Part 5. Collecting Process

Chapter 12. Federal Tax Liens

Section 4. Judicial/Nonjudicial Foreclosures

5.12.4  Judicial/Nonjudicial Foreclosures

5.12.4.1 Foreclosure Proceedings
5.12.4.2 Judicial Foreclosures
5.12.4.3 Nonjudicial Foreclosures
5.12.4.4 Review of IRC 7425 Notice
5.12.4.5 Adequacy of IRC 7425 Notice
5.12.4.6 Acknowledgment of Notice
5.12.4.7 Disclosure of Adequacy of Notice
5.12.4.8 Notice of Nonjudicial Sale of Perishable Goods
5.12.4.9 Consent of Nonjudicial Sale of Property Free of Lien
5.12.4.10 Processing Notices of Nonjudicial Sales
5.12.4.11 Right to Redeem Property Sold at Nonjudicial Sale
5.12.4.12 Investigation Guidelines—Judicial/Nonjudicial Sales
5.12.4.13 Reimbursement for Payments to a Senior Lienor
5.12.4.14 Maintenance Expenses
5.12.4.15 Soliciting Agreements to Bid
Exhibit 5.12.4-1 Letter 1840 (DO)
Exhibit 5.12.4-2 Pattern Letter P–597
Exhibit 5.12.4-3 Letter 1879(P)
Exhibit 5.12.4-4 Pattern Letter P–338

5.12.4.1  (08-11-2006)
Foreclosure Proceedings

1. Foreclosing mortgagees should be encouraged to request discharges rather than join the United States in a judicial proceeding (IRC 6325(b)(2)). It would be to their advantage to eliminate the Government's right of redemption and to the Government's advantage to eliminate lengthy litigation.

2. A commitment letter will be furnished to foreclosing parties within thirty days of receipt of a complete application. Certificates will be issued after receipt of proof that the taxpayer has been divested of right, title or interest in the property.

3. A commitment letter should not be issued to parties who are nonjudicially foreclosing and have given adequate notice to the Director, Advisory, Insolvency and Quality (AIQ) as is delegated in accordance with SB/SE Delegation Order 1.34 IRM 1.11.4 under IRC 7425. If they wish to eliminate the Government's right of redemption, they should be advised of the procedure for obtaining a release of that right. The instructions for application are in Publication 487. Publication 487

4. If a Federal agency has foreclosed nonjudicially and given adequate notice, they may feel that the lien remains a cloud upon the title. As an accommodation to that agency, a discharge will be issued.

5.12.4.2  (08-11-2006)
Judicial Foreclosures

1. Section 2410 of Title 28 of the United States Code is the authority under which the United States consents to be sued in suits to quiet title, to foreclose a mortgage or other lien, to partition, to condemn, or interpleader suits, or suits in the nature of interpleader with respect to property on which the United States has or claims a mortgage or other lien.

2. A Certificate of Discharge will not be issued during the pendency of litigation without the prior approval of Area Counsel.

5.12.4.2.1  (08-11-2006)
Processing Joinders in Judicial Foreclosures

1. The U.S. Attorney will forward a copy of the summons and complaint, along with a request for the information needed to prepare an answer, to the area director, Attention: Manager, Technical Services-Advisory (TS-ADV), when the United States or the area director is joined in a suit to foreclose a mortgage or other lien (Section 2410 (Title 28, USC)).

2. The request will be promptly screened against the Notice of Federal Tax Lien files to determine the balance due on the lien(s) which involved the United States in the proceedings. In cases where records indicate no outstanding liability, the area director will advise the U.S. Attorney, and the U.S. Attorney will file a disclaimer on behalf of the United States.

3. In all other cases, TS-ADV will establish a file and furnish any information requested by the U.S. Attorney that may be obtained without a formal investigation. The U.S. Attorney will take the legal action deemed appropriate.

4. TS-ADV will follow up with the U.S. Attorney or the clerk of the court until a date of sale is established, unless a redemption investigation is not required.

5. Each area is responsible for establishing the time frame and methodology for following up. The established procedures should strive to provide a minimum of 90 days remaining available to conduct a redemption investigation.

