Appointing a Receiver to Protect Value and Innocent Third Parties

The Supreme Court has said that Congress could not have written a broader lien than the federal tax lien.  In addition to the lien, Congress gave the IRS broad powers to take property through levy in IRC 6331.  We can think of these administrative powers as the superpowers bestowed upon the IRS in a Marvel Comics type analogy, yet these powers do not always work against individuals and entities with assets because of the many types of properties owned by taxpayers.

One story that I heard from a colleague when I worked for Chief Counsel that I never could quite believe was the story of a revenue officer (RO) who seized a radio station seriously delinquent in paying its taxes.  As the story was told, the day after the RO seized the station he came over the air the next morning with the farm report, because you can’t just seize and shut down a radio station or TV station because they are part of the emergency broadcast network.  Other types of property create different types of problems for the IRS.  When a nursing home stops paying its taxes and starts to pyramid employment taxes, the IRS faces a difficult choice from a collection perspective because it does not want to seize and operate the facility.  Once, many years ago, a pornography shop in Washington DC was seized for delinquent taxes.  Does the IRS want to sell the merchandise in that store? There are many ways that the property owned by the taxpayer can create significant problems for the IRS.


In addition to the types of property that can cause problems because of its nature, sometimes taxpayers own a network of property that could have significant value that would be destroyed by a typical IRS sale.  In these situations, a question arises of how to preserve value while stopping a taxpayer from pyramiding taxes.  Sometimes the calculus is simply that shutting down the business and stopping the continued accumulation of taxes is better than the difficult task of also working to preserve asset value.  If the taxpayer is working with the IRS collection officer, usually the RO will allow the taxpayer to sell property in a way that maximizes value.  That does not always happen and usually it does not for reasons related to the personalities of the taxpayer and the RO. 

If the taxpayer essentially refuses to work with the RO and if the property holdings are complex, a difficult situation arises.  The best solution may be the use of a court process to operate and appropriately wind down the property rather than selling off assets at fire sale values.  To do this requires a structure that proves an orderly process for dealing with assets.  Bankruptcy provides one orderly process, but putting a taxpayer into involuntary bankruptcy to trigger this process and obtain the appointment of a trustee is not easy and arguably is not appropriate action for the IRS.  The appointment of a receiver provides another solution but finding an appropriate receiver for the type of business(es) involved, getting the receiver appointed, and managing the receiver are difficult processes and not ones that the average IRS collection employee possesses or the attorneys in Chief Counsel, IRS or the Department of Justice Tax Division.  As a result, the IRS rarely uses the remedy of receivership even though it might provide a good solution for maximizing property values or protecting third parties who have entered into contracts with the delinquent taxpayer.

I had a front row seat to the creation and management of a receivership over several years by working in the office next to John McDougal.  I know from the case on which he worked the skill that was necessary for him to succeed in obtaining a receiver and maximizing the return from the receiver’s work.  I remember the day when tenants in one of the properties taken over by the receiver were calling John because of a serious sewer problem at the apartment complex.

With this background I saw with interest a new case in which a receiver was appointed, United States v. Scherer, No. 2:19-cv-03634 (S.D. Ohio April 5, 2021).  The very first line of the case provided a great clue regarding a reason for appointing a receiver:

On December 16, 2005, the United States Government made assessments of federal income taxes against Defendant Ronald E. Scherer for unpaid amounts during tax years 1990, 1991, and 1992. (ECF No. 76 at 10).

The next line provided another great clue in putting together the picture for why the IRS needed a receiver:

At the time, Mr. Scherer owned 100 percent of the stock of Maples Health Care, Inc. (“Maples”) and West Virginia Health Care, Inc. (“WVHI”). (Id. at 10-11). Maples is an operating company that runs an assisted living care and skilled nursing home business in a facility that is owned by WVHI. Together, Maples and WVHI are Mr. Scherer’s most valuable assets.

So, we have an ancient liability the IRS has failed to collect using normal methods and an asset housing elderly residents the IRS does not want to put onto the street.  The perfect recipe for bringing in a receiver.

