The revenue officer will determine and document in the case history (Form 13719 is sufficient) the estimated minimum net sale proceeds. The estimate should be prepared after considering input from the PALS regarding both the fair market value (FMV) and the estimated expenses of seizure and sale. If the reduced forced sale value (RFSV) less senior encumbrances and estimated expenses is positive, then there are estimated net sale proceeds to apply to the liability. RFSV is a combination of Forced Sale Value (FSV), see IRM 5.10.4.3.1.3 and Reduced Sale Value (RSV), see IRM 5.10.4.3.1.4. There is no minimum amount required to be applied to the liability. If there are no estimated net sale proceeds to apply to the liability, the revenue officer cannot recommend seizure. Form 13719, Pre-Seizure Checklist and Approval Request, and Form 2434-B, Notice of Encumbrances Against or Interests in Property Offered for Sale, should be used to document:

The revenue officer and PALS should agree when the revenue officer uses a figure different than 60% of FMV in the determination of estimated net sale proceeds.

The first step is to determine the fair market value (FMV) of the property. The revenue officer must document how the FMV of the asset was determined. The FMV should reflect the condition of the property at the time the seizure is being considered. Document the condition of the asset in the case history. The FMV can be influenced by market conditions, age and condition of the asset, zoning requirements, technology, demand, fitness for use, and other factors. Whenever possible, the revenue officer should attempt to personally view the assets to determine the FMV. If the taxpayer is uncooperative access internal and/or external sources to determine the FMV. Some of these sources are:

The FMV must exceed the anticipated expenses per IRC 6331(f). In order to accurately estimate the net proceeds of the sale, the RO should discuss the FMV with the PALS during the RO PALS discussion of the estimated sale expenses and seizure expenses including moving and storage. See IRM 5.10.1.5.3.4, Equity Determination, Expenses of Seizure and Sale. In certain situations, the PALS may need to view the assets with the revenue officer. Examples of such instances include:

When possible, the PALS and the revenue officer should agree on the FMV prior to the seizure. A discussion between the revenue officer and PALS should be held and documented in the case history within 60 days of routing the seizure approval request. After this discussion, the PALS will determine if the property to be sold should be done so via General Services Administration (GSA) outsourcing or a traditional PALS sale. This determination should be made after the PALS has discussed the facts of the case with the PALS GM. See IRM 5.10.4.6.1, Outsourcing to the General Services Administration, for more information on outsourcing to GSA.

In addition to determining the FMV of the asset(s), conduct a complete public records search to verify ownership and identify all recorded encumbrances against and interests in the property including:

Document all encumbrances and interests of record, including federal tax liens, on Form 2434–B, Notice of Encumbrances Against or Interests in Property Offered for Sale (Exhibit 5.10.1-1). If no recorded interests other than the NFTL are found, prepare Form 2434–B listing only the NFTL information.

The records check must be updated no more than 90 days prior to submitting the seizure to the group manager for approval.

At local management option, commercial firms may be contracted to provide title search and encumbrance information reports. The delegation authority to approve the use of commercial title searches is contained in Delegation Order SBSE - 1-23-23 (see IRM 1.2.65.3.8). If the title search is requested in anticipation of a seizure, the cost must be charged to the balance due account as an expense of seizure and sale if the property is seized. A revenue officer or other IRS employee will normally complete the records search. Securing a commercial title report prior to seizure should be limited to those cases involving clouded title or complex lien issues identified in the employee's search of public records. The Group Manager should document the ICS history identifying the reason for the request and concurrence for approval. If public records cannot be checked prior to seizure because of a jeopardy situation, complete this action as soon as possible after the seizure and document the results in the history. Payments for revenue officer commercial title searches must be made through Procurement for Public Sector (PPS). See IRM 5.1.18.4.2, Title Reports, for additional information. Document the case history with the facts that led to the determination that a jeopardy situation existed. See IRM 5.11.3, Jeopardy Levy Without a Jeopardy Assessment, for information on jeopardy situations.

A Notice of Federal Tax Lien (NFTL) should be filed on all open periods and assessments included on Form 668–B, Levy, prior to seizure. NFTLs must be filed even if the modules do not meet the general NFTL filing requirements in IRM 5.12.2, Notice of Lien Determinations. This is not a statutory requirement; however, to maintain priority against other parties, it is IRS policy to file the NFTL on all modules before property is seized.

Ensure that the NFTL is recorded with the appropriate local office prior to seizure. Taxpayers must be notified in writing that the NFTL has been filed within five business days of such filing, and they are entitled to Due Process Appeal rights for the first NFTL filed for each tax period. Due Process rights for NFTLs do not necessarily suspend other collection activity. See IRM 5.1.9.3, Collection Due Process, for appeal procedures.

