IRS NOTICE OF LIEN PERTAINS TO ESTATE TAX, NOT 1040 TAX
SOURCE:  Eddie Kahn

A reader discovered some important new information concerning tax liens. This revelation came about when a former client of American Rights Litigators (ARL) faxed Eddie Kahn a copy of a Privacy Act transcript that he got from the IRS. This kind of transcript is something that nobody seems to have ever heard of; we didn't know it existed. Eddie isn't sure how this former client managed to obtain this Privacy Act transcript, but he got it nevertheless. The guy sent Eddie three pages of his Privacy Act transcript and three pages of his Individual Master File (IMF) transcript regarding the same tax years. He also sent some tax code sections taken from Title 26, the Internal Revenue Code (IRC) along with those documents. 

The interesting thing that Eddie found when looking over the Privacy Act transcript is that it has codes on it just like an Individual Master File (IMF) does. The codes on it are almost the same as the IMF codes; however there is one big difference between the two that is very revealing involving code number 582. The IRS has a pocket transaction code guide that identifies what all these code numbers mean and it shows that code number 582 stands for "lien filed". On this guy's Privacy Act transcript under the code 582, instead of saying "lien filed" it says "election of estate carryover basis on 2032(a) valuation". Well, that doesn't sound much like a tax lien now does it? This wording appeared several times on the three pages of his Privacy Act transcript. However, on all three pages of the former ARL client's IMF transcript for the same tax years that same code 582 number instead says "regular lien". 

The one thing that has always bugged Eddie about the IRS' Notice of Federal Tax Lien is that it always has the designation "1040" for the "type of tax". In other words, when the IRS sends these things out, this "1040" is the type of tax that the IRS claims a person to be liable for. The argument that ARL has often raised with the IRS is that this "1040" is a form number (i.e., Form 1040) and not a specific tax. This is because there is no such thing as a "Form 1040 tax". Thus, a question that they have been asking the IRS for years is, "What specific tax is the client liable for?" 

Well, Eddie said that they have been wrong about the meaning behind this "1040" all these years. The "1040" that appears on the IRS' Notice of Lien for the type of tax does not pertain to Form 1040; it pertains to Section 1040 of the tax code. If you look under Subtitle A of Title 26 there is, lo and behold, a Section 1040. Here is what it says:

Section 1040 - Transfer of certain farm, etc. real property
If the executor of the estate of any decedent transfers to a qualified heir (within the meaning of section 2032A(e)(1)) any property with respect to which an election was made under section 2032A, then gain on such transfer shall be recognized to the estate only to the extent that, on the date of such transfer, the fair market value of such property exceeds the value of such property for purposes of chapter 11 (determined without regard to section 2032A) 

When you go to Section 2032A it says "valuation of certain farm, etc. real property" like Section 1040 does, but now an important change takes place. Instead of talking about something under Subtitle A of the tax code, it is talking about something under Subtitle B of the tax code. Well, Subtitle B pertains to estate and gift taxes, not income taxes. 

Section 2032A - Valuation of certain farm, etc. real property
(a) Value based on use under which property qualifies
(1) General rule
If-
(A) the decedent was (at the time of his death) a citizen or resident of the United States, and
(B) the executor elects the application of this section and files the agreement referred to in subsection (d)(2). 

What this all means is, the 1040 listed as the "type of tax" on the IRS' Notice of Lien is not referencing a Subtitle A income tax; it is referencing a Subtitle B estate tax. When you go to Sections 2001 & 2002 of the tax code under Subtitle B it talks about two things: the imposition of an estate tax and the liability for its payment by the executor. 

Section 2001 - Imposition and rate of tax
(a) Imposition. A tax is hereby imposed on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States. 

Section 2002 - Liability for payment
The tax imposed by this chapter shall be paid by the executor

All of this is telling Eddie that the Notice of Federal Tax Lien is on an alleged estate and they consider you as an executor of the estate. Since an estate tax is imposed upon an executor under Section 1040 of the tax code they consider you liable to pay it. The interesting thing is, in order for you to become the executor of an estate, somebody has to die. This revelation shows us how the IRS has tricked us again. They have misled people into thinking that their Notice of Lien pertains to some kind of Form 1040 tax; yet in reality, it pertains to a Section 1040 tax described under Section 2032A of the tax code. That is an estate tax that has nothing to do with Subtitle A income taxes. 

You can prove this to yourself is by looking at other similar examples. For example, the IRS provision for imposing a frivolous return penalty is found codified under Section 6672 of the tax code. If the IRS has ever hit you with a $500 frivolous return penalty go look at the letter the IRS sent you regarding that. The document will have a spot on there for the "kind of tax", which will say 6672. That is Section 6672 of the tax code. 

