
federal tax lien, the taxpayer may supplement the list of credit
reporting agencies and financial institutions or creditors provided
with the request for withdrawal. If no list was submitted with the
request for withdrawal, a list may be submitted after the notice is
withdrawn. A request to supplement the list must be sent in writing
to the Commissioner. The request must contain: (1) the name, current
address, and taxpayer identification number of the person requesting
the notification; (2) a copy of the notice of withdrawal; (3) the
names and addresses of the persons or entities the taxpayer wishes
the IRS to contact; and (4) a request to disclose the withdrawal to
the persons or entities listed.

A commenting party suggested that the IRS send notification to
credit agencies and financial institutions by certified mail.
Certified mail generally is required where there is a statute of
limitations dependent on service. This is not the case with respect
to notification under section 6323(j)(2).

A commenting party also requested that language be added to the
regulations stating that, upon receipt of notification that the IRS
has withdrawn a notice of federal tax lien, a credit agency will be
immune from any damage claim a taxpayer may have against it for its
handling of the notice if the credit agency acts within reasonable
time after receiving notice. The statute simply instructs the IRS to
notify credit agencies of a notice of withdrawal upon request of the
taxpayer. The IRS does not have the statutory authority to shield a
credit agency from a taxpayer's claim for damages due to how the
credit agency handled the notice.

The regulations will be applicable on or after June 22, 2001, with
respect to withdrawals of any notice of federal tax lien occurring
after such date regardless of when the notice was filed.

Special Analyses

It has been determined that this final regulation is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It also has been
determined that section 553(b) of the Administrative Procedure Act
(5 U.S.C. chapter 5) does not apply to these regulations, and
because the collection of information in the regulations is exempt
pursuant to 5 U.S.C. 601(7)(B), the Regulatory Flexibility Act (5
U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the
Internal Revenue Code, this regulation will be submitted to the
Chief Counsel for Advocacy of the Small Business Administration for
comment on its impact on small businesses.

Drafting Information

The principal author of these regulations is Kevin B. Connelly,
Office of Associate Chief Counsel (Procedure and Administration),
Collection Bankruptcy & Summons Division, CC:PA:CBS, IRS. However,
other personnel from the IRS and Treasury Department participated in
their development. List of Subjects in 26 CFR Part 301 Employment
taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes,
Penalties, Reporting and recordkeeping requirements. Final
Amendments to the Regulations Accordingly, the IRS amends 26 CFR
part 301 as follows:

PART 301--PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority citation for part 301 continues to read
in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 301.6323(j)-1 is added to read as follows:
§301.6323(j)-1 Withdrawal of notice of federal tax lien in
certain circumstances.

(a) In general. The Commissioner or his delegate (Commissioner) may
withdraw a notice of federal tax lien filed under this section, if
the Commissioner determines that any of the conditions in paragraph
(b) of this section exist. A notice of federal tax lien is withdrawn
by the filing by the Commissioner of a notice of withdrawal in the
office in which the notice of federal tax lien is filed. If a notice
of withdrawal is filed, chapter 64 of subtitle F, relating to
collection, will be applied as if the withdrawn notice had never
been filed. A copy of the notice of withdrawal will be provided to
the taxpayer. Upon.8 written request by a taxpayer with respect to
whom a notice of federal tax lien has been or will be withdrawn, the
Commissioner will promptly make reasonable efforts to notify any
credit reporting agency and any financial institution or creditor
identified by the taxpayer of the withdrawal of such notice. The
withdrawal of a notice of federal tax lien will not affect the
underlying federal tax lien.

(b) Conditions authorizing withdrawal. The Commissioner may
authorize the withdrawal of a notice of federal tax lien upon
determining that one of the following conditions exists:

(1) Premature or not in accordance with administrative procedures.
The filing of the notice of federal tax lien was premature or
otherwise not in accordance with the administrative procedures of
the Secretary.

(2) Installment agreement. The taxpayer has entered into an
agreement under section 6159 to satisfy the liability for which the
lien was imposed by means of installment payments. Entry into an
installment agreement may not, however, be the basis for withdrawal
of a notice of lien if the installment agreement specifically
provides that a notice of federal tax lien will not be withdrawn.

(3) Facilitate collection. The withdrawal of the notice of federal
tax lien will facilitate the collection of the tax liability for
which the lien was imposed.

(4) Best interests of the United States and the taxpayer--

(i) In general. The taxpayer or the National Taxpayer Advocate (or
his delegate) has consented to the withdrawal of the notice of
federal tax lien, and withdrawal of the notice would be in the best
interest of the taxpayer, as determined by the taxpayer or the
National Taxpayer.9 Advocate (or his delegate), and in the best
interest of the United States, as determined by the Commissioner.

(ii) Best interest of the taxpayer. When a taxpayer requests the
withdrawal of notice of federal tax lien based on the best interests
of the United States and the taxpayer, the National Taxpayer
Advocate (or his delegate) generally will determine whether the
withdrawal of the notice of federal tax lien is in the best interest
of the taxpayer. If, however, a taxpayer requests the Commissioner
to withdraw a notice and has not specifically requested the National
Taxpayer Advocate (or his delegate) to determine the taxpayer's best
interest, a finding by the Commissioner that the withdrawal of
notice is in the best interest of the taxpayer will be sufficient to
support withdrawal. If the Commissioner decides independently of a
request by the taxpayer to withdraw a notice of federal tax lien,
the taxpayer or the National Taxpayer Advocate (or his delegate)
must consent to the withdrawal.