The priority of the federal tax lien must be determined in relation to other creditors. See IRM 5.17.2.6, Priority of Tax Liens: Specially Protected Competing Interests, and IRM 5.12.2, Notice of Lien Determinations for information on the priority of the tax lien.

The revenue officer should contact all senior and intervening lienholders in order to determine the balance remaining on each encumbrance. Letter 1040, Creditor Information Request, or a similar letter, may be used for this purpose. Follow the requirements for third party contacts for these requests.

For the Tenth Circuit states of Kansas, Oklahoma, Wyoming, Utah, Colorado, and New Mexico, pursuant to Neece v. I.R.S., 922 F.2d 573 (10th Cir. 1990); Nonacquiescence noted in AOD-1992-13, a summons should be used instead of Letter 1040 when the lienholder is a financial institution and any of the following situations exist:

After the fair market value and encumbrances have been verified and documented, determine the estimated expenses of seizure and sale. The FMV must exceed the anticipated expenses per IRC 6331 (f) and (j). Most seizures will require the expenditure of funds. The revenue officer and the PALS should coordinate to manage these costs in order to maximize the proceeds of sale. Do not include travel related expenses of the revenue officer or the PALS as an expense of the seizure. Expenses that should be considered include:

When calculating expenses, consider all expenses expected throughout the seizure and sale process, not just the expenses of seizure. Though the exact amount of storage and advertising expense may not be available, make an estimate with the assistance of the PALS to ensure payment authorizations are not exceeded.

In most cases, the PALS will take custody of the property immediately after the seizure is made, and expenses that arise after the seizure will be addressed by the PALS. Coordination with the PALS during the planning stage is extremely important. Always discuss the potential expenses that may be incurred. In some cases, the PALS may be able to secure a service for less than the revenue officer. In other cases, the revenue officer may be more familiar with local vendors. The PALS will know how long it will take before a sale can be scheduled, so timing of the seizure to reduce the number of storage days should be discussed. Transfer custody of the property to the PALS as soon as possible after the seizure.

Plan for any problems which may arise in connection with the storage and protection of property. Document all actions taken to protect seized property in the case history.

Movable property can usually be best protected at a different location. Whenever possible, government storage facilities in the area should be used; otherwise property should be stored in secure commercial space. If storage, towing, transportation, or other similar charges are expected, the revenue officer, with input provided by the PALS, should determine the expected costs prior to seizure. The PALS should determine whether to move the property themselves or retain the services of a commercial shipper or mover based on the particular circumstances of the case, including:

The use of an armed escort or bonded courier should be considered if the property is of significant value, such as jewelry or gold/silver, and a commercial shipper is not being used to transport the property.

Property such as expensive jewelry or stock certificates must be stored in an IRS office. It should be stored in a safe or locked filing cabinet in a local office to provide sufficient protection.

When the property consists of heavy machinery, large inventories or numerous business assets that are not easily transported, the revenue officer should attempt to make arrangements for storage of the property on the premises. Unless the real estate where the property is located or the leasehold interest is seized in conjunction with the personal property, neither replacing the locks or placing warning tags on the premises is appropriate. IRM 5.10.1.5.3.9, Equity Determination - Leasehold Interests. If the premises are leased, attempt to secure a copy of the lease and determine its status prior to seizure. If necessary, contact Counsel to determine the "rightful occupant." The rightful occupant has the authority to enter into an agreement with the IRS to authorize replacing the locks on doors to the premises. If the seized property will be stored onsite, ensure IRS will retain exclusive access to the premises. The history must be documented as to the identity of the rightful occupant and any authorization of storage or permission to change the locks. The file must contain a written agreement or consent. Exhibit 5.10.1-2, Landlord Agreement. Document an estimate of the cost to move and store the seized property in the ICS history if arrangements cannot be made to store the property at the seizure site.

If the taxpayer has not made rent or lease payments for the time the property will be stored, then a reasonable charge for storage should be arranged. Include only the number of days of actual occupancy by the IRS. In certain situations, IRS may be required to pay rent due to the nature of state law and/or the terms of the rental agreement (see IRM 5.17.3.7.5.1, Expenses of Sale). Consult Advisory when there is doubt as to whether IRS is obligated to pay rent. Exhibit 5.10.1-2 provides an example of a landlord agreement. A landlord agreement may be signed by the Field Compliance Manager (FCM)/Territory Manager(TM), Area Director, or PALS Group Manager.

Changing locks and/or accepting keys from the taxpayer or other party is not appropriate in the seizure of personal residences and rental real property where the tenant is not the taxpayer. The right of possession in this case remains with the owner of the personal residence or tenant occupant for rental property.

