IRS Issues PMTAs Regarding Financial Data Requests At CDP Conferences, Lien Discharge in Short Sale Situations
On November 30, 2010, the IRS posted to its website two program manager technical advice memorandums (“PMTA”) regarding CDP conferences and short sale situations. A PMTA is a document issued by the Office of Chief Counsel that contains authoritative legal opinions which is issued to IRS personnel to assist in the administration of certain tax programs. A complete list of all PMTAs issued by the IRS for 2010 can be found here.
In the Services PMTA regarding submission of financial information as a condition to granting face-to-face collection due process conferences, available here, the IRS addressed the issue of whether the Office of Appeals may require a taxpayer to submit financial information as a condition to granting a request for a face-to-face Collection Due Process (“CDP”) conference. The Office of Chief Counsel concluded that the submission of financial information may be required if the “sole purpose of the conference is to discuss a collection alternative, the evaluation of which requires financial information, unless Appeals determines that a face-to-face conference is necessary to explain the requirements for becoming eligible for a collection alternative.”
Though not required, the Office of Appeals will usually grant a taxpayers request for a face-to-face CDP conference if the taxpayer wishes to discuss relevant, non-frivolous issues relating to the unpaid tax or proposed collection action. Additionally, the Office of Appeals may condition a face-to-face CDP conference concerning a collection alternative on the taxpayer becoming eligible for that alternative. However, the IRS may not consider a collection alternative for which financial information is required, such as offers in compromise and partial payment installment agreements, unless the taxpayer has provided the information. As a result of this requirement, it becomes necessary in certain situations to require the submission of financial information prior to a face-to-face CDP conference.
This PMTA was posted on the TRS website the same day the U.S. Tax Court issued its ruling in Golditch v. Commissioner of Internal Revenue. In Golditch, the Tax Court held that while a pre-levy hearing is required under 26 U.S.C. § 6330(b)(1) it does not require that hearing to be face-to-face. Additionally, the Court went on to hold that though the petitioner raised relevant, non-frivolous issues by seeking to ensure that the IRS had met its procedural requirements, nothing in 26 U.S.C. § 6330(b)(1) required a face-to-face meeting merely to obtain this verification.
The Service also issued a PMTA addressing whether as a condition of discharge in a short sale situation the IRS may require that it be paid the sum that otherwise would be applied to junior real estate transfer taxes. The IRS concluded that “where short sale conditions apply, the value of the Services tax lien interest in the subject property is zero. Accordingly, the Service cannot require payment of the sum that otherwise would be applied to junior real estate transfer taxes as a condition of discharge.” A copy of the PMTA can be read in full here.
Generally, the IRS will issue a certificate of discharge where its lien has been satisfied or where the interest of the United States in the property to be discharged has no value. In non-short sale situations, where the lien claim of the bank is fully paid, and the federal tax lien attaches to the surplus proceeds, the IRSs lien must be satisfied before it can be discharged from the property.
However, such a situation does not apply in short sale situations. A short sale occurs when a lienholder agrees to accept less than the total amount owed as satisfaction for its lien claim. The Office of Chief Counsel found that when a senior lien holder uses part of the short sale proceeds to pay real estate transfer taxes it does not create an equity interest on behalf of the taxpayer that is subject to a tax lien; rather, the interest to the United States is valueless. Therefore, the IRS has no authority to require payment of the sum of money that would be applied to junior real estate transfer taxes as a condition to issuing a certificate of discharge.
If you have any questions regarding how these recently posted PMTAs will affect your business or any other tax provision, please contact Fuerst Ittleman at email@example.com.