6. The revenue officer assigned the investigation will provide to TS-ADV by the date specified on the Form 2209, Courtesy Investigation:

   • a completed Form 4376, Report of Investigation (IRC 7425 or 2410 USC), or

   • a memorandum in accordance with IRM 5.12.5.6.4; IRM 5.12.5.6.4

   • the original history documentation, and

   • any other information requested by the U.S. Attorney

5.12.4.2.2  (08-11-2006)
Right to Redeem Property Sold at Judicial Sale

1. When a foreclosure action, to which the United States has been made a party, involves an encumbrance which is prior in right to the Government's NFTL, the judicial sale has the same effect on the Government's lien as it would on any other junior lien under local law in the place where the property is situated, i.e., the junior tax lien maybe extinguished on that particular property. The law of the United States with respect to a FTL arising under the Internal Revenue laws allows a period of not less than 120 days or the period allowable for redemption under State law, whichever is longer, to exercise its right of redemption in the case of real property.

2. If the foreclosure action involves an encumbrance which is junior to the Government's FTL/NFTL, the sale of the property shall be made without disturbing the FTL/NFTL of the United States unless the United States agrees that the property be sold free and clear of its liens, in which event the proceeds are distributed according to the priorities of the interests of the various parties involved.

3. While the sale of property under 28 USC 2410 by the holder of a superior lien has the effect of discharging property involved from the Federal tax lien/NFTL, the Government's rights have not ended at this point. In many cases the property will be sold for an amount more than sufficient to satisfy the mortgage or other liens which are prior to those of the United States. In such cases action should be taken to obtain the surplus proceeds for application to the taxpayer's account.

4. This still does not terminate the Government's rights; 28 USC 2410(c) provides that where a sale of real estate is made to satisfy a lien prior to that of the United States, the United States shall have not less than 120 days from the date of sale within which to redeem. This provision gives the Service time to investigate and determine whether it would be to the advantage of the United States to redeem the property so that it might be resold for more than the cost of redemption with the resulting benefit to the Government. A principal consideration in such an investigation entails a determination as to whether the value of the property sold in the foreclosure proceeding is reasonably in excess of the amount required to effect the redemption.

5. TS-ADV generally will not work or issue a courtesy investigation, for the purpose of determining whether or not to exercise the right of redemption, more than 30 days prior to the scheduled date of sale. An effort should be made to issue the investigation no more than 30 days after the sale is completed, thus allowing the maximum amount of time to complete the redemption process.

6. The Revenue Officer assigned the investigation will provide to TS-ADV by the date specified in the Form 2209:

   • a completed Form 4376, Report of Investigation (IRC 7425 or 2410 USC), or

   • memorandum in accordance with IRM 5.12.5.6.4,

   • the original history sheet, and

   • any other information requested by the U.S. Attorney.

7. In cases where it appears that redemption may be feasible, the assigned employee will retain:

   • the Form 2209,and

   • the original Form 4376.

8. The assigned employee will send a copy of the Form 4376, and any other information requested by the U.S. Attorney to the Manager, TS-ADV by the due date of the Form 2209. The procedures in IRM 5.12.5.2 IRM 5.12.5.2 will be followed after the sale is held.

5.12.4.3  (08-11-2006)
Nonjudicial Foreclosures

1. Property can be discharged from the effects of a FTL/NFTL when the holder of a superior lien forecloses by a nonjudicial sale under IRC 7425(b). A foreclosure by a junior lienholder does not affect the FTL/NFTL.

5.12.4.3.1  (08-11-2006)
Notice of Nonjudicial Sale

1. Except for perishable goods, See IRM 5.12.4.8.a notice of a sale will be given, in writing, by registered or certified mail or by personal service, not less than 25 days prior to the sale, to the TS-ADV group manager, in the Field Collection Area where the sale is to be held. (See IRC 7425(c)(1)).

2. Persons seeking information on when or how to submit a notice of nonjudicial sale should be furnished a copy of Publication 786, Instructions for Preparing Notice of Non-judicial Sale of Property and Application for Consent to Sale and Publication 4235, TS-ADV Group Addresses.