ARL plans to incorporate this knowledge into their dealings with the IRS for their clients. They will be challenging the IRS to explain who died, when was it that their client became an executor of an estate and whose estate is it, etc. The IRS is going to have fess up and say one way or another what that "1040" printed on their Notice of Lien is all about. They are going to have to either admit to it being an estate tax under Section 1040 of the tax code or say that it refers to Form 1040. Either way they go it doesn't matter though. If they say it refers to an estate tax, then they will have some tough questions to answer. If they say it refers to Form 1040, then it all comes back to the question of what specific tax since Form 1040 is not a tax. After considering all the above, Eddie feels confident that the "1040" is Section 1040 of the tax code and not Form 1040. There's just too much of a coincidence. Besides, there are many other clues that also point to this conclusion. 

In the IRS' 6209 Manual, the Form 1040 is designated as a tax class 2 or tax class 6 form. Tax class 2 designates it as an information gathering form for Individual Income Tax, although we don't know what tax class 6 is since it is omitted in the IRS manual. Tax class 5 is a designation for estate and gift tax forms, which is what all the 1099, W-2 and W-4 forms are designated as. Doesn't it make more sense now why the IRS wants employers to use all these 1099s, W-2s and W-4s with respect to income they pay out to others? All these forms are designated for estate tax purposes and now here we come to find out that their Notice of Federal Tax Lien pertains to an estate tax lien? There is something fishy going on here. It's no more far-fetched than the IRS trying to seize all kinds of property when their only authority to do so is for stamp taxes; it's just another twisting of things. 

Eddie intends to have this issue raised at collection due process hearings for ARL clients since liens and levies are what those hearings are all about. According to the IRS, the agency must have a lien in place before they can impose a levy as well. So, even with levies ARL will be going right back to questioning the IRS what kind of tax it is that they are trying to collect. Most of the appeals officers in those due process hearings don't want to divulge any information. They are just there to collect documents, let you say your piece and then move on to an adverse determination. However, that's OK because now ARL can entrap these people into admitting what type of tax the Notice of Lien pertains to.

As follow-up on the above article, one of our readers attempted to use the Freedom of Information Act to confirm the above article.  Here is what he wrote us, which confirms the article.

Chris,

26 USC section 1040 has no Listed OMB number in 26 CFR 602.101. That is why I actual did a FOIA request to Office of Management and Budget on November 25, 2003 but did not even get a response from them. Seems like everyone wants something to stay hidden on this issue might be some teeth to this issue.  Below is the original FOIA request that I sent.

David

_____________________________________________________________

Office of Management and Budget 
Darrell A. Johnson, FOIA Officer
6025 New Executive Office Building
Washington, D.C. 20503
(202) 395-5715

RE: FREEDOM OF INFORMATION ACT REQUEST

Dear Disclosure Officer:

 

This is a request under the FREEDOM OF INFORMATION ACT at 5 USC 552 and PRIVACY ACT at 5 USC 552(a). This request does not fall under exception 26 USC 6103 (e)(7). These documents are not sought for any commercial purposes. This is my firm promise to pay fees and costs for locating and duplicating the records requested below.. 

 

Understanding exemptions are discretionary, rather than mandatory, if for some reason you determined any portion of this request to be exempt from release, please furnish the following (a) those portions reasonable segregable after the exempt material is deleted, (b) detailed justification for your discretionary exemption since the overriding objective of the FOIA is to maximize public access to agency records, and (c) provide the name of the official and correct address to whom an administrative appeals should be addressed.

 

I am attesting under the penalty of perjury under the laws of the united States of America 28 U.S.C. 1746(1), that I am a category 5 CFR 294.103(d) requester.

 

Please provide copies of the documents responsive to my request, or state there are no documents responsive to my request. I make this request for copies of documents, in lieu of personal inspection of same

 

Please provide the OMB control Number & a actual copy of the properly registered and OMB approved form for government collection of information from people living within the 50 states relating to 26 U.S.C. 1040 titled “Transfer of certain farm, etc., real property”.

 

Should you decide this request has been sent to the wrong office, please make certain that you forward this to the proper office and notify me of same.

 

I understand the penalties provided in 5 USC 552 (a)(i)(3) for requesting or obtaining access to records under false pretenses.

 

Respectfully submitted,

 

 

Requester, All rights reserved.

 

Enclosure: Photocopy of Drivers License enclosed to provide proof of Identification.

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Last revision: August 14, 2009 08:07 AM
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