Continuing into the case the liability owed exceeds $5 million and the IRS had brought a suit to collect in 2014.  All the elements of huge liability that needs lots of attention, failed efforts to collect through normal administrative and judicial means coupled with the type of property at the core of the business causes the IRS to go to all of the trouble to find someone to serve as a receiver and to seek that person’s appointment.  The court goes through the IRS efforts.  It also recounts the resume of the person the IRS has identified to serve as the receiver.  Then it walks through why a simple sale of the property would not best serve the situation before it gets to the legal issues it must consider in making the decision to appoint a receiver.

The opinion lists the many duties, responsibilities, powers, authority and protections of the receiver.  Reading through the list provides a good idea of the complexity of these types of appointments.  Following that list of 28 items, the court lists the 11 terms and conditions of marketing and sale.  Then it lists additional duties of the trustee and the staff before ending with the notifications of violation of the terms and conditions of the order.  When a judge appoints a receiver, the judge knows that the case may create work for the judge for months or years to come.  The same is true for the government lawyers.

Here, there is a need to protect the value of the assets but also to protect a place where many people reside to keep the collection of taxes of the owner of the business from negatively impacting their lives.  These residents were not the problem and need to be consider in a solution.  These situations present complex collection challenges for the IRS.  I wish it well as it seeks to accomplish these dual roles in a challenging environment.  We don’t often think of the IRS as a nursing home operator or the operator of other types of special businesses but sometimes that’s what it takes to get the job done.

Revoking the Release of the Federal Tax Lien and Appointing a Receiver

In United States v. Evseroff the Eastern District of New York rendered an opinion which seems to have brought a case with procedural history spanning almost 15 years and six prior decisions to conclusion. After appointing a receiver to sell Mr. Evseroff’s residence, the property at the heart of this case, the court gave him 35 days to vacate and declined his invitation to exercise equitable powers to stay the appointment of the receiver and the sale of the property.

Since both the revocation of the release of federal tax lien and the appointment of a receiver are unusual procedural actions, with the appointment of a receiver the much more unusual of the two, a discussion of the Evseroff case provides an opportunity to examine two little used procedures and to look at another situation in which the Court declines to exercise its equitable powers to stop a sale.


Mr. Evseroff, a retired attorney, owns a valuable house in Brooklyn. After, or in conjunction with, incurring substantial tax liabilities, he transferred the house to a trust. In an earlier proceeding the Second Circuit, overturning the district court, determined that the transfer of the house to the trust was fraudulent.

Because the property at issue in this case serves as the taxpayer’s personal residence, the IRS has two primary choices as it seeks to get the unpaid taxes out of the taxpayer’s equity in the property. Ignoring for a moment the appointment of a receiver in this case which represents a very rarely used third choice, the normal choices available to the IRS involve seeking to administratively sell the house after an ex parte hearing before a District Court judge or Federal Magistrate as provided in IRC 6334(e)(1) or bringing a suit in federal district court to foreclose the federal tax lien pursuant to IRC 7403. On April 18, 2014, the IRS issued guidance on how to proceed in these cases. The guidance makes clear that the IRS prefers the administrative course and seeks to use foreclosure proceedings (or the appointment of a receiver) only in the more difficult cases.

While this case journeyed through the courts for many years, the IRS improvidently released the notice of federal tax lien filed against Mr. Evseroff. Section 6325(a) provides for lien release where the tax is satisfied or no longer enforceable. Occasionally, the IRS will issue a release when it should not. The opinion contains a suggestion that Mr. Evseroff’s representative may have played an inappropriate role in the release; however, that issue went unresolved and did not impact the outcome of the case.

When the IRS releases a lien improvidently, it has the ability to reverse the release. It must follow the procedures of IRC 6325(f)(2) which involves filing a release revocation form in the same place(s) where it recorded the release. Revoking the release requires little effort; however, the process of releasing the federal tax lien and then revoking the release can have very negative consequences on the priority of the federal tax lien vis a vis other competing creditors.

During the period between the release and its revocation, other creditors, or a purchaser, can intervene to defeat the federal tax lien. Here, that did not appear to happen. The IRS discovered its mistake relatively quickly. No one purchased the property during the period after the release or recorded a mortgage or judgment. So, the improvident release did not harm the IRS. A taxpayer who thinks the federal tax lien has been improvidently released may want to act quickly if they want to get the value of the property without the burden of the lien. Considering the earlier transfer to a trust in this case in an apparent attempt to defeat the federal tax lien, Mr. Evseroff’s failure to sell or encumber the property during the period when the federal tax lien did not attach to the property suggests his earlier action did not evince an effort to defeat the federal tax lien or, if it did, he no longer sought to do so or did not appreciate the window of opportunity.