3. In situations where a notice of Federal tax lien has not been filed or has been filed less than 31 days before the sale, it is not necessary to notify the TS-ADV group managers office of a sale of the taxpayer's property. In these situations, the sale shall have the same effect with respect to the discharge of the Federal tax lien/NFTL as provided by local law with respect to junior liens.

4. When the sale is postponed, the seller of the property is required to give notice of the postponement to the TS-ADV group managers office in the same manner required under local law with respect to other secured creditors.

5. Notice of sale is required to be given even though such notice was not originally required because no NFTL was filed less than 31 days before the scheduled date of sale, if the postponed sale date is more than 31 days from the lien filing date.

6. In cases of forfeiture of land sales contracts, Area Counsel should be consulted to determine if the Service has a redemption right.

5.12.4.4  (08-11-2006)
Review of IRC 7425 Notice

1. Review of the IRC 7425 Notice will be completed by the Technical Services advisor for timeliness and adequacy.

2. If the notice was not submitted timely, the Notice of Tax Lien will not be impacted by the pending sale and the foreclosing lienholder will be required to either:

   • pay the amount of the tax lien in full; or

   • prepare a request to discharge the property from the tax lien.

3. No formal investigation will be required when the items to be sold are consumer goods. A copy of the notice of sale should be given to the person charged with the balance due to decide what further action is required, if any.

   Note:

   If the case does not appear on IDRS, has been reported currently not collectible or is assigned to ACS, the advisor will file accordingly.

5.12.4.5  (08-11-2006)
Adequacy of IRC 7425 Notice

1. Once it has been determined that an investigation will be worked, the notices will be reviewed for adequacy.

2. The notice will be considered adequate if it contains the information shown below.

   1. The name and address of the person submitting the notice of sale.

   2. A copy of each Notice of Federal Tax Lien (Form 668(Y)) affecting the property to be sold, or the IRS area office responsible for filing the lien, the name and addresses of the taxpayer, and the date and place of filing of the notice.

   3. With respect to the property to be sold, a detailed description, including location, of the property affected by the NFTL (in the case of real property, the street address, city, and state and the legal description contained in the title or deed to the property and, if available, a copy of the abstract of title);

   4. the date, time, place, and terms of the proposed sale of the property; and in the case of a sale of perishable property described in IRM 5.12.4.8.1 a statement of the reasons the property is believed to be perishable.

   5. The approximate amount of the principal obligation, including interest, due the person selling the property, and

   6. a description of the other expenses (such as legal expenses, selling costs, etc.) which may be charged against the sale proceeds.

3. The notice will be considered inadequate if it does not contain the information described in (2) above. In the case of an inadequate notice, the Technical Services advisor will provide written notification via Pattern Letter 1840, Notice of Inadequacy. See Exhibit 5.12.4-1.

4. In case of an inadequate notice, the TS-ADV group manager may, at his or her discretion, consent to the sale of the property free of the lien or title of the United States even though notice of the sale is not given 25 days prior to the sale.

5. In any case where the person who submitted a timely notice does not receive written notification that the notice is inadequate more than five days prior to the date of the sale, the notice will be considered adequate.

5.12.4.6  (08-11-2006)
Acknowledgment of Notice

1. A written request that the receipt of a notice of sale be acknowledged will be honored. Acknowledgement can be made through the mailing of a duplicate notice, via facsimile as long as the third party is agreeable to receiving same.

2. In accordance with Service wide Delegation Order 5.4, the authority to acknowledge IRC 7425 Notices, and to reject them because of inadequacies, is delegated to the TS-ADV group manager.

5.12.4.7  (08-11-2006)
Disclosure of Adequacy of Notice

1. The TS-ADV group manager is authorized to disclose to any person who has a proper interest, whether an adequate notice of sale was given. Disclosure may be made either before or after the sale.

2. Any person desiring this information should submit to the TS-ADV group manager a written request which clearly describes the property sold, identifies the applicable NFTL(s), gives the reasons for requesting the information, and states the name and address of the person making the request.

