Whether a taxpayer can designate how payments are applied when seeking a certificate of discharge

Plain-English summary

This Chief Counsel email discusses whether a taxpayer can control (designate) how payments are applied when the taxpayer is seeking a certificate of discharge of a federal tax lien under section 6325. After tracing where the relevant guidance now sits in the Internal Revenue Manual (the discharge topic moved to IRM 5.12.10 in a 2013 overhaul), the author explains the interaction of two principles. Taxpayers can generally designate how voluntary payments are applied, and the IRM says such designations will "normally" be honored. But issuance of a certificate of discharge is discretionary with the IRS (except for discharges under section 6325(b)(4)), and the conditional commitment letter conditions the certificate on the taxpayer's agreement that payments will be applied in the best interest of the government as the Service determines. The practical takeaway offered is a reframing: because the IRS is not the party seeking the discharge, the real question is not whether the IRS will accept the taxpayer's payment designation, but whether the taxpayer is willing to accept the Service's terms (including how payments are applied) in order to obtain a discharge the Service is not otherwise required to give.

Ruling snapshot

• Question: Can a taxpayer designate how voluntary payments are applied while obtaining a discretionary certificate of discharge under section 6325?
• Outcome: advice (generally taxpayers may designate voluntary payments, but a discretionary discharge can be conditioned on the taxpayer accepting the Service's terms that payments be applied in the government's best interest)
• Key authorities: IRC § 6325 (including § 6325(b)(4)); IRM 5.12.10, 5.1.2.8

Full text (IRS public release)

ID:       CCA_2019032515095652
UILC:     6325.03-00

Number: 201916009
Release Date: 4/19/2019
From:
Sent: Monday, March 25, 2019 3:09:56 PM
To:
Cc:
Bcc:
Subject: RE: Certificate of Discharge - Taxpayer's Ability to Designate Payment-s

The IRM language you cited in your memo remained in 5.12.3.20 until in
bounced to 5.12.3.16(5) in 9-2006. There was a huge overhaul of IRM 5.12 in
10-2013. The discharge topic was moved to 5.12.10.

The application of payments in the best interest of the government language was
included in IRM 5.12.10.9(4) (10-2013), and the current version of the IRM reads:

(4) Post all payments received in conjunction with certificate applications
on the
date of receipt.

Note: As stated in the conditional commitment letter, issuance of the
certificate is
conditioned upon the taxpayer’s agreement that payments will be applied
in
the best interest of the government as determined by the Service.

IRM 5.12.10.9(4) (9-2015).

Generally, taxpayers can designate voluntary payments. But I’ve always
understood that to be a general rule. IRM 5.1.2.8 states that “normally”
voluntary payment designations will be honored by the Service. But all
discharges (with the exception of 6325(b)(4) discharges) are at the discretion of
the Service. So while taxpayers may generally designate voluntary payments as
they wish, they cannot if that want a discharge that the Service is not required to
give.
2

So I don’t think the question is “whether the IRS is going to accept the payment
designation in exchange for the certificate of discharge.” After all, the Service is not
the party seeking the discharge. I think the question is whether the taxpayer is
willing to accept the Service’s terms in order to get the discharge.

If you would like to discuss this, please let me know.