Proposal to Amend Treasury Regulation Section 301.6303-1 to Conform to Internal Revenue Code Section 6303 and Relevant Court Decisions¹

By A. Lavar Taylor and Grace Alcantara²

EXECUTIVE SUMMARY

Section 6303(a) of the Internal Revenue Code of 1986, as amended (the "Code") requires that the Internal Revenue Service ("IRS") give notice and demand for payment to each person liable for an unpaid tax liability within 60 days after the tax has been assessed. Where the IRS has failed to provide proper notice and demand within 60 days of assessment, courts have held that the IRS may not take administrative collection action to collect the unpaid liability, such as filing a Notice of Federal Tax Lien or issuing levies. In addition, the failure to provide a taxpayer with a timely notice and demand prevents the accrual of the failure to pay penalty under Code section 6651(a)(3) as well as the further accrual of interest under Code sections 6601(c) and 6601(e). Section 301.6303-1(a) of the Treasury Regulations ("Regulation") provides that the IRS’s failure to provide a notice and demand for payment of a tax liability within 60 days after the tax has been assessed, as required by the Code, does not invalidate the notice and demand for payment. Thus, the Regulation purports to allow the IRS to pursue administrative collection action and impose failure to pay penalties and interest, even when they have failed to issue the taxpayer a timely notice and demand for payment.

This Regulation is inconsistent with the statutory language of the Code and court rulings that a failure by the IRS to issue a notice and demand for payment within the 60 day statutory window prevents the statutory tax lien from arising and precludes the IRS from taking levy action. The Regulation could actively mislead taxpayers who do not hire representation by a professional familiar with applicable case law. Taxpayers are improperly charged penalties and interest and are inappropriately subject to administrative collection action by the IRS.