5.12.4.8  (08-11-2006)
Notice of Nonjudicial Sale of Perishable Goods

1. IRC 7425(c)(3) provides that, notwithstanding the notice requirements discussed above, a sale described in IRC 7425(b) of property liable to perish or become greatly reduced in value by keeping, or which cannot be kept without great expense, shall discharge or divest such property of the NFTL or title of the United States if notice of the sale is given, in writing, by registered or certified mail, or by personal service to the TS-ADV group manager before such sale. The proceeds (exclusive of costs) of the sale shall be held as a fund, for not less than 30 days after the date of the sale, subject to the FTL/NFTL and claims of the United States, in the same manner and with the same priority as the liens and claims of the United States had with respect to the property sold.

2. The notice of sale of perishable goods shall contain the same information required in IRM 5.12.4.5. See IRM 5.12.4.5.

3. If the seller fails to hold the proceeds of the sale in accordance with the provisions of IRC 7425(c)(3), IRC 7425(c)(3) the seller shall be personally liable to the United States for an amount equal to the value of the interest of the United States in the fund. However, even if the proceeds of the sale are not so held by the seller, but all the other provisions are satisfied, the buyer of the property at the sale takes the property free of the liens and claims of the United States.

4. In the event of a postponement of the scheduled sale of perishable goods, the seller is not required to notify the TS-ADV group manager of the postponement. For provisions relating to the authority of the TS-ADV group manager to discharge property subject to a NFTL in the case where the proceeds of the sale are held as a fund subject to the liens and claims of the United States, please refer to IRM 5.12.3.12.

5.12.4.8.1  (08-11-2006)
Definition of Perishable Goods

1. The term "perishable goods" means any tangible personal property which, in the reasonable view of the person selling the property, is liable to perish or become greatly reduced in price or value by keeping, or cannot be kept without great expense.

5.12.4.9  (08-11-2006)
Consent of Nonjudicial Sale of Property Free of Lien

1. A nonjudicial sale of property will discharge or divest the property of the lien or title of the United States if the area in which the sale occurs consents to the sale of the property free of the NFTL or title.

2. Consent to the sale may be given when adequate protection is afforded the FTL/NFTL or title. Protection is considered adequate if,

   1. taxpayer has no equity in the property,

   2. proceeds of sale are substituted as provided in IRC 6325(b)(3), IRC 6325(b)(3)

   3. taxpayer's interest in the property is assigned to the Director, AIQ,

   4. assignment of proceeds in excess of prior encumbrances is secured, or

   5. any other circumstances acceptable to the area.

3. The consent will be effective only if given in writing and shall be subject to such limitations and conditions as may be required by the area and may not be given after the date of the sale.

4. The right to redeem remains even though a consent to the sale is given.

5. The consent to a sale under IRC 7425 will be approved by the TS-ADV group manager.

5.12.4.9.1  (08-11-2006)
Application for Consent

1. Any person desiring the TS-ADV Group Manager's consent to sell property free of a NFTL or a title derived from the enforcement of a NFTL of the United States in the property shall submit an original and two copies of the information required in Publication 786, Notice of Nonjudicial Sale of Property and Application for Consent to Sale, as stated in the section titled, Application for Consent.

2. The information required as stated in Publication 786 can be received from an external source, such as a foreclosure attorney electronically, as long as the electronic transmission includes all of the required information and is submitted with a declaration that the information is submitted under the penalties of perjury. An electronic signature is acceptable. Internally, the information can be forwarded electronically from office to office via secured messaging.

5.12.4.9.2  (08-11-2006)
Processing Applications

1. As a general rule, consent may be given without a field investigation if the property is of nominal value, is consumer goods or if the property is real property and the Government's interest is less than the criteria established under IRM 5.12.5.1.1 IRM 5.12.5.1.1 for redemption investigations.

2. If the property is real property and the Government's interest is more than the redemption investigation criteria, the application for consent should be investigated to determine the most feasible administrative action to be taken.