If there are indications that the taxpayer or third parties may resist the sale of seized property, additional security may be necessary to prevent vandalism. If private security guards or local police services are necessary, the revenue officer should determine these costs as well.

Generally, there is no authority for the United States to purchase insurance coverage for seized property. However, if unusual circumstances apply and such insurance is necessary, promptly submit a detailed request to the area director. Insurance coverage will be acquired only by an authorized contracting officer through the Facilities Management function.

After approval of the seizure has been secured, follow the procedures in IRM 5.10.2.7, Contracting for Services, as required.

Disclosure issues may arise during the pre-seizure process, particularly when contacting vendors for services. Disclosure for investigative purposes is permissible under IRC 6103(k)(6) and for contracting for services under IRC 6103(n). These contacts are still subject to third party reporting requirements.

IRC 6103(k)(6) allows the revenue officer to "disclose return information to the extent that such disclosure is necessary in obtaining information, which is not otherwise reasonably available, with respect to the correct determination of tax, liability for tax, or the amount to be collected..." . See IRM 11.3.21, Disclosure of Returns and Return Information for Tax Administrative Purposes under IRC 6103(k), for additional guidance. Examples of this type of disclosure include contacts with:

IRC 6103(n) allows the revenue officer to disclose return information "to the extent necessary in connection with the. . .procurement of equipment, and the providing of other services, for purposes of tax administration." See IRM 11.3.24, Disclosures to Contractors, for additional guidance in this context. Examples include contacts with:

If seizure of an individual taxpayer's assets is being considered, revenue officers must be aware of the property that is exempt from levy. These exemptions do not apply to partnerships or corporations. Revenue officers must document the case history as to how the exempt property value was determined. The exempt amounts, indexed annually for inflation, can be found at Seizure Exemption Amounts.

The following exemptions, indexed annually for inflation, apply to individual taxpayers:

The following exemption also applies to individual taxpayers but is not adjusted for inflation:

For seizure of the assets of an individual taxpayer used in the trade or course of business (including vehicles), the revenue officer must document that the taxpayer's other assets are insufficient to satisfy the amount due plus expenses. This type of seizure requires approval by the area director.

Unopened mail is exempt from seizure.

An abstract of title may be required to determine the equity in a documented vessel. An abstract of title provides:

Secure the abstract of title by contacting the National Vessel Documentation Center (NVDC). Provide the NVDC with the official vessel number and as much information as possible about the vessel, e.g., the owner's name, hull number, and the name of the vessel.

Submit the letter with a $25 money order payable to the National Vessel Documentation Center. Debit the expense to the taxpayer's account only if the asset is seized. The abstract of title request should be sent to:

When determining the equity in computer equipment, the revenue officer and the PALS must be aware of the procedures to remove taxpayer data from the hard drive as well as the effects of removal on the value of the asset.

Before selling computer equipment that contains taxpayer information, remove the contents of the hard drive, including the file allocation tables (FAT). If any software present can be resold according to the software licensing agreement, it may be reloaded onto the computer prior to sale. Consult area counsel to determine which software may be reloaded.

Prior to removing the FAT, provide the taxpayer with an opportunity to download all of the information from the hard drive. Procedures are contained in IRM 5.10.3.11.5, Seizures Involving Computer Equipment.

In order to accurately determine the FMV of the computer equipment, consider only those contents of the hard drive that will be available to the purchaser at the time of sale.

If you are considering seizure of personal property of a business and the taxpayer rents the premises from a third party, you must consider the value of the leasehold interest as part of the seizure determination. Review a copy of the lease agreement and determine whether the taxpayer is in default of the lease. If so, determine what actions the lessor has taken to cure the default.

A leasehold interest constitutes property and rights to property and therefore may be seized and offered for sale. A lease can independently have value or, when combined with other assets, contribute to an overall value when the business is appraised as a turn-key or ongoing business concern. One method to determine whether a lease has independent value is to contact a commercial realtor in the area to determine the going rental rate for similar properties. If the taxpayer’s lease reflects a lower rate, the lease may independently have value separate from the other assets. In other circumstances, a leasehold may have value only to specific bidders and not the general market. This presents unique issues (e.g., likelihood of sale) that must be fully considered prior to seizure. For all seizures of leasehold interests, contact and secure a PALS appraisal.

When determining the value of the leasehold interest, consider the potential for the lessor to bring litigation against the tax sale purchaser. Most lease agreements forbid transfer or sub-lease of the property to another party without the approval of the lessor. Such a provision will not prevent the IRS from seizing and selling the taxpayer’s interest in the lease. Generally the IRS does not need the lessor’s approval when a leasehold interest passes by operation of law such as an IRS tax sale. See Stagecrafter’s Club v. District of Columbia Division of American Legion, 110 F. Supp. 481 (D.D.C. 1953), aff’d, 211 F2d 811 (D.C.Cir. 1954)(dictum).