(5) Examples. The following examples illustrate the provisions of
this paragraph

(b):

Example 1. A owes $1,000 in Federal income taxes. The IRS files a
notice of federal tax lien to secure A's tax liability. However, the
IRS failed to follow procedure provided by the Internal Revenue
Manual (but not required by statute) with regard to managerial
approval prior to the filing of a notice of federal tax lien. The
Commissioner may withdraw the notice of federal tax lien because the
filing of the notice was not in accordance with the Secretary's
administrative procedures.

Example 2. A owes $1,000 in federal income taxes. A enters into an
agreement to pay the outstanding federal income tax liability in
installments. The agreement provides that a notice of federal tax
lien may be filed if the taxpayer defaults. A timely pays the
installments each month and has not defaulted in any way. Eleven
months after entering into the installment agreement, the Internal
Revenue Service files a notice of federal tax lien. Noting that
there has been no default, the taxpayer asks the Internal Revenue
Service to withdraw the notice of federal tax lien. In this
situation, the.10 Commissioner may withdraw the notice of federal
tax lien because the taxpayer has entered into an installment
agreement.

Example 3. A is an employee of X Corporation. A notice of federal
tax lien has been filed to secure an outstanding tax liability
against A. A, who has no assets and no other secured creditors, has
agreed to pay the balance of tax due through payroll deductions at a
rate higher than the Internal Revenue Service could obtain through a
wage levy in order to get the notice of federal tax lien withdrawn.
X Corporation has agreed to allow A to enter into a payroll
deduction agreement. In this situation, the Commissioner may
withdraw the notice of federal tax lien to facilitate collection.

Example 4. A is owner of a farm machinery dealership against whom a
notice of federal tax lien has been filed to secure an outstanding
tax liability. A currently is paying the tax liability by an
installment agreement. X Corporation has agreed to provide A with
100 tractors to increase A's inventory if the notice of federal tax
lien is withdrawn. A asks the Internal Revenue Service to withdraw
the notice of federal tax lien. The Commissioner determines that the
larger inventory would enable A to generate additional tractor
sales. Increased sales would enable A to increase the amount of
installment payments and, consequently, reduce the amount of time
needed to satisfy the liability. A, who has no other assets or
secured creditors, has agreed to modify the installment agreement.
The Commissioner may withdraw the notice of federal tax lien because
the withdrawal is in the best interest of the taxpayer and the
United States.

(c) Determinations by the Commissioner. The Commissioner must
determine whether any of the conditions authorizing the withdrawal
of a notice of federal tax lien exist if a taxpayer submits a
request for withdrawal in accordance with paragraph (d) of this
section. The Commissioner may also make this determination
independent of a request from the taxpayer based on information
received from a source other than the taxpayer. If the Commissioner
determines that conditions authorizing the withdrawal are not
present, the Commissioner may not authorize the withdrawal. If the
Commissioner determines conditions for withdrawal are present, the
Commissioner may (but is not required to) authorize the withdrawal.

(d) Procedures for request for withdrawal--(1) Manner. A request for
the.11 withdrawal of a notice of federal tax lien must be made in
writing in accordance with procedures prescribed by the
Commissioner.

(2) Form. The written request will include the following information
and documents--

(i) Name, current address, and taxpayer identification number of the
person requesting the withdrawal of notice of federal tax lien;

(ii) A copy of the notice of federal tax lien affecting the
taxpayer's property, if available;

(iii) The grounds upon which the withdrawal of notice of federal tax
lien is being requested;

(iv) A list of the names and addresses of any credit reporting
agency and any financial institution or creditor that the taxpayer
wishes the Commissioner to notify of the withdrawal of notice of
federal tax lien; and

(v) A request to disclose the withdrawal of notice of federal tax
lien to the persons listed in paragraph (d)(2)(iv) of this section.

(e) Supplemental list of credit agencies, financial institutions,
and creditors--(1) In general. If the Commissioner grants a
withdrawal of notice of federal tax lien, the taxpayer may
supplement the list in paragraph (d)(2)(iv) of this section. If no
list was provided in the request to withdraw the notice of federal
tax lien, the list in paragraph (d)(2)(iv) of this section and the
request for notification in paragraph (d)(2)(v) of this section may
be submitted after the notice is withdrawn.

(2) Manner. A request to supplement the list of any credit agencies
and any.12 financial institutions or creditors that the taxpayer
wishes the Commissioner to notify of the withdrawal of notice of
federal tax lien must be made in writing in accordance with
procedures prescribed by the Commissioner.

(3) Form. The request must include the following information and
documents--

(i) Name, current address, and taxpayer identification number of the
taxpayer requesting the notification of any credit agency or any
financial institution or creditor of the withdrawal of notice of
federal tax lien;

(ii) A copy of the notice of withdrawal, if available;

(iii) A supplemental list, identified as such, of the names and
addresses of any credit reporting agency and any financial
institution or creditor that the taxpayer wishes the Commissioner to
notify of the withdrawal of notice of federal tax lien; and

(iv) A request to disclose the withdrawal of notice of federal tax
lien to the persons listed in paragraph (e)(3)(iii) of this section.

(f) Effective date. This section applies on or after June 22, 2001,
with respect to a withdrawal of any notice of federal tax lien.

Robert E. Wenzel
Commissioner of Internal Revenue

Approved: June 13, 2001

Mark A. Weinberger
Assistant Secretary of the Treasury

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