5.12.4.9.3  (08-11-2006)
Determining the Date of Nonjudicial Sale

1. The date of the sale shall be determined in accordance with the following rules:

   1. in the case of divestment of junior liens on property resulting directly from a public sale, the date of sale is deemed to be the date the public sale is held, regardless of the date under local law on which junior liens on the property are divested or the title to the property is transferred,

   2. in the case of divestment of junior liens on property resulting directly from a private sale, the date of sale is deemed to be the date title to the property is transferred, regardless of the date junior liens on the property are divested under local law, and

   3. in the case of divestment of junior liens on property, not resulting directly from a public or private sale, the date of sale is deemed to be the date on which junior liens on the property are divested under local law.

5.12.4.9.4  (08-11-2006)
Form of Consent

1. When consent to a nonjudicial foreclosure sale is given, the consent letter, prepared in triplicate by TS-ADV, will contain the following:

   1. name and address of person requesting consent.

   2. restatement of Internal Revenue Code authority (7425(c)(2)).

   3. detailed description of property to be divested.

   4. description of lien(s) to be divested.

   5. unpaid balance of FTL/NFTL, including interest, lien fees, etc.

   6. place and date NFTL filed.

   7. statement that surplus proceeds are subject to the FTL/NFTL of the United States.

   8. signature of TS-ADV group manager.

2. Copies of the consent letter will be disposed of as follows:

   1. original and duplicate to requestor.

   2. triplicate to be associated with related NFTL.

3. When it is determined that consent to the sale should not be given, the TS-ADV group manager will prepare in triplicate a letter of non-consent containing the following:

   1. name and address of person requesting account.

   2. restatement of IRC 7425(c)(2). IRC 7425(c)(2)

   3. recommended alternate procedure (discharge of property, substitution of proceeds of sale, etc.)

   4. signature of the TS-ADV group manager.

5.12.4.10  (08-11-2006)
Processing Notices of Nonjudicial Sales

1. Generally, Other Investigations (Ols) to investigate nonjudicial sales originate in TS-ADV. Certain situations may warrant revenue officer involvement. When this occurs, the TS-ADV Group Manager will assign the OI to a revenue officer field group. This decision will be contingent upon factors such as geographic feasibility and the need for investigative field work. Due to the need for immediate assignment of these cases, OIs will not be routed through Planning and Special Programs prior to assignment to the field. Revenue officer group managers will be required to treat these OIs as priority work. Nonjudicial foreclosure OIs will be assigned to a revenue officer expeditiously, to ensure that the Government’s interest is not compromised and that the investigation is completed accurately and timely. Nonjudicial foreclosure OIs will be exempt from existing case delivery parameters. Consideration should be given to:

   • the dollar amount of the liability,

   • the type of property involved,

   • the economic condition of the particular locality,

   • the practical impact of local law, or

   • any other significant factor.

2. The only time TS-ADV needs to review notices of sale is when the notice meets the criteria in (1) above.

3. For notices of sale where investigations will be performed, TS-ADV should request Area Counsel to provide the redemption periods applicable under local law, which will be used in determining the time available for a revenue officer to conduct the investigation.

4. A copy of the Notice of Sale will be given to the person charged with the balance due to decide what further action should be taken. If the case does not appear on IDRS, has been reported currently not collectible or is assigned to ACS, the TS-ADV file will be noted.

5. As mentioned previously, the TS-ADV group manager will determine whether to issue an OI to the field or to have the investigation worked by the advisor.

6. The advisor assigned the case will issue an outgoing OI via ICS no earlier than 30 days prior to the scheduled date of sale. TS-ADV will determine if the fair market value of the property in question exceeds the amount required to redeem, prior to the issuance of a Courtesy Investigation. Sources from which this information can be secured varies; but examples include the tax assessor's office and the foreclosing creditor's attorney.

7. The revenue officer need not attend the sale, unless specifically directed by the Technical Services advisor. Attendance should be requested only in unusual cases. The necessary information may generally be secured from the seller or seller's agent immediately after the sale.

8. In the event the sale produces an amount in excess of prior encumbrances (surplus proceeds), use the Form 10492, Notice of Federal Taxes Due to attach any excess proceeds. This form will serve as written notice to the settlement attorney or other third party that the IRS may be entitled to excess proceeds.