Consult Counsel to determine the priority of delinquent lease payment encumbrances. Consider any delinquent amounts due the lessor when determining the estimated minimum net sale proceeds if they are deemed a priority encumbrance against the lease.

When considering a perishable goods sale, address any potential leasehold interest. Include a valuation of the leasehold interest as part of the PALS appraisal and in the Perishable Goods Criteria and Sale Plan Memorandum. Document why the lease does or does not have value independently or as a part of the aggregate assets of the business. For perishable goods cases, the PALS will complete an appraisal and Perishable Goods Criterion and Sale Plan memorandum as part of the pre-seizure work.

If the taxpayer has a verbal rental agreement, this must also be addressed when considering a perishable goods sale. If the agreement is current, the leasehold may have value. Seizing the leasehold may provide additional time for the IRS to market the assets and /or for a purchaser to remove property. The PALS will address these prospects in the Perishable Goods Criteria and Sale Plan Memorandum.

Consult Counsel with any questions regarding the lease and identification of the rightful occupant. State law and the terms of the lease may affect this determination. For example, a taxpayer current on a lease may be the only rightful occupant and the lessor may not have any standing to negotiate a Landlord Agreement with the IRS when the personal property is the only asset being seized. If the taxpayer is delinquent, determine whether the lessor is considered a rightful occupant. When the IRS enters into a Landlord Agreement with the taxpayer or owner of the property, the Landlord Agreement does not serve as an eviction of the occupant. After the sale, return the possession of the premises to the rightful occupant based on the terms of the Landlord Agreement. For example, the taxpayer is determined to be the rightful occupant of the real estate where the personal property is seized and agrees to a short term Landlord Agreement with the IRS until a sale is completed. At the conclusion of the sale, access and keys to the real estate are returned to the taxpayer and not the owner of the real estate.

When seizing the leasehold interest along with the personal property located at the leased real property location, it is appropriate to change the locks to secure the real estate and personal property. The lessor is due a reasonable amount of rental payments for the time the IRS has possession of the space once any pre-paid rent expires. If provided for under the terms of the taxpayer's lease, the lessor may be entitled to access the premises. Seizure of the leasehold interest early in the month after the current lease payment is made will reduce the expenses associated with the seizure and sale. A leasehold interest cannot be seized for the sole purpose of storing personal property and locking the taxpayer out of the property pending sale. The leasehold interest must be seized only for the purpose of sale.

Use the following description on the Form 2433, Notice of Seizure, when seizing a taxpayer’s leasehold interest and reference the specific lease agreement only when you have determined that the IRS will offer the leasehold interest for sale:

If a taxpayer’s leasehold interest has no independent value, the leasehold interest cannot be seized for the sole purpose of storing personal property or locking the taxpayer out of the property. IRM 5.10.1.5.3.4, Equity Determination - Expenses of Seizure and Sale. If the lease is being seized based on its contribution to the overall value, the PALS’ appraisal must address the value of the lease when seized. If the lease does not independently have value, it may add value when the business is seized as a "turn-key" or ongoing business concern.

A" turn-key" business valuation considers the value of the lease in conjunction with the other tangible assets of the business. In this situation, a purchaser buys all or most of the assets needed to open a business immediately. For example, the inventory and other assets of a retail plumbing supply company are seized along with the lease, stored on location and offered for sale under IRC 6335. The sale is held in 45 days. The day after the sale the purchaser opens the doors for business.

An ongoing business concern valuation considers the value of the lease in conjunction with all assets (both tangible and intangible). The intangibles that flow with the sale of the company may include the established customer base, goodwill, and performance on outstanding contracts. For example, the personal property, lease, trade name, telephone number, rights to current advertising and domain name are seized from a well known day spa located in an affluent area. The personal property itself has a value of $15,000. If the business can operate and retain its walk-in customer base, perform on its pre-sold vacation packages, retain its sub-contractor staff, and maintain its reputation and goodwill, it has an ongoing business valuation of $125,000. These intangibles are not something you have seized, but their contribution adds to the FMV of the business. The sale is held in 22 days. The purchaser re-opens the doors that afternoon with the previous staff in place.

When recommending seizure of a business based on "turn-key" or ongoing concern value, a PALS appraisal is completed at the PALS discretion.

To determine the fair market value (FMV) of digital assets, Revenue Officers (ROs) should use the average of up to three exchanges (the availability of which is dependent on the type of digital assets being seized), on the same date to determine the exchange rate in U.S. dollars. The date, time and exchange information should be clearly documented in the ICS history.