PMTA Explains Time Limit During Which IRS Can Return Wrongfully Levied Funds

Program Manager Technical Assistance 2010-66

In Program Manager Technical Assistance (PMTA), IRS has explained the period of time during which IRS can return payments that were erroneously issued from a pension administrator to deceased taxpayers, then levied on by IRS. The PMTA concludes that IRS lacks the authority to return the wrongfully levied funds because the pension administrator didn't file administrative claims during the nine-month period following the levies under Code Sec. 6343(b) or file a wrongful levy action within the period prescribed by Code Sec. 6532.

Background. If IRS determines that property was wrongfully levied on, it can administratively return the specific property at any time. It can also return within nine months from date of levy the amount of money levied on, the amount received from sale of levied-on property or (in case of property bid in by IRS) the IRS minimum bid price for the property, or the amount received from resale of property bid in by IRS if that is larger than the minimum bid price. (Code Sec. 6343(b))

An administrative claim for return of wrongfully levied funds must be in writing, submitted within nine months of the levy, and sent to the IRS official, office, and address specified in IRS Pub. 4528 (Making an Administrative Wrongful Levy Claim Under Internal Revenue Code (IRC) Section 6343(b)). It also must include:

... the name and address of the person submitting the request;

... a detailed description of the property levied on;

... a description of the claimant's basis for claiming an interest in the property levied on; and

... the name and address of the taxpayer, the originating IRS office, and the date of the levy as shown on the notice of levy or levy form. (Reg. §301.6343-2)

If there are deficiencies in the content of the request, IRS must actively seek to cure them or they will be deemed cured. However, if the request is not submitted to the proper office, as specified in Pub. 4528, it won't be effective. (Reg. §301.6343-2(c)) The reference to Pub. 4528 and the statement of ineffectiveness were also included in the predecessor temporary reg which was in effect for claims submitted from Aug. 21, 2007, until July 8, 2008, when the final reg became effective.

For requests for return of wrongfully levied property filed before Aug. 21, 2007, the regs provided that the written request was to be addressed to the IRS district director, even though that position no longer existed in 2007. However, Pub. 4528, which was in effect until November 2007, directed claimants to mail their requests to the Advisory Group (or its predecessors) in various locations depending on where the levy or seizure was made.

Alternatively, instead of filing an administrative claim, a third party may bring a wrongful levy action under Code Sec. 7426 within nine months from the date of the levy. (Code Sec. 6532(c)(1)) However, if the third party made a timely written request for the return of the property, the nine-month period is extended for a period of 12 months from the date of the filing of the request or six months from the date IRS rejects the request, whichever comes first. (Code Sec. 6532(c)(2)

Facts. A pension administrator erroneously issued pension payments to eight taxpayers after their respective dates of death because their deaths weren't timely reported to it. These payments were levied on by IRS during 2007 to 2010 pursuant to notices of levy. The pension administrator asserted that, because the taxpayers were no longer entitled to the pension payments upon their deaths, they had no interest in the wrongfully issued payments to which a levy could attach. Thus, the pension administrator claimed that IRS's levies were wrongful and sought a return of the levied funds.

The pension administrator sent written reimbursement requests for four of the taxpayers to IRS to the attention of the Automatic Collection System Office over the period from 2007 to 2009, but didn't receive any response. It then e-mailed its requests for the remaining taxpayers in 2010 to an individual at IRS's Wage and Investment Automated Collection System and Automated Collection System Support.

Conclusion. The PMTA holds that, although Code Sec. 6343 and the underlying reg don't directly address IRS's authority to return wrongfully levied funds when a timely administrative claim is submitted to the correct office but IRS fails to act on it, the overall statutory scheme shows that Congress intended to limit the time period in which IRS is authorized to return wrongfully levied funds. For instance, under Code Sec. 6343(b), IRS can return funds only within nine months of the date of levy, whereas property can be returned at any time. Thus, the PMTA concludes that IRS lacks the authority to return wrongfully levied funds after the expiration of the time period for bringing a wrongful levy suit, even if the third party timely and properly submitted an administrative claim.

The PMTA concludes that the administrative wrongful levy claims relating to seven of the taxpayers were not effective because the pension administrator submitted them to the wrong office, and several of those were also untimely submitted more than nine months after the wrongful levies occurred. However, for the wrongful levies relating to two of those taxpayers, the nine-month period to submit an administrative claim remained open, so the pension administrator could submit administrative claims for levied funds which IRS would be authorized to return.

For the remaining taxpayer, even though the administrative claim was arguably effective under the regs applicable to pre-Aug. 7, 2007 claims (which contained outdated mailing information), the pension administrator failed to timely file a wrongful levy suit in federal district court after IRS failed to administratively address the claim. Therefore, because the time period for bringing a wrongful levy action has expired, the pension administrator is not entitled to a return of the wrongfully levied funds.

References: For return of wrongfully levied property, see FTC 2d/FIN ¶V-5127; United States Tax Reporter ¶63,354.06; TaxDesk ¶902,005; TG ¶71953.