9. Issuance of a Form 668 A, Notice of Levy will only be considered when a Letter 1058, Final Notice has been issued for all applicable tax periods and the Service has reason to believe that the "holder" of the excess proceeds is not disbursing the funds in accordance with the legal requirements for disbursement of excess proceeds or if we have knowledge that funds are being disbursed to a creditor junior to the IRS secured position.

10. The Form 4376, Report of Investigation (IRC 7425 and 2410 USC) will be prepared to provide a basis for a recommendation to exercise the right of redemption.

5.12.4.11  (08-11-2006)
Right to Redeem Property Sold at Nonjudicial Sale

1. IRC 7425(d) provides for the redemption by the Government of real property sold in a nonjudicial proceeding when such sale is made to satisfy a lien that is prior to the United States. The period for redemption is 120 days, or the period provided by State law, whichever is longer.

5.12.4.12  (08-11-2006)
Investigation Guidelines—Judicial/Nonjudicial Sales

1. If the sale is of real property, based on assignment of the investigation, either the Technical Services advisor or the revenue officer will determine whether to recommend the exercise of the right of redemption. Form 4376, Report of Investigation (IRC 7425 or 2410 USC), will be used for this purpose. This process may also require assistance from a Property Appraisal and Liquidation Specialist (PALS). The final review and processing of Form 4376 is the responsibility of TS-ADV. When a revenue officer and/or a PALS is involved in the investigation, it is essential that all required documentation be included with Form 4376 when forwarding the results of the investigation to TS-ADV.

2. When considering whether to recommend redemption, the investigator must:

   1. determine by observation, independent appraisal (or both), the fair market value of the property. It is essential that all available sources are used and all geographical factors and economic conditions considered.

   2. utilize all available internal and external research tools, including local property records to determine what encumbrances are prior to the foreclosing instrument, and the amounts outstanding on such encumbrances.

3. If the amount bid on the property, plus the amount of all encumbrances prior to the foreclosing interest equals or exceeds the fair market value of the property, the investigating employee should close the investigation. Revenue officers and/or PALS will report his or her findings to TS-ADV.

4. When the fair market value reasonably exceeds the sum of the amount paid by the purchaser and the amount of all liens senior to the foreclosing encumbrance, redemption of the property should be considered. At any time while redemption is under consideration, Collection personnel should be alert to whether liens prior to the foreclosing encumbrance are outstanding and, if so, whether arrangements have been made to satisfy or make payments on them. The Service has no authority to use the Revolving Fund to make direct payments on such encumbrances.

5. Before property is redeemed, it should be reviewed for potential toxic waste problems. If the potential exists, the clean up cost should be considered before the property is redeemed.

6. If the Technical Services advisor, or revenue officer decides tentatively to recommend redemption, he or she will:

   1. notify the purchaser of their rights; and,

   2. locate parties who may be interested in submitting agreements to bid for the property. NOTE:PALS may become involved in locating prospective bidders.

5.12.4.12.1  (08-11-2006)
Issuance of Investigations

1. Other Investigations (OI) to investigate foreclosures originate in TS-ADV. For detailed information, refer to IRM 5.12.4.10. See IRM 5.12.4.10.

5.12.4.13  (08-11-2006)
Reimbursement for Payments to a Senior Lienor

1. Whenever redemption is contemplated under IRC 7425(d) IRC 7425(d) or 2410(c) of Title 28, before the expiration of the redemption period, the Service must notify the purchaser (or successor in interest) of property at a foreclosure sale that:

   1. the purchaser (or successor in interest) has the right to request reimbursement for certain payments made to a senior lienor; and,

   2. if the Government redeems the property and the purchaser (or successor in interest) has submitted a reimbursement request that meets the requirements of the regulations, he or she has the right to be reimbursed for such payments.

2. The regulations governing reimbursement for payments to a senior lienor impose certain special requirements on both the Service and the purchaser and, therefore, must be viewed separately from those that govern other amounts to which the purchaser may be entitled if the property is redeemed.

3. The Service's notice to the purchaser must be hand-delivered or sent by certified or registered mail. Pattern Letter P–597 (Exhibit 5.12.4–2) See Exhibit 5.12.4-2. should be used for this purpose.