The federal tax lien release can occur either with the filing of a release with the court(s) where the notice was recorded or it can occur with the passage of time. The more frequent cause of inadvertent releases, which themselves are rare, results from a combination of the failure of the IRS to refile the notice within the appropriate period coupled with the self releasing feature of the notice of federal tax lien. The IRS incorporated the self releasing feature into the notice in the early 1980s because it could not keep up with all of the releases it needed to file in order to meet its statutory obligation to release a lien once the liability was satisfied or became unenforceable. The IRS monitors its liens to determine when they will self release and refiles them when appropriate – usually when something has extended the statute of limitations on collection. It occasionally fails to properly monitor a lien resulting in an unintended release. As mentioned above, fixing the improvident release requires little effort but the release itself can have dire consequences for the priority of the federal tax lien in its competition with other creditors or purchasers of any encumbered property.

Aside from the lien release issue, Mr. Evseroff’s case contains another interesting issue because of the appointment of a receiver. The appointment of a receiver got scant attention in the opinion yet this action by the IRS rarely occurs. Usually, the IRS simply forecloses its lien on the property subject to a lien and sells the property itself. It does not see the appointment of a receiver because of the expense of paying the receiver and, quite often, the difficulty in finding a receiver willing to accept the task and acceptable to the IRS. Getting a receiver appointed also requires a demonstration to the court of the necessity of a receiver. The opinion contained little or no information guiding a reader to an understanding of why it chose to appoint a receiver here. The motion seeking the appointment of a receiver makes it clear that the receiver here is a real estate agent experienced in the Brooklyn. The motion also includes information that the IRS expects to recover more for the property by selling it through a local real estate agent than a typical IRS sale. This approach makes a great deal of sense but is not one I routinely encountered when I worked at Chief Counsel’s office.

I can offer some speculation based on other situations in which I have seen a receiver appointed. Usually, the property needs to have characteristics that will make sale of the property by the IRS difficult or one in which the IRS will obtain a depressed price. About 15 years ago the IRS split the function for sale of property off from an occasional duty of a revenue officer handling the account into a special unit, the Property Appraisal and Liquidation Specialists (PALS) unit. The individuals assigned to the PALS unit do nothing but sell property. As a consequence, they know the complicated rules under the Internal Revenue Code for selling property and the market for such sales better than revenue officers did. Because of the low number of seizures and sales of property following the Revenue Reform Act of 1998, a typical revenue officer might sell property only a handful of times through a career. This specialization brings many benefits while losing very little except for the local market contacts some of the senior revenue officers had developed.

Some types of property exceeds even the capacity of the PALS unit to property market and sometimes even the clear title following a judgment and foreclosure of the lien will still not make it beneficial for the government to conduct a sale. In those circumstances, the IRS should consider the appointment of a receiver by the court because a knowledgeable receiver will better market the property. If done correctly the increased price will benefit the IRS (and the taxpayer) because it will more than pay for the extra expense of the receiver. Typical IRS sales bring in a depressed sales price because of the nature of the sale. A receiver has the opportunity to market the property in a manner much more likely to achieve a fair market value for the property.

Aside from the legal issues presented here involving lien release and the appointment of a receiver, the case also presents another view at the factors a court considers when asked to exercise its equitable powers to postpone foreclosure, or in this case the appointment of a receiver. Mr. Evseroff made the request and the Court relatively easily said no. He argued that his “age, physical condition, history as an attorney, veteran and law-abiding taxpayer, as well as the age of this case” should factor into the Court’s decision to grant a stay. The Court found that unlike the Rodgers case Mr. Evseroff’s wife did not have an interest in the property. It also found that appointing a receiver rather than simply allowing the IRS to foreclose was itself an equitable result. His tax liabilities were over 10 years old (not an unusual age in these types of cases) and they were so old because of his actions to hinder and delay the IRS from collecting. When someone has been found to have made a fraudulent transfer of property, they need to have significant equity on their side in order to persuade a court to exercise its discretion using the Rodgers factors. Mr. Evseroff did not have enough equity to overcome his earlier actions.