IRS Auctions: Notice of Sale, the Minimum Bid and How the Sale Is Run

After a seizure, the property does not go straight to the auction block. IRC 6335 and IRM 5.10.4 and 5.10.5 lay out a sequence: a minimum bid, notice to you, public notice, a sale within a fixed window, and specific rules for what happens if no one bids enough. Knowing that sequence tells you where the remaining decision points are.

For the steps that come before this stage, see how seizure and sale works.

The minimum bid

IRC 6335(e)(1)(A) requires the IRS, before the sale, to set a minimum price below which the property will not be sold, taking into account the expense of the levy and sale. IRM 5.10.4.3 says the primary purpose is to avoid selling the property at substantially less than its forced sale value.

The calculation uses Form 4585, Minimum Bid Worksheet. Under IRM 5.10.4.3.1, it starts with fair market value and applies reductions:

• a forced sale reduction of up to 25 percent, reflecting that the sale is not by a willing seller, is "as is, where is," and comes with no warranty or guarantee of clear title;
• a further reduction of up to 20 percent to reach a reduced forced sale value, based on factors such as past sale experience, the risk of senior lienholders foreclosing, co-ownership, the effect of the redemption period on buyers, and financing availability;
• subtraction of encumbrances senior to the federal tax lien and expected expenses.

The IRM notes that the reduced forced sale value is generally about 60 percent of fair market value. It also caps the minimum bid: under Policy Statement 5-35, the minimum bid cannot exceed the tax liability plus the expenses of sale. For securities traded on major exchanges, the minimum is at least 95 percent of the prior day's closing price.

Your 10-day challenge

The IRS delivers the minimum bid worksheet to you, normally before the public notice of sale. Under IRM 5.10.4.3.4, you have 10 days to respond. If you challenge the property value, you must give the basis for your disagreement, such as personal knowledge of the market or an appraisal, and your own estimate of the value. The IRM says your opinion does not need third-party support, but you must supply both the amount and the basis. If you refuse to give that information, the IRS proceeds as if there were no challenge.

If the IRS agrees in full, it revises the minimum bid. If it agrees in part, it revises the bid and delivers the revised worksheet to you the same way as the original. The IRM also says that if, after reviewing your information, the sale is no longer expected to produce net proceeds, the property must be released.

That last rule is the real reason to challenge. A higher valuation is not just about a better price. If the numbers show the sale cannot produce net proceeds after senior liens and expenses, the seizure no longer makes sense under the IRS's own rules.

And the minimum is enforceable. IRC 6335(e)(4) cross-references IRC 7433 for civil damages if the IRS violates the minimum price requirement.

Notice of sale and the calendar

IRC 6335(b) requires the IRS to give the owner notice of sale and to publish notice in a newspaper published or generally circulated in the county where the property was seized, or, if there is none, to post it at the nearest post office and at least two other public places. The notice must describe the property and the time, place, manner and conditions of sale.

IRM 5.10.4.9 requires the notice of sale to be personally delivered or left at your home or business if you have one in the area, and says delivery to your representative alone is not proper service. Copies go by regular mail to joint owners, lienholders and other parties with recorded interests. For real property, the IRM directs a reasonable effort to deliver the notice personally so you know about your right to redeem.

IRC 6335(d) sets the window: the sale must be held at least 10 days and no more than 40 days after public notice, in the county where the property was seized unless the IRS orders otherwise. The IRM forms are Form 2434, Notice of Public Auction Sale, and Form 2434-A, Notice of Sealed Bid Sale.

Under IRC 6335(e)(2)(F) and IRM 5.10.5.5, the IRS can adjourn a sale, but all adjournments together cannot exceed one month from the date in the original notice.

Sale day

IRC 6335(e)(2)(A) allows only two sale methods: public auction or public sale under sealed bids. IRM 5.10.5.7 describes what is offered: only the taxpayer's right, title and interest, subject to any liens superior to the federal tax lien, "as is" and "where is," without recourse against the United States and without warranty. Bidders can get Form 2434-B, which lists encumbrances the IRS found, with a warning that the IRS does not certify its accuracy.

IRM 5.10.5.9 allows the taxpayer to explain the condition of title to the bidders, and if that explanation suggests more money could be realized by giving bidders time to investigate, the sale may be adjourned. For real property, the IRS tells bidders about the 180-day redemption right and that the right can be conveyed to the buyer if the taxpayer agrees.

When several parcels are offered, IRM 5.10.5.11 says the sale should end once enough parcels are sold to cover the liability plus expenses, and the rest are released to you.

Payment must be in cash, certified or cashier's check, or money order, or by wire where permitted. If the sale terms allow deferred payment, IRC 6335(e)(2)(D) limits the deferral to one month. A buyer who defaults on a full-payment sale triggers an immediate resale. A buyer who defaults on a deferred payment can be sued for the balance with 6 percent interest, or the sale can be declared void, the property resold, and the defaulting buyer's payment forfeited, under IRC 6335(e)(3).

When nobody bids the minimum

IRC 6335(e)(1) answers this directly. If no one offers at least the minimum price, and the IRS has decided that buying the property at the minimum price would be in the government's best interest, the property is declared sold to the United States at the minimum price. Otherwise, the property is released to the owner, the expenses of the levy and sale are added to the tax owed, and the property remains subject to the federal tax lien.

IRM 5.10.5.11.1 adds a third option: adjourning the sale if that is in the interest of the government or the taxpayer.

After the gavel

Under IRC 6338(a), the buyer receives a certificate of sale on full payment; the IRS uses Form 2435. For personal property, IRM 5.10.5.18 says the risk of loss passes to the buyer on payment, and the property is delivered only after full payment.

For real property, the buyer does not get a deed right away. Under IRC 6338(b), a deed issues only if the property is not redeemed within the 180-day period, on surrender of the certificate of sale. Redemption is covered in redeeming property before and after an IRS sale.

Proceeds are applied under IRC 6342, first to expenses, then to the liability, and any surplus is returned to the person entitled to it. IRM 5.10.6.7 says the IRS sends Letter 1762, Notification of Surplus Proceeds, after the sale proceeds are applied.

Your leverage before the sale

Until the property is declared sold, you can still redeem it under IRC 6337(a) by paying the amount due plus expenses. You can request a sale within 60 days under IRC 6335(f) if storage costs are eating the equity. And you can continue to pursue release under IRC 6343 if an installment agreement or other resolution makes release appropriate.

The firm's main site has a general overview of IRS levies. The auction stage feels final, but under the statute, nothing is final until the property is declared sold, and for real estate, not even then.