5.12.4.13.1  (08-11-2006)
Payments to Senior Lienor for Which Reimbursement May Be Requested

1. A purchaser (or successor in interest) of real property at a foreclosure sale may request reimbursement for:

   1. a payment of principal or interest to a holder of a lien that was, immediately before the foreclosure sale, senior to the lien foreclosed; and/or,

   2. a payment by an escrow agent of a real property tax or special assessment lien which was senior to the lien foreclosed.

2. No later than 15 calendar days after the Service sends the notice, the purchaser's request for reimbursement must be mailed or delivered to the IRS office specified in the notice.

3. The request must consist of a written, itemized statement, signed by the claimant, of the amount paid to the senior lienor for which reimbursement is claimed, together with supporting evidence and a waiver or other document that will be effective, upon redemption, to discharge the property from, or transfer to the United States, any interest in or lien on the property arising under local law with respect to the payment made to the senior lienor.

4. The Service will not reimburse a purchaser for payment to a senior lienor if the request is not timely mailed or delivered. However, if the purchaser shows reasonable cause, and the TS-ADV Territory Manager consents, the purchaser may request an extension for a reasonable period to submit, amend or supplement a request for reimbursement. Any such extension request must be submitted before expiration of the applicable period for redemption.

5. If the right to redeem is not exercised or a request for reimbursement is withdrawn, the employee involved in the investigation will promptly return to the purchaser (or successor in interest) the waiver or other document by certified or registered mail or by hand delivery.

5.12.4.13.2  (08-11-2006)
Review of Requests for Reimbursement

1. The employee assigned to work the investigation will review the request for reimbursement for adequacy and will promptly request the purchaser to correct any obvious defects. The request will then be referred through TS-ADV to Area Counsel for review.

2. In the event the Service exercises its right to redeem the property, the amount requested for reimbursement will be approved and paid from the Revolving Fund unless the TSTM notifies the purchaser that the Service has denied the amount claimed. Any such notification of denial must:

   1. be sent by certified or registered mail or hand-delivered within 30 calendar days after receipt of the reimbursement request, or 15 calendar days before expiration of the applicable period for redemption, whichever is later; and

   2. state the reason for such denial.

3. Requests for reimbursement generally will be denied only in cases where:

   1. the reimbursement request was not timely delivered and reasonable cause was not shown; or

   2. the waiver or other document required to be submitted with the reimbursement request was not submitted or was unsatisfactory; or

   3. evidence of payment to a bona fide senior lienor was not submitted or was unsatisfactory.

5.12.4.14  (08-11-2006)
Maintenance Expenses

1. If we redeem the property, we will pay an amount equal to the excess of the expenses necessarily incurred to maintain the property over any income realized from the property, plus a reasonable rental value of the property (to the extent the property is used by the purchaser or with his/her consent, or is rented at less than its reasonable rental value);

2. The purchaser has the right to be reimbursed for necessary maintenance expenses/fees incurred during the time he/she is in possession of the property. These expenses/fees are subject to review and approval either in whole or in part by the employee assigned to work the investigation. In addition, the TSGM has final approval in whether these expenses are allowable.

3. Specific maintenance expenses/fees to consider are those utilized to keep the property safe and intact. These expenses and/or fees are categorized within this section of the IRM. Expenses not listed can be considered as long as reasonable business prudence is administered when considering the expense. Examples of expenses to consider are:

   • recording fees;

   • insurance;

   • new locks for security purposes;

   • required repairs needed to fix damage that would directly impact the value of the property during this period of time.

4. We will not consider expenses to enhance the property. Examples of unallowable expenses are:

   • cleaning;

   • utilities, unless required to keep property from being damaged;

   • property taxes, unless foreclosure proceedings are in effect;

5. Any type of maintenance expense/fee claimed must be verified and justified as necessary under the circumstances. Unusual claims should be discussed and agreed to by the manager, and with area counsel, if the legality of the expense is being challenged.

