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Federal Tax Liens

The power to lien, levy, seize, and sell property are powerful tools in the collection of delinquent taxes.  This month’s article deals with tax liens; in April I will discuss levies, property seizures, and sales.

A tax lien arises upon the assessment of a tax liability when notice and demand is made upon the taxpayer and full payment is not made within the notice period.  The assessment, notice, and demand are all essential elements of a tax lien.  By law, the lien attaches ten days after the notice if the debt has not been paid.  It attaches to all of the taxpayer’s real, personal, tangible, intangible and after-acquired property. The filing of a public notice of lien is done in the county courthouse where the taxpayer lives, operates a business, and/or owns real estate.  This is constructive notice to the public and establishes the IRS’ right of priority as against a purchaser, holder of security interest, judgment lien creditor, and mechanic’s lien.

It is important to note that the IRS’ lien rights in a taxpayer’s property are no greater that the rights of the taxpayer in that property.  For example, the IRS would have no lien rights in stolen property.  One must look to state law to determine what rights taxpayers have in property.  Individual ownership of property generally poses no problem, but concurrent ownership (e.g.  tenants in common, or joint tenancy) may. 

Subsequent to the issuance of the lien notice, the taxpayer will get a notification for the IRS that offers a right to a hearing.  At the hearing the taxpayer can contest the lien and its validity.  If the taxpayer is unsuccessful, he or she can appeal the outcome to the U.S. Tax Court or a federal court.

 The law requires that the IRS release the lien within 30 days after the liability is fully paid or the lien becomes legally unenforceable.   Unfortunately, this doesn’t always happen as automatically as it sounds, so the taxpayer may have to be pro-active on his own behalf to get the release.

 I have found that it is quite difficult to get an enforceable tax lien released or subordinated prior to full payment of the tax.

Possible reasons for release or subordination:

 1.  The filing of the lien was premature or defective.

2.  To allow the taxpayer to pay off the debt (e.g. sell property to get funds to pay off the debt).

3.  Withdrawal would be in the best interests of both the taxpayer and the government.

4. The remaining property subject to the lien has a value of at least double the amount of tax owed.




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