6. Reimbursement will be through the same method as other reimbursable expenses.

7. Please refer to Pattern Letter P-597 See Exhibit 5.12.4-2.

5.12.4.15  (08-11-2006)
Soliciting Agreements to Bid

1. Before recommending redemption of real property, the employee assigned to work the investigation must obtain at least one offer to bid on the property. They may mail the Pattern Letter P–1879 (Exhibit 5.12.4–3) See Exhibit 5.12.4-3. to each name shown on the public auction bidders list. Any bidders list would be maintained by the PALS. The offer, which must be reduced to a written agreement to bid, should be for an amount that is sufficient to ensure that redemption will be in the Government's interest. The employee working the investigation should give the prospective bidder the opportunity to inspect the property and to inquire about its condition and title, and should ensure that the agreement is consistent with the method by which the Government intends to sell the property.

2. Any commencement of the redemption process without a secured or guaranteed bidder is prohibited without prior approval from the TS-ADV Area Manager.

5.12.4.15.1  (08-11-2006)
Commercial Advertising

1. The judicious use of commercial advertising to solicit bids may broaden the field of potential bidders at the sale of redeemed property. Advertising should be considered before the property is redeemed and must be approved in advance by the group manager.

2. The advertisement, regardless of size, should be limited to a statement such as, "Prospective Purchasers of Real Property . . . the Internal Revenue Service is considering the redemption of real property located at (given address) . . .  Parties interested in purchasing the property after redemption should telephone (give number)."

3. The expense of advertising for agreements to bid will be satisfied from the Program Costs Account, Sub-object Class 252D, Expenses of Seizure and Sale (Standard Announcement 200X-01, Financial Management Code Handbook). The voucher should reflect "Direct Charge to PAC 7D."

4. The taxpayer's account will not be debited for these expenses even if the property is not sold.

5.12.4.15.2  (08-11-2006)
Deposit Submitted With Agreement to Bid

1. To secure performance under an agreement to bid, a minimum deposit of 20 percent of the agreed bid is required. Pattern Letter P-338, Agreement to Bid, IRM Exhibit 5.12.4–4 See Exhibit 5.12.4-4.should be used for this purpose.

2. A deposit of less than 20 percent may approved by the TS-ADV group manager with TS-ADV territory manager concurrence. At a minimum, this will include written verification that this was discussed and agreed upon by both levels of management. In no case should the deposit be less than $1,000 unless the deposit amount represents 20 percent of the agreed bid. A decision to accept less than the 20 percent must be made based on the facts of the case, with the understanding that there is a greater risk to the government based on the potential for a bidder to default on a small amount.

3. The deposit should be made by a certified, cashier's or treasurer's check drawn on any bank or trust company incorporated under the laws of the United States or under the laws of any state, territory, or possession of the United States, or by a postal, bank, express, or telegraph money order.

4. Certificates of Deposit and irrevocable letters of credit are also acceptable if approved in advance by area counsel. However, care should be exercised in accepting and monitoring such instruments because of the period of time in which they are negotiable is generally limited.

5. Upon receipt of a bid deposit, prepare Form 2276, Collateral Deposit Record, identifying the remittance as an " agreement to bid deposit." The remittance and Form 2276 will be placed in a secured area in accordance with IRM 1.16.15.2. IRM 1.16.15.2 and with Exhibit 1.16.15-1 and 2.

6. All payments directly related to Judicial and Non-Judicial foreclosures secured by Technical Services staff will be applied using Designated Payment Code (DPC) 57. Payments applied by revenue officers should be applied using DPC 07.

7. Pattern Letter P-338, Agreement to Bid, Exhibit 5.12.4-4 See Exhibit 5.12.4-4.now includes the following statement:"I further understand and agree that if I do not bid at least the amount specified in this agreement, and the property is not sold within the time frame specified above, for at least such an amount, my deposit will be retained pending final determination of damages the government sustained because of default. If damages exceed the amount of the deposit, I will be liable for the excess damages."

8. It is imperative that any potential bidders are fully aware of the provision mentioned in (6) above.

Exhibit 5.12.4-1  (08-11-2006)
Letter 1840 (DO)

Exhibit 5.12.4-2  (08-11-2006)
Pattern Letter P–597

Exhibit 5.12.4-3  (08-11-2006)
Letter 1879(P)

Exhibit 5.12.4-4  (08-11-2006)
Pattern Letter P–338